BlackRock warns investing in the S&P 500 isn’t enough for retirement. They recommend a strategy that prioritizes income

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For decades, index funds have been the gold standard for retirement investing. Cheap, diversified, and easy to manage, they’ve helped millions of Americans adopt a simple buy-and-hold strategy built around broad-market indexes.

But the world’s largest asset manager is now warning that relying on index funds alone may no longer be enough.

“There needs to be an evolution away from this being indexed only,” Nick Nefouse, global head of retirement solutions at BlackRock, said in a phone interview with Bloomberg (1). “The markets are evolving to a point where there needs to be more oversight.”

BlackRock says rising market concentration, geopolitical volatility and longer retirements are forcing investors to rethink their traditional portfolios.

The firm manages more than $14 trillion globally (2), with over $5 trillion in ETF assets through its iShares platform (3).

According to BlackRock, the next generation of retirement investing may look very different from the classic strategy of simply buying an S&P 500 index fund and waiting.

BlackRock argues several trends are reshaping the investing landscape.

One of the biggest is market concentration. In recent years, a handful of large technology companies have accounted for an outsized share of stock market gains, leaving major indexes increasingly top-heavy.

At the same time, global volatility has increased. Geopolitical tensions, inflation cycles and interest-rate uncertainty have created more unpredictable market conditions.

Another challenge is longevity risk. The average American’s life expectancy is 79 years (4). As retirees live longer, their portfolios may need to generate income for decades.

Instead of focusing solely on building a nest egg, BlackRock says investors may need portfolios designed to deliver a steady stream of income — a potential shift toward a “paycheck for life” model in retirement.

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One of BlackRock’s proposed solutions is to expand access to private-market investments within retirement plans.

The firm has suggested that future target-date funds could include assets such as private credit, infrastructure investments and private equity alongside traditional stocks and bonds.

Private markets have grown rapidly in recent years. Global private equity assets alone reached about $9.9 trillion, as of October 2025 (5).

Bloomberg’s reporting suggests that BlackRock is exploring retirement products that incorporate these types of investments, potentially bringing institutional-style assets into everyday portfolios.

Not everyone is convinced the move away from index-only portfolios is purely about improving outcomes for investors.

Index funds often charge just a few basis points in annual fees. Actively managed funds and alternative investments typically carry higher fees — a difference that can significantly impact returns over time for the average investor.

Expanding active management could also benefit asset managers themselves, since active funds typically charge higher fees than passive index trackers. Research from Vanguard has found that most actively managed funds fail to outperform comparable index funds about 83% of the time over a 15-year period after fees (6).

The performance gap is mostly attributable to the cost difference between the two. Index funds typically charge 0.03%-0.2% in fees, whereas actively managed funds costs 0.5%-1.5% or more (7).

Over time, even small fee differences can compound dramatically. For example, a $100,000 portfolio earning 7% annually for 30 years could grow to about $739,000 with a 0.1% fee (a net return of 6.9%), but only $574,300 with a 1% fee (a net return of 6%). That’s a $164,700 difference, driven entirely by costs.

Princeton economist Burton Malkiel, author of the investing classic A Random Walk Down Wall Street, makes similar arguments in his book, writing that “two-thirds of professionally managed funds are regularly outperformed by a broad capitalization-weighted index fund with equivalent risk (8).”

The takeaway isn’t that index funds suddenly stopped working. They still work as the foundation of a long-term portfolio, particularly for younger investors.

But as markets become more concentrated and retirement stretches longer, investors may want to look beyond the traditional 60/40 stock-and-bond mix. No matter who benefits most from the move, diversification is the key to protecting yourself from market volatility.

For example, some investors are exploring new portfolio frameworks that include alternative assets alongside stocks and bonds. One model gaining attention is a 50/30/20 allocation — 50% stocks, 30% bonds and 20% alternative investments.

That shift is one reason investors are experimenting with ways to add income-producing or nontraditional assets to their investments.

Here are a few options worth considering:

Institutional investors have leaned heavily into the real estate sector for years. Real estate accounts for about 25% of the average family office portfolio, according to UBS Global Family Office Report (9).

It’s easy to see why. In addition to potential price appreciation, rental properties can generate steady income.

Today, new investment platforms are making it easier for everyday investors to gain exposure to the asset class — even without buying a property outright.

You can tap into this market by investing in shares of vacation homes or rental properties through Arrived.

Backed by world-class investors, including Jeff Bezos, Arrived allows you to invest in shares of vacation and rental properties, earning a passive income stream without the extra work that comes with being a landlord of your own rental property.

