Heavy snow and difficult travel expected again, heaviest snow in southern Minnesota

MPR News helps you turn down the noise and build shared understanding. Turn up your support for this public resource and keep trusted journalism accessible to all. 

Turn Up Your Support

The funds in most retirement accounts are pretty basic: stocks and bonds.

 signed by President Trump aims to lay the groundwork for an array of "alternative assets," including cryptocurrency, real estate and private equity, to be included in 401(k) and similar accounts.

These accounts are retirement plans offered by employers that workers can contribute to. Workers choose among several investment options, typically funds of publicly traded stocks and bonds.

 the Department of Labor, the Treasury, and the Securities and Exchange Commission to clear the path for such assets to find a place alongside stocks and bonds.

Private equity firms are investment companies that buy up companies or assets — often distressed businesses. Sometimes the private equity firm succeeds in turning a company around — and sometimes, 

, the company gets loaded with debt and goes bankrupt.

Historically, the investors in private equity have been large institutions, like universities and state pension plans, as well as very wealthy people. But for most other people, private equity has not been an option.

Making it available as an investment option within 401ks would be a big change.

"There's a bit of democratization here, of making what were private exclusive investments to the wealthy available to everybody. But, you know, that doesn't mean you're getting the kind of stuff that has made other people wealthy," says Lisa Kirchenbauer, founding partner and senior advisor at Omega Wealth Management in Arlington, Virginia.

That's because it will depend on which companies or investments are put into these new funds, she says. And Kirchenbauer isn't convinced they will be the "best" opportunities, which might still be reserved for wealthier investors.

No law forbids including these assets in 401(k)s. But for plan managers, there have been some good reasons to exclude them: higher risk, complexity, lack of transparency — and for private equity, often much higher fees.

Which funds are on offer is really up to employers, since they are the administrators of 401k plans. A 

 requires the employer to act in employees' best interest as a fiduciary — and it gives workers the right to sue their employers for failing to do so.

 against including cryptocurrency funds in 401(k)s.

All of that had given employers ample reason to stick with the vanilla options of stock and bond funds.

But the Trump administration has more warmly embraced alternative assets. Trump's Labor Department 

The executive order could mean new options will be available within your retirement account, though not right away.

New kinds of funds have to be developed for the retail market — a process that's already underway, because 401(k) investors represent a huge new market for private equity firms and cryptocurrency companies.

But experts say these assets may not be well suited to everyone's 401k.

: typically 2 percent as a management fee and 20 percent of the profit. And investors are locked in for long periods of time, which could be a decade or more. Things could get messy if you're planning to retire or switch jobs soon, and want to move your money around.

Jeff Hooke, senior finance lecturer at Johns Hopkins University

 says the fees for private equity are simply too high to make them a good choice for the typical retirement fund. "And the track record for the last ten or 12 years has been mediocre at best, so I wouldn't recommend it, he says.

Crypto, meanwhile, has its own risks: it's highly volatile and 

Kirchenbauer says if you're really keen on alternative investments, and far from retirement, you might consider making these new assets up to 5 or 10 percent of your portfolio.

Meanwhile, Hooke suggests sticking with the basics: stock and bond index funds. "You're protected from high fees and you're principally guaranteed to return what the market does, since the fees are going to be extremely low," he says.

 this year, some investors might find that tracking the market is enough.

Business and Economic News

Politics and Government News

Homepage

Laurel Wamsley

Author

A recent executive order paves the way for retirement accounts to include a lot more than stock and bond funds.

Private equity and crypto could be heading for your 401(k). Here's what to know

Go Deeper.

Like this?