Retirement Plans: New Investments, New Risks

Retirement accounts like 401(k)s are usually simple. They mostly hold stocks and bonds. But things might change soon. An order from President Trump wants to add new types of investments to these accounts. These include cryptocurrency, real estate, and private equity.

Private Equity: A New Option for Everyone?

Private equity firms buy companies, often those in trouble. Sometimes they fix these companies. Other times, like with Toys R Us, the companies go bankrupt. Usually, only big institutions and wealthy people invest in private equity. But now, it might be an option for everyone.

Risks and Considerations

Adding these investments to 401(k)s is a big deal. It could make these exclusive investments available to more people. But experts aren't sure if these will be the best opportunities. They think the top investments might still be for wealthier people.

There are good reasons why 401(k)s have stuck to stocks and bonds. These new investments come with higher risks, complexity, and lack of transparency. Private equity also has much higher fees. Employers, who manage these plans, have to act in their employees' best interests. This has made them cautious about adding new investments.

Government Stance

The Biden administration even warned against adding cryptocurrency to 401(k)s. But the Trump administration has been more open to these alternative assets. They rescinded the Biden-era guidance in May.

Potential Implications

These new investments could mean more options for your retirement account. But they might not be suitable for everyone. Private equity firms charge high fees and lock in investments for long periods. This could be a problem if you plan to retire or switch jobs soon.

Cryptocurrency is also risky. It's highly volatile and not well-regulated. Experts suggest that if you're interested in these new investments, you might consider making them a small part of your portfolio. They also recommend sticking with the basics: stock and bond index funds.