To get started, simply browse through their selection of vetted properties, each picked for their potential appreciation and income generation. Once you choose a property, you can start investing with as little as $100, potentially earning quarterly dividends.

Once you’re an investor with Arrived, you’ll gain access to their newly launched quarterly secondary market, where investors can buy and sell shares of individual rental and vacation rental properties directly on the platform.

This allows you to buy into properties you may have missed at the initial offering or sell shares before a property reaches the end of its hold period.

With access to more than 400 properties in 60 cities, this new way to trade real estate offers flexibility and opportunities to gain access to more properties each quarter.

For investors interested in a similar approach but focused on institutional-quality rental homes, other platforms are emerging as well.

One example is mogul, a real estate investment platform that offers fractional ownership in blue-chip rental properties. Their system gives investors monthly rental income, real-time appreciation and tax benefits — without the need for a hefty down payment or 3 a.m. tenant calls.

Founded by former Goldman Sachs real estate investors, the mogul team handpicks the top 1% of single-family rental homes nationwide for you. Simply put, you can invest in institutional-quality offerings at a fraction of the usual cost.

Each property undergoes a vetting process that requires a minimum 12% return even in downside scenarios. Across the board, the platform features an average annual IRR of 18.8%. Their cash-on-cash yields, meanwhile, average between 10 to 12% annually. Offerings often sell out in under three hours, with investments typically ranging between $15,000 and $40,000 per property.

Every investment is secured by real assets, not dependent on the platform’s viability. Each property is held in a standalone Propco LLC, so investors own the property — not the platform. Blockchain-based fractionalization adds a layer of safety, ensuring a permanent, verifiable record of each stake.

Getting started is quick and easy. You can sign up for an account and then browse available properties. Once you verify your information with their team, you can invest like a mogul in just a few clicks.

“It’s likely there’ll be a 10 to 20% drawdown in equity markets sometime in the next 12 to 24 months.”

That’s according to Goldman Sachs CEO David Solomon, speaking at the Global Financial Leaders’ Investment Summit in November 2025.

Meanwhile, the Shiller P/E has just soared past 40x, a level last seen in 1999, hinting that the decade ahead may bring below-average returns for those tied to the S&P 500.

With these warning signs, diversification isn’t just smart — it’s essential. Billionaires like Jeff Bezos and Bill Gates continue to invest heavily in stocks, but they also allocate a portion of their portfolios to assets that behave differently from the market.

One standout example: post-war and contemporary art, which outpaced the S&P 500 by 15% from 1995 to 2025 while showing near-zero correlation to traditional equities.

Until recently, this world was off-limits. Now, with Masterworks, you can buy fractional shares in multimillion-dollar works by icons like Banksy, Picasso and Basquiat. While art can be illiquid and typically requires a long-term hold, it can offer unique portfolio diversification.

Masterworks has sold 25 artworks so far, yielding net annualized returns like 14.6%, 17.6%, and 17.8% among assets held for longer than a year.

Even better, Moneywise readers can get priority access to diversify with art: Skip the waitlist here

Note that past performance is not indicative of future returns. Investing involves risk. See important Regulation A disclosures at Masterworks.com/cd

Gold has served as a store of value for thousands of years. It’s become a key player in diversified portfolios nowadays. More recently, research from the World Gold Council has shown that adding a small allocation of gold to a portfolio can help improve risk-adjusted returns (10).

During periods of high inflation or financial instability, the metal has historically served as a hedge against currency depreciation and market volatility.

One way to invest in gold while also providing significant tax advantages is to open a gold IRA with Priority Gold.

Gold IRAs allow investors to hold physical gold or gold-related assets within a retirement account, which combines the tax advantages of an IRA with the protective benefits of investing in gold, making it an attractive option for those looking to potentially hedge their retirement funds against economic uncertainties.

To learn more, you can get a free information guide that includes details on how to get up to $10,000 in free silver on qualifying purchases.

BlackRock’s message isn’t necessarily that index investing is broken, nor should investors consider it to be. But amid rising costs and market volatility, the retirement landscape is changing.

For decades, passive index investing has helped millions of Americans build wealth. They still can. But as markets grow more complex and retirement gets longer, the world’s largest asset manager is betting that investors will increasingly need to look beyond tradition to keep afloat.

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Bloomberg (1); BlackRock (2); Investment Executive (3); AHA (4); Ocorian (5); Vanguard (6); Carroll Advisory (7); Goodreads (8); UBS (9); WGC (10)

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.