BlackRock cautions buying and holding the S&P 500 is no longer enough for retirement. What they say to do instead
BlackRock cautions buying and holding the S&P 500 is no longer enough for retirement. What they say to do instead.
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For decades, index funds have been the gold standard for retirement investing. Cheap, diversified and easy to manage, they've helped millions of Americans adopt a simple buy-and-hold strategy built around broad-market indexes.
But the world's largest asset manager is now warning that relying on index funds alone may no longer be enough.
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"There needs to be an evolution away from this being indexed only," Nick Nefouse, global head of retirement solutions at BlackRock, said in a phone interview with Bloomberg (1). "The markets are evolving to a point where there needs to be more oversight."
BlackRock [NYSE:BLK] says rising market concentration, geopolitical volatility and longer retirements are forcing investors to rethink their traditional portfolios.
The firm manages nearly $14 trillion globally (2), with about $5.5 trillion in ETF assets through its iShares platform (3).
According to BlackRock, the next generation of retirement investing may look very different from the classic strategy of simply buying an S&P 500 index fund and waiting.
BlackRock argues several trends are reshaping the investing landscape.
One of the biggest is market concentration. In recent years, a handful of large technology companies have accounted for an outsized share of stock market gains, leaving major indexes increasingly top-heavy.
At the same time, global volatility has increased. Geopolitical tensions, inflation cycles and interest-rate uncertainty have created more unpredictable market conditions.
Another challenge is longevity risk. The average American's life expectancy is 79 years (4). As retirees live longer, their portfolios may need to generate income for decades.
Instead of focusing solely on building a nest egg, BlackRock says investors may need portfolios designed to deliver a steady stream of income — a potential shift toward a "paycheck for life" model in retirement.
BlackRock is not the only asset manager moving in this direction.
The Wall Street Journal reports that around 4% of 401(k) plans now offer a target-date fund with an annuity — an insurance contract that generates regular income payments in retirement (5).
