Expert Interview with Charles Sizemore on the Evolution of Retirement – Plus Some Investment Tips

Evolution of retirement

Today, Americans look at retirement as an entitlement – a reward for a lifetime of hard work – but that wasn’t always the case, says CFA Charles Lewis Sizemore, principal of Sizemore Capital Management.

“Workers started getting retired during the industrial age as a way of avoiding industrial accidents and to make way for younger workers with stronger backs,” he says.

And with today’s service- and knowledge-based economy, retiring at 60 or 65 doesn’t make as much sense. Charles says this is a good thing because, frankly, the money won’t be there anyway.

“We are an older country now, and we have comparatively more people taking money out of the system via Social Security and Medicare payments than we do paying into it,” he adds. “This means that young people today need to plan on working longer or saving a lot more than previous generations.”

Charles recently checked in with us to share the most common concerns and misconceptions Americans have about retirement as well as offer advice on smarter investing. Read on:


What’s your professional background and area of expertise?

After finishing graduate school at the London School of Economics, I worked for several years under money manager and financial newsletter writer Harry S. Dent Jr. before deciding to go solo in 2010. As for areas of expertise, in recent years I’ve been focusing on income-producing stocks, real estate and overseas markets. From my time at HS Dent, I’m also a student of demographic trends and how they relate to interest rates, economic growth, and the capital markets. (My full bio can be seen here.)


What are the most common questions or concerns your clients come to you with in regards to managing their money?

Probably the most common question I get, particularly from clients over the age of 50, is, “Do I have enough money to retire?” Sometimes, I have to give uncomfortable answers. But this is really where an advisor can prove to be most valuable, in helping them to make a realistic assessment of their financial position and to plan accordingly.

Without a doubt, the biggest concern I consistently see with clients is simply that of losing money. Most people investing today remember all too well what it was like to lose half their wealth in 2008. They don’t want to live through that nightmare again. My challenge is to secure them a reasonable rate of return while protecting them from taking those kinds of losses again.


What do you think are some of the biggest problems or misconceptions that Americans have about saving, investing, and money management in general?

Risk. Our human brains can be rather primitive at times in how we approach risk. Studies have shown that we hate losing roughly twice as much as we like winning, and as a result, we seem hard-wired to make bad decisions involving risk. We put undo emphasis on the risks we see and not enough on the risks that we don’t.

For example, stocks are considered “risky” because their prices fluctuate wildly, yet government bonds are considered “riskless” because you get your principle back at maturity. But considering that most bonds are currently priced at yields that are lower than the rate of inflation, you are virtually guaranteeing losses in inflation-adjusted terms.

Meanwhile, a portfolio of well-picked stocks will all but guarantee a rising stream of dividend payments. Over a reasonably long time frame, I would argue that bonds are riskier than stocks.


What’s one piece of advice you find yourself repeating to clients over and over again?

Focus less on the precise value of your account and more on the income it produces. After all, it is income that will pay your bill in retirement. One exercise I often do with clients involves asking them to first give me a dollar amount that they would need to cover their expenses in retirement. Then, I subtract their expected Social Security payments. The amount left over is the income that their portfolio needs to generate. Once you secure that income with the right mix of securities, you have a lot more flexibility with the rest of the portfolio. I find that this exercise goes a long way to alleviating client anxiety about having enough money in retirement.


What are some of your favorite types of investments for those trying to maximize their retirement savings?

There are really two questions here. The first is what investment vehicles they should use. The second is what specific investments.

On the first count, I am a big fan of standard tax-deferred savings vehicle such as IRAs, Roth IRAs and company 401(k) plans. The tax breaks alone make these a no-brainer, as every dollar saved in taxes is a dollar left to be invested. Beyond that, in looking at specific asset classes, I am a big fan of European blue chips, emerging market stocks, and MLPs at today’s prices.


What types of investments would you advise we steer clear of?

I’m not a big fan of gold or commodities as asset classes. I see nothing wrong with having a few gold coins stashed away in a lockbox somewhere, but I don’t consider it to be a good option for your retirement assets, as it doesn’t pay dividends or interest. The same goes for commodities. I see absolutely nothing wrong with speculating in commodities futures if you are comfortable doing so, but it’s not something I would recommend for your retirement nest egg, particularly in this interest rate environment. Remember, over time, the prices of commodities tend to fall in real terms due to technological breakthroughs. A large part of historical commodity returns came from the interest earned on collateral – which is close to zero – and on the roll yield, which has actually been negative in many commodities for the past several years.

I would also be careful with hedge funds as a general rule. I invest some of my high-net-worth clients in a handful of hedge funds that I have found to offer solid, non-market correlated returns. But more often than not, hedge fund strategies can be replicated more cheaply elsewhere, and many are highly correlated to the stock market, which negates their purpose as “hedges.”


What are the characteristics of good retirement stock?

For long-term retirement stocks, I like to see a long history of paying – and ideally raising – dividends. One nice aspect of having had one of the worst financial crises in history in 2008 is that it gave us a fine litmus test: Any stock that paid its dividend without interruption throughout the last crisis is one you could consider as a long-term retirement holding. That is a stock that you can be certain will survive Armageddon because, frankly, it already has.

More broadly, I like stocks with predictable business models and, ideally, a global market for its products or services. I also like stable REITs, particularly in the triple-net retail space.


When it comes to deciding how to invest, what sorts of trends, events, news, etc., do savvy investors keep an eye on? Who should we be following?

In today’s market, the old adage to “not fight the Fed” is particularly true because of the outsized role the Fed is playing in the financial markets these days. But once things return to more normal conditions – and they will, eventually – it’s going to come back to price. Ultimately, the only thing that really matters to your long-term returns is the price you pay. Pay attention to valuations, and place your money in the asset classes priced to deliver the best returns going forward. In 2000, that meant bonds and commodities. In 2009, that meant large-cap stocks. And today, it means select overseas markets.

Connect with Charles on Twitter and Facebook.

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