It's a timeless question that's puzzled people from Cicero in Ancient Rome to rappers like Kendrick Lamar today: Can money really make you happier? We surveyed 27,000 people around the world to find out. What we found? Investing for the future can make you feel better today - so then why are less than half of Americans doing it?
On this episode of The BID, President Rob Kapito discusses how to get more people invested, why he's still optimistic about the retirement crisis and why he's in favor of the House of Targaryen.
Mary-Catherine Lader: It's a timeless question, and it's puzzled people for thousands of years, from Cicero in Ancient Rome to rappers like Kendrick Lamar today: Can money really make you happier or does more money just mean more problems? We surveyed 27,000 people around the world to find out. And what did we learn? Money can make you happier, just not in the way that you think.
People who invest are 24 percent happier, 19 percent less stressed, and report a 36 percent increase in their sense of well-being; simply investing a few dollars into your future makes most of us feel better today. So, if investing can deliver a quick hit of happiness, then why are less than half of Americans doing it?
That's the question we'll ask BlackRock's president Rob Kapito on today's episode of The BID. In our last episode, we talked with Frank Cooper about wealth as a critical part of every person's well-being, and today, we'll dive into the research supporting that theme. I'm your host, Mary-Catherine Lader. We hope you enjoy.
Rob, thank you so much for joining us today.
Rob Kapito: Well, thank you for having me.
Mary-Catherine Lader: So every year, we survey thousands of people around the world in this Global Investor Pulse Survey to understand how they're feeling about their financial health, and particularly about how they're feeling about retirement. This year we found that just 56 percent of people in the U.S. had actually even started to save for retirement. So can you put that in perspective? Why is that such a problem?
Rob Kapito: Well, it's not just a problem; it really is a crisis. People need larger nest eggs to fund their longer lives. We found that Americans are too worried about their financial situation today to think about saving for the future. And part of that is because of the high cost of living, healthcare costs, and of course, rising prices. But we know one thing for sure: you can't invest for the future in the future. You have to start today. And there are benefits, of course, to starting early. In addition to financial dividends, our survey found that there are immediate emotional dividends for those who have a retirement savings plan.
Mary-Catherine Lader: You were a founder of BlackRock in 1988, and two-thirds of the roughly $6 trillion that we manage are retirement assets. So that gives you, as the company's president, a really unique perspective in what it takes to deliver retirement security for people all around the world. You just talked about the retirement crisis. From your perspective, is this getting better or worse?
Rob Kapito: No, I think it's actually getting worse. People are starting to become more aware that they are going to live longer. Now when did that become a problem? So because of modern healthcare, if people are going to live ten to fifteen years longer than they thought, they actually not only need to save but they need to invest that money. Now this is going to become a bigger issue, because think of it, when you get older, your costs actually get higher when it comes to healthcare, and healthcare costs are, of course, rising. And then there are other needs, because you may not have a paycheck coming in, so you have to dip into something. So, if you have to work longer, then that means there will be less jobs for the next generation; and the next generation has to be thinking of this, because it's about their parents and about the older generation. So I find that a lot of millennials, when I bring up this situation, they just are not that interested. They have plenty of time to save. And then I remind them that if they don't get their parents to start saving for retirement now, that their parents are actually going to move back in with them. That gets them actually very, very interested in having this discussion with their parents about saving for their future.
Mary-Catherine Lader: It's conventional wisdom that millennials and women aren't as likely to invest, you've already touched on this. So if that has been true for a while, and it's true today, what does it say to you about what is missing in the way that we serve people?
