Posted: Sep. 21, 2017 6:35 pm Updated: Sep. 21, 2017 7:16 pm
QUINCY — One of the long-established rules of retirement planning has changed in recent years, and a nationally known investment strategist believes people who don’t adjust their portfolios will shortchange themselves.
Rod Smyth, chief investment strategist for RiverFront Investment Group based in Richmond, Va., has been advising people to invest more in stocks and similar asset classes. Smyth does not recommend a heavy reliance on bonds, which have interest rates that have been lower than inflation in recent years.
“The rule of thumb used to be that you should own your age in bonds. So if you’re 65, your (retirement accounts) should be 65 percent in bonds. That doesn’t work anymore,” said Smyth, who spoke Thursday at Investment Planners Inc. in Quincy.
Bonds, which are considered safe investments, have traditionally been used to help reduce risks of stock market fluctuations. From the 1970s through the 1990s, bonds outperformed inflation. But since 2009, bonds have underperformed.
As a result, Smyth and his investment partners have been investing more heavily in stocks, real estate, credit, timber and similar investments — often known as risk assets. They still have investments in bonds and cash, but not as much as in previous decades.
“Sadly, the risk-free rate on 20-year government bonds is currently only 2.5 percent (a year), barely above the inflation rate. To take no risk at all is to risk outliving your money,” Smyth said.
An illustration used to explain the importance of higher return on investment imagines two investors putting in $1,000 a month for 20 years. One of them earns 7 percent annually on a more aggressive portfolio, ending up with $523,965 after 20 years. The other investor makes 2.5 percent on similarly sized investments such as bonds, winding up with $311,622. In both cases, the investors would have contributed $240,000.
That doesn’t mean Smyth is rejecting other investment maxims. He has urged each of his three children to set aside 10 percent of their income for retirement.
“People are living longer, and we may need our money to last longer,” Smyth said.
Because of recent conditions, Smyth also is urging clients to invest in emerging markets and other global stocks. He said the recent decline in the U.S. dollar has made those markets attractive. The stability of the Eurozone and other economies also has led to one-year returns of more than 20 percent in top overseas investments.
After decades as an investment strategist, Smyth watches world events and considers how to adjust portfolios.
“I’m incredibly aware of risks out there in the world, and we make changes as risks change,” he said.
Before the Brexit vote in the United Kingdom last year, RiverFront adjusted its investments in case the ballot issue passed.
Now, Smyth and others are watching as North Korea demonstrates its nuclear warheads and missile delivery systems. Smyth does not believe that North Korea, China or the United States want this to turn into a war.
“If we look back at the Bay of Pigs, that was more scary than the threat from North Korea,” he said.
Investment Planners invited Smyth in Quincy to speak to some local investors.
A native of Ireland, Smyth has worked in the investment industry since 1982. He is well-known in financial circles as a frequent guest on CNBC, Fox Business, Bloomberg and other broadcasts.