A recent executive order from President Trump will allow 401(k) plans to offer investments in: Private Equity (buying stakes in private companies), Private Credit (lending directly to businesses), Real Estate & Infrastructure (beyond publicly traded REITs), and Cryptocurrencies. Trump’s 401k order is being pitched as a way to help workers grow their retirement savings, but it’s important to understand the fine print.
Choice is Great, but Understanding Risk and Reward is Critical
More choice in retirement investing can be a good thing, but some choices come with more risk than reward for the average saver.
The recent executive order opening the door for 401(k) participants to invest in alternative assets is being promoted as a way to help workers build wealth. In reality, these asset classes are largely speculative for the typical investor — they are illiquid, high-fee, and carry meaningful risks that most retirement savers are not in a position to evaluate or absorb.
Who Really Wins with Trump’s 401k Order?
The institutional investors who have historically profited from these types of investments are not 401(k) participants. They are large, sophisticated entities like pension funds, endowments, and sovereign wealth funds. And, even they approach these assets with caution, using elite managers, negotiated low fees, and rigorous oversight.
It’s a potential windfall for the firms representing alternative investments
The new rule, however, is less about turning 401(k) savers into institutional investors and more about opening a massive new capital source for private equity, crypto platforms, and other alternative asset managers. For those firms, it’s a windfall of fresh money.
For individual workers, it’s an invitation into speculative investments that should be handled with care.
For Most People, These Are Speculative Bets
Financial pros use these investments to diversify, but even they keep them to a modest portion of their portfolio. For a typical 401(k) saver, putting too much into these assets can increase risk without a guaranteed reward.
Weigh the downsides of these alternative investments:
- Illiquid: Your money can be locked away for years.
- High Fees: You could pay several times more than for index funds.
- Hard to Value: Prices aren’t updated daily and can be subjective.
- Volatile: Crypto swings can be extreme; private equity returns vary widely.
4 Questions to Ask Before Buying Alternatives in Your 401(k)
1. Can I afford to have this money locked up?
Many private equity, real estate, and private credit investments require multi-year commitments. If you might need the money sooner — even in an emergency — the illiquidity could be a problem.
2. Am I comfortable with the fees and risks?
Alternatives often come with fees several times higher than index funds. Add in the fact that performance can be volatile and hard to predict, and you need to be sure you’re getting paid enough for the extra risk.
3. Am I doing this because it fits my plan, or because it’s trendy?
Private equity and crypto may sound exciting, but they shouldn’t drive your portfolio decisions. If the investment doesn’t fit your long-term goals and risk tolerance, it’s probably not worth it.
4. How much could I lose — and how much should I risk?
Any investment in high-risk alternatives should be sized so that even a total loss wouldn’t derail your retirement. For most people, that means keeping exposure to a small percentage of their total portfolio.
The big takeaway
Alternatives can be useful tools in a retirement plan — but only when they’re the right size, at the right time, for the right reason.
Cover the Basics, Then Consider Higher Risk Alternatives
Before taking on high-risk alternatives in your 401(k) as may be allowed with Trump’s 401k order, make sure the core of your retirement plan is solid — consistent saving, cost-efficient investments, and the right mix of stocks, bonds, and cash for your goals. Only then should you consider adding speculative assets like private equity, real estate, or crypto — and even then, keep the allocation modest.
At Boldin, we believe alternatives can have a place in a diversified retirement plan, but they should be approached with caution. Our mission is to help you focus on what really matters and understand the trade-offs. The Boldin Retirement Planner keeps you in control of your money. The surest way to build lasting retirement security isn’t chasing the newest opportunity; it’s educating yourself and sticking to a disciplined plan that’s cost-effective, transparent, and aligned with your long-term goals, not Wall Street’s marketing.