At last week’s Morningstar Investment Conference, BlackRock CEO Larry Fink told a room full of journalists he’s not confident 401(k) participants have what it takes to be long-term investors.
I’m paraphrasing, of course, but it seemed to be a common issue at that Chicago show. Investors, who’ve lately sunk funds into bonds, aren’t doing themselves a favor as they neglect long-term implications for their portfolios, Fink says; what they should be turned on to are equities.
Our post-crash “skittishness” has left equities the “most under-invested asset class in the world,” Fink said.
And if investors want anything left for retirement, they’ll need to return to stocks.
It’s not just the DC plans; Pensions have long-dated liabilities, but have been riding on portfolios measured on quarterly and annual basis.
“How are you going to get out of that hole owning bonds,” Fink said. This shortsighted, “short-termism,” as Fink put it, is robbing pre-retirees of a system that could provide a known-dollar amount at retirement and foolishly replacing it with plans that inherently provide no real help or navigation (again, I’m paraphrasing).
While movements toward a uniform fiduciary standard aim to level the playing field, Fink says it won’t mean the end of high-fee products, but a need to trend toward “solutions-based portfolio design.”
Meanwhile, Fink and Harvard economics professor David Laibson point to longevity as a huge downfall for retirement security. Critical advancements in medicine mean the burden of good health weighs heavily on our finances. As people live longer, they run a higher risk for cognitive impairment – dementia, Alzheimer's or some other variation.
According to Laibson, half of people in their 80s has some form of cognitive impairment. And with $18 trillion in assets for the 65-plus population, a tremendous amount of wealth is at stake with little or no fiduciary protection.
“One of the first issues that must be addressed is the fiduciary issue,” Laibson said “We have it for 401(k) plan participants, but they are the least vulnerable, as they can keep working. The demographic that is most vulnerable, the elderly, does not have that protection. As a society, we’ve flipped the fiduciary issue, and we need to flip it back.”