And now Fink, whose firm manages more than $3.5 trillion, says that not only are Americans not saving enough, but also they are investing what they do tuck away in assets that return too little. Ultimately, he argues that investing in cash or bonds that seem prudent and safe will exact a high cost: the inability to grow a sufficient retirement nest egg fast enough.
On Feb. 29, the firm launched its “Investing for a New World” initiative encouraging people to push aside what it portrays as unwarranted fear about equities at a time when valuations are compelling by historical averages.
The initiative encourages savers to rethink the cost of having too much invested in cash and to seek higher-yielding investments, such as dividend-paying stocks or corporate or municipal bonds. It suggests considering mutual funds or exchange-traded funds (ETFs) as a way to invest in alternative strategies or sectors. (And if you’re interested, it has some iShares to sell you.) Finally, because of ever-increasing life expectancies, it proposes ditching the old 60-40 stock-bond-mix rule of thumb and realizing that even if you’re 50 or older, some of your investments should still have decades-out time horizons.
I recently met with Fink in his New York office to talk about the initiative and why now is not the time to be gun-shy when it comes to investing for retirement. The interview has been condensed and edited for length and clarity.
BlackRock recently launched the “Investing for a New World” initiative. Why is this on your mind right now?
Some of it is just spending many years running money and asking yourself, “Why such behavior? Why are we seeing everyone so risk-averse?” It’s not like we just wanted to come up with a catchy ad campaign.
Much of it has to do with traveling around the world, talking to clients, who are all asking, “What do I do with my money?” Clients worldwide are struggling with low rates. They’re frightened. They’re having a hard time interpreting the good news and the bad news, the implications. Everyone is sitting on more money in cash and bonds than ever before. You’re seeing this bias worldwide.
Even high-net-worth investors?
It’s everybody — sovereign wealth funds, retail, institutional, from the Middle East to Asia to Europe to the United States.
We want to alert people, especially families managing defined-contribution plans [such as 401(k)s and individual retirement accounts] themselves. They have de-risked so dramatically that they are not going to achieve the pool of savings that will meet their needs during retirement. And many pension funds are saying right now, “I have a target of 7.5 or 8 percent return.” They’re not going to achieve that target, either — which has implications for our schoolteachers and firemen. And the deficits are going to be greater and greater in the states. So there are huge implications.