Rob Kapito: Well, what is missing is actually awareness. Money is ranked as the number one source of stress amongst the respondents in this survey. But we know that there are immediate effects for those that start early, so people on the survey indicated that they are less stressed when they actually save for retirements, and much like physical exercise that has both short- and long-term benefits, investing for the future actually helps alleviate stress and can improve your overall well-being today. Millennials, who represent a third of the U.S. workforce, reported that they are more worried about their finances than any other age group. And more than half of millennials said they are too worried about their current financial situation to even think about the future. Seventy-seven percent of them said they feel there are too many investment options to choose from. And that is important, because we have to make it simpler. If you think about the most successful companies in the country today, I think it's all about convenience. Certainly, companies like an Amazon that will deliver a product to you right away make life more convenient. Companies like Google give you the information immediately. Companies like Uber, where you can have a car waiting outside for you. It seems to me that the world is focused on convenience. And certainly, the way investing today is taking place, it's not as convenient as it could be. And I think that convenience not only will come through better tools for the financial advisor, but it will also come through technology, and technology where people can get their questions answered very simply, where they can create portfolios that will weather the storm for the future and help them to be able to retire in dignity.
Mary-Catherine Lader: So, if money is the number one source of stress, and less than half of Americans we talked to weren't even investing, it sounds like we need to help, to your point, make it simpler to get started. So how do you break down, as a professional investor, founder of an investment firm yourself, what it takes to get started?
Rob Kapito: So basically, I think you first have to be in the mindset to focus on the long term. There is a lot of news that comes out every day that creates volatility in the markets and a lot of uncertainty, and investors don't like uncertainty. There have always been issues in the political, regulatory front, there's always been issues globally around the world. That is not going to change. So, thinking for the long term is the best way to invest. Secondly, the cost of investing is very important, because returns have been low in the last couple years, the costs eat into that return. So, I think keeping cost low is very important. There is no question that being diversified is very important, not putting all your eggs in one basket as I'm sure your mom or dad used to tell you. A lot of people who are working actually have a 401(k) program, so companies have created that as a benefit for their employees. Inquire about that and get into your 401(k), which also has the benefit, in many cases, of being matched by employees so you actually are getting an advantage by investing in your 401(k). And lastly, I think working with a financial advisor is critical. There are a lot of people that are very good, have a lot of information, have lived through various cycles, and have people just like yourselves that they have helped in the past.
Mary-Catherine Lader: How do you think the industry, and particularly BlackRock, should tackle this retirement problem? As if it were as easy as those steps that you mentioned, surely the data would be different and everyone would be doing it.
Rob Kapito: Well, we're going to step up to the plate and start to create more awareness for people around the globe. The first thing we've done is we've created some easy-to-use technology solutions that will help people get more involved in their investments and help pave a path to a more financially secure future. Interesting in the survey, among those who have started investing, seven in ten U.S. respondents said new technology solutions would help them be more involved in their investments. Now, the good news is there are more tech-enabled tools available today to make it easier for new investors to get started, with investment apps such as Acorns lowering the barriers to entry by making it simple to invest at a low cost. Now, while investors are embracing technology, they aren't turning away from professional human advice. So it's man and machine. Now, most people that we are talking about today have children, and they are really in their early careers and retirement probably feels far away. And so, we think also appealing to the younger generation through the use of technology will also have a benefit.
Mary-Catherine Lader: A few years into your successful career as a trader, you left that job and you took a risk to form BlackRock with your partner Larry Fink. So as you look back at your own career, how did you think about your own financial risk?
Rob Kapito: Well, I don't come from money, so I also was in a situation where I didn't really have that extra capital to invest. But as I started in my career and did better, I would take a certain percentage away each year and put that in a long-term plan to invest. You know, I never really thought about a future that far out because I was in the beginning of my career. But what I learned as I watched people move from one company to the next company is that you can't always count on the current job you have being the job that you're going to have for the future; you do really need to think of that time when you may retire.
Mary-Catherine Lader: You have kids, you probably share this similar advice to what you just shared with us with them. How do you find advising your own kids about their financial futures? What do you say to them?
