When “trees grow to the sky,” investors are confident in their ability to pick investments and dabble in alternatives. But when those trees begin to fall, and values plunge, it’s time to ask, “What would the titans of the financial services industry say today?”

After all, when Warren Buffett parks cash in U.S. Treasury bills, everyone pays attention.   

I asked my friend and colleague, Paul R. Samuelson, how he thought other legends of financial services would counsel advisors and their jittery clients today.

Paul’s father was Paul A. Samuelson, a Nobel laureate in economics, whose work inspired Vanguard founder Jack Bogle’s creation of the first index mutual fund available to the general public. The elder Samuelson also kept in touch with Buffett.

“Buy and hold, and don’t pay more in taxes than you need to,” Paul said of the advice his father and their contemporaries gave whenever anyone asked—as they often did. “Don’t try to time the market, and don’t panic when investments are down.”

Paul recalled that his father urged family members to invest early in Berkshire Hathaway, which bought and sold concentrated stock positions.

The investments were tax efficient—investment gains and income were treated differently as an insurance company—and his father was pleased not to receive dividends and to have bearer’s certificates, signed by Buffett, that didn’t require a custodian.

As proof of the time-tested mantra to “buy and hold,” Paul shared an experience of his own: A 401(k) he opened early in his career had a balance of $17,000 when he moved on to another job. That was more than 30 years ago. When he unearthed the account, it had grown to $700,000.

“Buy and hold works,” he said.

What should advisors tell clients who want to dump stocks?
“Many clients don’t have to lower their risk if they’re invested in diverse stocks and investment-grade bonds. Assure them of that,” Paul said, adding that “advisors might need to explain how unusual today’s circumstances are,” with both stock and bond prices depressed.

Paul said even clients close to retirement can “still hold a significant amount in stocks as long as they’re willing to work a little longer if things go badly.” And for clients who have 10 or more years until retirement, stay the course, Paul said.

“The advisor’s job is to help clients resist the temptation to put all their money under the bed. It’s a bad time to do it. The most important investment years are those when you have the most money to invest, which is in the later years of the accumulation phase.”

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