Larry Fink: Investors need to take more equity risk in order to meet retirement needs

We’re not going to change human behavior, but we need to find ways to influence it. Investors don’t take a long-term view. They are too concerned about all the noise out there, all the ups and downs in the markets.  That noise – and the concern people have about outliving their savings – are ironically driving investors to investments they perceive to be safer, like traditional bonds.  But they should do just the opposite, taking advantage of their longer investment horizon to keep their money working for them.

[Pension plans and individuals have long used traditional government bonds to help fund retirement obligations.]  That worked for 30 years of falling inflation and interest rates and eight percent returns on Treasuries. But it doesn’t work today when the 10-year Treasury yields less than two percent. And the very real risk is that people over-allocating to traditional bond funds are going to lose money when interest rates rise.  The old rules of investing – 60 percent equities, 40 percent fixed income and an increasing share of fixed income the closer you got to retirement – won’t work today.

~ Laurence Fink, CEO of BlackRock with $3.936 trillion under management as of March 31, "BlackRock CEO Declares Longevity 'Defining Challenge of Our Age'," Business Wire, May 7, 2013