Retirement Savings: New Investment Choices on the Horizon

President Donald Trump has signed an executive order that could potentially open up 401(k) retirement plans to include investments in private equity and cryptocurrencies. This move, if fully implemented, would allow millions of Americans to diversify their retirement portfolios beyond traditional stocks and bonds. The process won't be immediate. Federal agencies will need to revise regulations to accommodate these new investment options, a process that could take months or even years. Once in place, employers could offer a wider range of mutual funds and investment choices to their employees, including alternative assets like private equity, cryptocurrencies, and real estate. This executive order directs the Labor Department and other agencies to redefine what qualifies as a suitable asset under 401(k) retirement rules. Currently, most retirement plans in the U. S. are composed of stocks, bonds, cash, and heavily traded commodities like gold. The change could benefit both the private equity industry, which has long sought access to retirement funds, and the cryptocurrency industry, which has seen significant support from Trump's administration. Cryptocurrencies, while popular among younger Americans, are known for their extreme volatility. Unlike traditional investments, crypto prices can swing dramatically in a single day. Despite this, the value of bitcoin has nearly doubled since Trump's election, reflecting a broader upward trend since its creation nearly two decades ago. Private equity firms, which typically rely on high-net-worth individuals and pension plans, could gain access to a much larger pool of retirement assets. This move has been a long-standing goal for the industry, as private equity investments can offer higher returns but come with greater risks and less liquidity compared to traditional investments. The average annual return on private equity assets has been around 13% since 1990, net of fees, compared to approximately 10. 6% for the S&P 500 index. However, private equity investments are often locked up for years, making them highly illiquid compared to stocks. Even with the new regulations, it will take time for major retirement plan companies to develop appropriate funds for employers to use. Employers are unlikely to revise their retirement plan options quickly, so it may be several years before crypto and private equity investments become common in individual retirement plans.