The Exchange

BlackRock: 'Caution Is the Byword' for Investors, Despite Stocks' Record Run

The Exchange

By Rob S. Kapito, President, BlackRock

What’s the true engine of economic growth? The investor. Today, however, the engine seems stuck in neutral.

Investors’ willingness to put capital at risk – at any level from 401(k)s to more sophisticated investments – launches new businesses that create jobs and sharpen our competitive edge. Investment powers the domestic energy revolution driving a manufacturing comeback and finances the infrastructure that forms our economic backbone. And, perhaps most importantly, returns on capital will pay the looming costs for a growing wave of retirees who will live longer than any in history.

Caution remains

Yet, investors today are in many respects the engines that won’t, according to our recent BlackRock Global Investor Pulse Survey. A full five years after the economic crisis, caution is the byword for investors everywhere, suggests the poll, which covers more than 17,500 investors worldwide, including 4,000 Americans, across a range of income levels.

Americans now hold nearly half -- 48% -- of their investible assets in cash, with 7% in bonds and a paltry 18% in equities. Some $10 trillion in investor assets sits in cash, earning virtually nothing. The upshot:  Millions have missed recent rallies producing all-time high closes in many stock markets.

Simple anxiety is a key factor. Nearly half of those surveyed, and just 41% of 45- to 54-year-olds in particular, feel positively about their financial future. Unsurprisingly, "healthcare costs" and "job security" top the fear list.

Nothing to spare

But there’s more at work. Caught in an uneven recovery with stagnating incomes, many American households simply feel too stretched to put money aside.

Americans devote about half (49%) of their take-home pay to living costs, bills and debt – considerably above the global average of 40% – and save just 16% of their take-home pay on average. Paying off debt was the most frequently cited financial priority in our poll for households making under $250,000.

Americans also cite “funding a comfortable retirement” as an important financial priority -- yet nearly 40% are not confident about getting there. With so much money parked in cash – an asset likely to lose nearly half its purchasing power over a 20-year retirement – and so many households deterred from investing altogether, it’s no surprise that individuals are concerned about achieving critical financial goals.

Toward a solution

So how do we rekindle the confidence needed to get the investor engine climbing the hill again?

First, Washington needs to end the economic high-wire act. Our politicians can help ease investor anxiety, calm markets and spur growth by moving beyond constant brinkmanship and instead deriving some genuine long-term solutions to our budget and debt problems. A stronger economic recovery will have tangible impact on household financial health; to illustrate, individuals we polled said a modest income increase of $200 per month would encourage them to save more.

Second, we need to give investors the tools and support they need. With workers taking on more and more responsibility for their own retirement financial security through defined contribution plans, we should let employers provide more retirement advice and education to employees without fear of liability.

And make no mistake: We in the financial services industry recognize we need to do much more to rebuild trust in markets and the investment process, by delivering the investor-focused products and good information people need to invest confidently. Indeed, our poll clearly shows the benefits of expert investment guidance: nearly six in 10 of those working with financial advisors, at whatever income level, felt positive about their financial futures.

To be sure, investors themselves play the pivotal role. Every era presents its own, daunting financial challenges. But every individual needs to stay actively involved in managing and directing their own financial future -- as a planner, a saver and an investor -- and put their hard-earned assets to work as optimally as possible.

To really spark America’s growth engine, all of us -- investors, employers, policymakers and business leaders alike -- need to come off the sidelines, and start seizing every opportunity we can to advance Americans’ individual financial futures as well as our national economic health.

Robert S. Kapito is President and a Director of BlackRock. He is responsible for day-to-day oversight of all BlackRock's key operating units including Investment Strategies, Client Businesses, Strategic Product Management, Technology & Operations, and Risk & Quantitative Analysis. Mr. Kapito is also a Director of iShares Inc.

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