The mindset shift that will improve people's retirement

November 2024 by André Themudo

Current demographic trends are compromising the ability of public pension systems to enable people to live a comfortable retirement. But capital markets can be the perfect tool and ally to mitigate this impact. 

Larry Fink, CEO and founder of BlackRock, dedicated his letter to investors this year to the need to rethink retirement. The letter, which is considered one of the best reads in the industry, analyzes topics of great relevance to the capital markets, so the choice of reform as the focus of this year's letter demonstrates the importance that this issue has for BlackRock.
In fact, Larry Fink approached the need to rethink retirement from a very personal perspective, as he used his parents as an example of a typical American family that could have multiplied by 20 the investments made in the S&P 500 in 1960 if they had recovered them when they retired in 1990.  
When analyzing his parents' legacy, the BlackRock CEO discovered that they had organized themselves so efficiently that they could have lived to be 100 years old and still lived comfortably, thanks to the use they made of their income while working. This is precisely one of the great messages we want to convey: Current demographic trends compromise the ability of public pension systems to enable people to maintain their standard of living after retirement.
However, capital markets are the perfect tool – and ally – to mitigate this impact, although it is important to emphasize that only by starting work early enough will its effect materialize. This is why it is important to promote financial education programs that focus on the need to anticipate the age at which one starts investing. 

Number of women and young investors has increased 

And this is where we celebrate the progress we have made in Europe. We recently published the results of our People & Money survey, which looks at key investment trends in Europe. What we found is very encouraging: the number of investors increased in practically all the countries that participated in the study, with the United Kingdom, Germany and France being the three most prominent. 
While the story is positive, some examples, such as Portugal, Italy and Finland, the only countries in the sample where the investor base has shrunk, show that there is still work to be done. But the good news is that much of this work is already underway, especially in terms of bringing segments that were not traditionally so involved in investing into the habit, such as women and young people. 
The study reveals that the percentage of female investors increased from 26% to 29%, an especially notable growth when compared to that of men, which remained practically stable. Young people, in turn, currently represent 39% of the investor universe, but their role is expected to increase, as the 18 to 34 age group is expected to represent half of new investors in the next 12 months.

ETFs should attract many investors…

Much of this momentum is being driven by the expansion of ETFs, products that are expected to grow at a double-digit pace – in some cases even triple-digit – across the continent. In fact, these vehicles are expected to attract more than two and a half million new investors in Europe next year, which represents almost a quarter of the total number of new investors that will join the industry in the period.  

… but actively managed funds are also important in preparing for retirement.

This trend is very encouraging because ETFs are products that integrate very long-term investment into their very nature, which is one of the most relevant factors when investing for retirement. In any case, it is essential to diversify portfolios, both in terms of the asset classes invested in and the tools used to make those investments, which is why actively managed funds also have a role to play in preparing for retirement.
These products complement the cost efficiency of ETFs very well, as they offer greater return potential, flexibility and risk management, which allows for the construction of very long-term portfolios that respond to the problem that Larry Fink pointed out in his letter: Many people do not enjoy financial stability in retirement when they have generated enough income during their working lives to avoid this situation.