Rob Kapito: Well, I think my kids are like everyone else's kids: they know more than we did, and they have dreams of what to do in their future. I do think it's important that we impart some wisdom to them that life is not always straight up and different things happen, and we certainly see that in the market. We've seen it in the job place, we've seen it in federal government shutdowns - you can never really be certain. And I do think that I try to impart to them that you can't invest and save for the future in the future, that the earlier you start that, the better it's going to be. So, I think I am like every parent trying to impart some wisdom, and some of it sticks. But I think you need, in this case to be very repetitive, because things you tell your kids when they're 15 and 20, and 30 and 50, it means something different to them. Because they have more experiences to relate it. So you always hear kids say to their parents, "Don't repeat yourself. You've already told me that." I think you have to overcome that and continue to repeat it until it really sinks in.
Mary-Catherine Lader: And as you look back, do you think there was a defining moment in your life that changed how you felt about money?
Rob Kapito: Well, as I said, I come from a different world than I'm in today, and my father owned a business, he owned a garage with his two brothers and sister for 50 years. And one day at 13 when I came home, my father had a stroke. And so, he wasn't able to do the same type of work he was before. So when you're a blue-collar worker and you depend on your physical fitness to be able to do work, and then the next day you can't, what do you do? So that was defining moment to me, because it meant that I had to step up to the plate and be as much of a breadwinner as the rest of my family did in helping that situation out. So those are the types of experiences that stay with you, that show you that life can change in a moment. And so, using that experience made me even think more about saving for the future and investing, because you really can't predict what is around the corner.
Mary-Catherine Lader: Speaking of predicting, where do you predict we'll be with retirement security in two years? Where do you hope we'll be?
Rob Kapito: So I think we're going to be better. I'm an optimist. I think with all of the information that is coming out and the ability to get information today, which is much easier, I do think people are going to take this seriously. If people in the industry will go out and talk about this more and create this awareness, and also create the tools and technology and types of investments that people will appreciate later on. So I am an optimist. I'd like it to move faster, because time moves very quickly as we all know. But I do see incremental changes, which make me an optimist.
Mary-Catherine Lader: Well, that is encouraging for all of us. So I'm going to end with a rapid-fire round, where you can pick over the other. We understand you're a little bit of a sports fan, that you like cars, so this is to test some of your preferences. Ready?
Rob Kapito: I'm ready.
Mary-Catherine Lader: Okay. Jets or Giants?
Rob Kapito: Oh, definitely Giants.
Mary-Catherine Lader: House of Targaryen or House of Stark?
Rob Kapito: Targaryen.
Mary-Catherine Lader: Why?
Rob Kapito: I just think they're in a much better position, less politics in the house.
Mary-Catherine Lader: Dunkin' or Starbucks?
Rob Kapito: Dunkin' Donuts. I know that I may be in the minority here, considering the lines that I see around the corner, but I like lighter coffee, much more consistent.
Mary-Catherine Lader: The Met or the MoMA?
Rob Kapito: The Met. I'm in favor of the older portraits.
Mary-Catherine Lader: Ford Thunderbird or Pontiac Firebird?
Rob Kapito: Well, the Ford is really a classic and the Thunderbird - actually, I just bought a 1959 Pontiac Station Wagon, so I like that better than the Firebird.
Mary-Catherine Lader: Okay. And cooking or eating out?
Rob Kapito: Cooking definitely, one of my favorite things to do.
Mary-Catherine Lader: What's your favorite dish to make?
Rob Kapito: Well, I make a sea bass that is just unbelievable. There's a recipe that is in Epicurious that is just really, really special. It's a miso sea bass... look it up, you won't be disappointed.
Mary-Catherine Lader: Okay. I'll look it up. Last question, Disney's Frozen or Moana?
Rob Kapito: Well, I have three grandchildren right now. My words of wisdom, if I could do it again, I would have had my grandchildren first because they're much better than kids, and they tell me that Frozen is much better, so I'll go with them on Frozen.
Mary-Catherine Lader: Rob, thank you so much for joining us today, it's been a pleasure having you.
Rob Kapito: Thank you.
This post originally appeared on BlackRock.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.