BlackRock CEO Larry Fink says a bank account is ‘one of the worst financial decisions’ — and urges Americans to invest
gettyimages.com / Anna Moneymaker For many, a savings account feels like the safest place to store your cash — and Americans collectively hold trillions of dollars in bank deposits. But one executive says playing it safe could cost you. “Having your money in a bank account is one of the worst financial decisions of a…
For many, a savings account feels like the safest place to store your cash — and Americans collectively hold trillions of dollars in bank deposits. But one executive says playing it safe could cost you.
“Having your money in a bank account is one of the worst financial decisions of a lifetime,” BlackRock CEO Larry Fink said at the Milken Institute Global Conference in May.
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Fink argued that too many people are leaving their savings sitting idle in bank accounts instead of using them to buy assets that can appreciate in value. The BlackRock CEO also said that widespread participation in investing is becoming more important, arguing that wages alone will not be able to keep pace with wealth created by capital.
“We are not going to be able to broaden economic success only by wages because wages in this AI world are not going to grow as fast as the potential of the AI growth and the capital that is going to be invested,” Fink said.
Reliance on banks
Keeping your money in the bank has long been considered one of the safest ways to protect your cash. Bank accounts can provide easy access to money and, depending on the institution, can protect your money even if the bank fails.
Cash is also vital for emergency savings and short-term expenses. Having money readily available in a bank account means you can access it when needed and feel confident that it’s protected.
However, while cash can preserve purchasing power in the short-term, it generally has less potential for growth compared to investments such as stocks, bonds and other assets. This is especially true when accounting for the impact of inflation. Even if a savings account earns interest, the purchasing power of that money can decline over time if the account’s returns don’t keep pace with inflation.
Read More: Vanguard reveals what’s coming for U.S. stocks — and it could be bad news for this group of investors
What to do instead
Fink has long encouraged everyday investors to think beyond traditional savings accounts, arguing that more people should have the opportunity to participate in economic growth.
There are many ways investors can do this.
Possibly the most obvious way is by investing in the stock market. The S&P 500 is trading near record highs. According to the latest update from FactSet, the benchmark index is on track to post year-over-year earnings growth of over 50% for the second quarter.
Of course, investing in the stock market comes with risks. Stocks can fluctuate, and there is no guarantee that investments will appreciate. For many investors, the best option is to contribute to diversified funds, which can help reduce the risk of investing in just one company. Using broad-market index funds or exchange-traded funds (ETFs), allows investors to hold hundreds of stocks in a wide range of businesses. This provides more protection because poor performance from one company won’t tank the entire portfolio.
Bonds are also an investment option. Governments and companies issue bonds to help raise money and in return investors typically receive interest payments and returns when their bonds mature. The 30-year U.S. Treasury bond yields are currently high, surpassing 5% for the first time since 2007.
Real estate is another common investment. Investors can buy physical properties or gain exposure through real estate investment trusts. These trusts allow investors to own interest in properties without directly purchasing a build.
There are pros and cons to real estate investments. Real estate has the potential for appreciation and can also be a source of income through rent. However, it comes with high upfront cost, continued maintenance expenses, as well as market risk if the property value declines.
Whatever form investments take, the key takeaway from Fink’s comments is to take action. The message is not necessarily to empty your savings account and put everything into the market. Instead, it is to recognize the difference between money that needs to be readily available and money that can potentially grow over years or decades.
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This article originally appeared on Moneywise.com under the title: BlackRock CEO Larry Fink says a bank account is ‘one of the worst financial decisions’ — and urges Americans to invest
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