In his most recent letter to investors, BlackRock CEO Larry Fink discussed the company’s latest investment strategies and where he envisions the future of investing heading.
One of the most significant developments came in his prediction around portfolio splits, noting that “the classic 60/40 portfolio may no longer fully represent true diversification.”
He believes there is a better standard portfolio coming soon — the 50/30/20 split high-income investors already prioritize, which includes “stocks, bonds, and private assets like real estate, infrastructure and private credit.”
Fink says BlackRock’s current goal is to bring private asset investments to the masses, freeing these investments from the gatekeeping that has allowed only the wealthiest to access.
“Assets that will define the future — data centres, ports, power grids, the world’s fastest-growing private companies — aren’t available to most investors,” Fink wrote. “They’re in private markets, locked behind high walls, with gates that open only for the wealthiest or largest market participants.”
Recently, BlackRock has acquired Global Infrastructure Partners, Preqin and HPS Investment Partners, a strategy meant to increase the average investor’s access to the traditionally out-of-reach private market — just as they did for ETFs by acquiring iShares.
“Private markets don’t have to be as risky. Or opaque. Or out of reach. Not if the investment industry is willing to innovate,” Fink continued.
BlackRock’s recent acquisitions underscore Fink’s advice against the 60/40 stock-bond portfolio split. The 50/30/20 split means 20% of a person’s investments are in private assets, which could be good for BlackRock’s business as they move in this new private asset-focused direction.
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What does this mean for you?
If the democratization of assets previously reserved for the wealthy and a 50/30/20 split sounds appealing to you, there are options that allow you to increase your investment in private assets like real estate right away.
One of the best ways to realize value from private real estate investments is to invest in a rental property or a vacation rental. These can provide steady cash flow while also building long-term wealth. You can decide whether you want to be a hands-on landlord, or use some of your capital to hire a property management service to manage tenants and maintenance.
However, choosing the right type of property in the right location is not always easy for a novice real estate investor. For this reason, you may want to hire an experienced consultant or real estate agent to help you select a property that’s likely to remain valuable. You should also note that in Canada, vacation rentals are normally subject to different tax rules than rental properties.
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Why 60/40 could still be ideal for many
Some advisors are not as comfortable as Fink is with the 50/30/20 split for the average investor.
Amy Arnott, portfolio strategist at Morningstar, told CNBC that a 20% allocation in private assets is still considered aggressive.
“If you want to keep things very simple, the 60/40 portfolio or a target date fund is a great starting point,” Arnott said.
She noted that the total value of private assets globally is only “about $14.3 trillion, while the public markets are worth about $247 trillion,” which means private assets account for just 6% of the market — not 20%.
If you’re not sure what split you should be investing in, you might want to speak with a financial advisor to help give you peace of mind.
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This article originally appeared on Money.ca under the title: BlackRock’s Larry Fink says the standard portfolio allocation you know is out — here’s what he recommends
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.