The chairman and CEO of the world’s largest wealth manager told CNBC on Wednesday that he was concerned about a “silent retirement crisis” and cited global monetary policies that put savers off.
“If the central banks keep interest rates in Europe low or negative, the savers will undoubtedly be depressed,” said BlackRock co-founder Larry Fink in the “Squawk Box”.
“Owners of wealth are the biggest beneficiaries of monetary policy, so I think a year ago, two years ago I was talking about how we need more fiscal stimulus and maybe less monetary stimulus,” he added.
Fink said he believes people are increasingly starting to work money in the stock market instead of holding it in lower-risk assets or savings accounts.
While the Federal Reserve’s interest rate policy relates directly to short-term bank borrowing, it still affects ordinary Americans’ savings and lending rates. Currently, the federal funds rate is anchored near zero as the central bank seeks to support an economic recovery from the Covid pandemic.
According to historical data from the St. Louis Federal Reserve, the effective federal funds rate was below 2% for much of the post-2008 financial crisis, with the exception of October 2018 to September 2019.
“A lot of the savers are more confused now, and I think some of them are finally getting into stocks and other asset classes as part of it,” said Fink, who noted that he has long been an advocate for 100 percent equity exposure. not that he “predicted where monetary policy would be”.
The traditional allocation for investors’ portfolios has been 60% in stocks and 40% in bonds, which is often adjusted based on how close investors are to retirement.
In 2018, Fink told CNBC that most people who are saving for retirement should have the majority of their portfolios in stocks rather than bonds, even if they are over 50 years old.
BlackRock benefits from people investing money in all types of investment vehicles, including stocks and bonds. Fink’s company saw assets under management grow 30% year over year to nearly $ 9.5 trillion in the second quarter.
“We will have to deal with what I would call the silent crisis of retirement,” said Fink. “Unfortunately, whether they like it or not, people will have to work longer hours because they are not getting the same return on their savings.”
The typical retirement age in the US is believed to be higher, as Fink has suggested.
Additionally, the Social Security Administration says that the full retirement age – if someone can receive their full benefit amount – is 67 for people born in 1960 and later.
According to the Fed’s 2020 Report on the Economic Welfare of US Households, approximately 75% of non-retired adults in the US had saved some money for retirement. About 25% “didn’t have any,” according to the report. That’s roughly the same percentage breakdown as in the 2019 report.
“While most non-retired adults had some kind of retirement plan, only 36 percent of non-retirees thought their retirement savings were on the right track,” the Fed wrote in its 2020 report.
The stock market rallied sharply in February and March last year, thanks in part to support from the Fed. The central bank cut rates to near zero and began buying assets worth at least $ 120 million a month. Finks BlackRock was hired by the Fed to help run the bond purchase program.
Congress also approved trillions of dollars in fiscal incentives to help the troubled economy and the millions of Americans who have lost their jobs.
On Wednesday, the S&P 500 hit another record high on an intraday basis. The broad stock index has risen by around 100% since its pandemic-era low on March 23, 2020.
“If you had a balanced portfolio, you did quite well last year,” admitted Fink on Wednesday morning before the market opened. “Your bond or cash allocation may hurt you, but you’ve done pretty well on your stock allocation, and for those who own homes, you’ve obviously benefited from rising asset prices.”