BlackRock’s Fink: Put it All in Stocks

Among other controversial ideas, BlackRock CEO Laurence Fink said long-term bonds had become so risky that young people should be 100% in stocks.

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Laurence Fink is in the business of taking measured risks. That’s what investing is all about and, well, he happens to be the CEO the world’s largest investment firm: BlackRock, which has $4 trillion under management.

So it may be that he was perfectly comfortable standing before a packed classroom at New York University’s Stern School of Business on May 7 and opening his remarks with a risky line: “I want to talk about the subject of old age,” Fink began.

Old age? Most of these kids haven’t left home yet. They still believe they’re immortal. But in a sign of how times have changed, the students didn’t nod off or even roll their eyes. The long term, at least as it relates to money, seems to have entered Millennials’ collective conscious. They wanted more.

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Fink gave it to them, starting with some well-worn but nonetheless effective statistics on longevity. A third of babies born in 2011 will live to age 100. If you make it to 65, odds are you’ll live to 85. One in 10 who are now 65 will make to 95.

His point: Many of us are going to live a long time, and that is “a very expensive blessing” that will rewrite the rulebook on saving and investing. You need to start now, he implored to a bunch of kids yet to earn their first full-time salary.

Not convinced that kids—or anyone else, for that matter—really get it, Fink called for a new mandatory savings program as part of an overhaul of the nation’s retirement thinking. “The current system is broken,” he said. “We need a comprehensive approach that includes some form of mandatory savings in addition to Social Security.”

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But he offered more than a policy initiative to his young audience, which through the questions that were asked demonstrated a genuine thirst for financial advice. In some ways, Fink broke the financial planning mold. His main points:

  • Invest everything in stocks If you are 25 years old, Fink said, your entire portfolio should be in stocks. No bonds. No cash. He suggests a globally diversified mutual fund that invests in the shares of large companies that pay a dividend. Fink noted that BlackRock target-date funds, which start aggressive and automatically move into conservative investments as you age, are more tilted toward stocks than the average comparable fund.
  • Dump the 60-40 rule For many years an allocation of 60% stocks and 40% bonds was thought to be the perfect blend for most investors, and that you should move more toward bonds beginning at age 45 or so. Not anymore. In today’s record-low yield environment bonds may be more risky than stocks, Fink said. “A rise of just one fifth of one percentage point in interest rates would mean the loss of an entire year’s return on current long-dated Treasuries,” he said, adding that rates must begin to rise at some point. Only stocks and perhaps some riskier corporate bonds offer the long-term returns you’ll need to reach retirement security.
  • Max out your 401(k) This isn’t so controversial. Still, because so much is in the air as it relates to future tax rates many planners advise contributing only enough to get the full company match and putting additional savings in a Roth IRA. Fink is probably fine with that. For those who are not eligible for a 401(k) he said to “start an IRA and contribute something, anything.” But he encouraged students to max out their 401(k) starting day one in their careers. “Less than 7% of eligible employees maxed out their 401(k) in 2010 despite the benefits to doing so,” Fink noted, later adding “I know it’s hard to put any money aside, especially when you’re a student or just making ends meet. It always involves trade-offs, but the longer you wait, the bigger the burden will be.” There’s nothing controversial about that.