Trump’s new 401k order: Are cryptocurrencies and private equity your retirement nest eggs?

President Trump’s latest executive order will allow 401(k) plans to provide investment: Private Equity (Purchase shares in a private company), Private Credit (Borrow directly from the enterprise), Real estate and infrastructure (Beyond publicly traded real estate investment trusts) and Cryptocurrency. Trump’s 401k order was marketed as a way to help workers increase their retirement savings, but it’s important to know the fine print.

The choice is great, but understanding the risks and rewards is crucial

More options for retirement investment may be a good thing, but some options are more risky than the average saver’s reward.

The recent executive order to invest in alternative assets for 401(k) participants is being promoted to help workers build wealth. In fact, these asset classes are largely Speculativeness of typical investors – They are liquid, high-cost, and can pose meaningful risks that most retired savers cannot assess or absorb.

Who really won by Trump’s 401k order?

Institutional investors who historically profited from these types of investments were not 401(k) participants. They are large, complex entities such as pension funds, endowments and sovereign wealth funds. And, even if they use elite managers with caution, negotiate low fees and strict supervision, they should be cautious about these assets.

This is a potential surprise for companies representing alternative investments

However, the new rule is not just about turning 401(k) savers into institutional investors, it is more about Open up huge new capital sources for private equity, crypto platforms and other alternative asset managers. For those companies, this is beyond the surprise of fresh funds.

For individual workers, this is an invitation to speculative investment and should be handled with caution.

For most people, these are speculative bets

Financial professionals use these investments to diversify, but even if they keep them part of their portfolio. For a typical 401(k) saver, putting too much assets into these assets can increase risk without guaranteed rewards.

Weigh the drawbacks of these alternative investments:

• Liquidity: Your money can be locked in for years.
• High fees: You can pay several times more money than the index.
• It’s hard to pay attention to: Prices will not be updated every day, and may be subjective.
• Variable: Crypto swings can be extreme; private equity returns vary widely.

4 Questions to Ask Before Buying Alternatives in 401(k)

1. Can I afford the money?

Many private equity, real estate and private credit investments require years of commitment. If you may need money early (even in an emergency) then insufficient liquidity can be a problem.

2. Am I satisfied with the fees and risks?

Alternatives are usually several times higher than index funds. Plus, performance can be volatile and unpredictable facts, and you need to make sure you get enough rewards for risk.

3. Am I doing this because it fits my plan or because it’s very popular?

Private equity and cryptocurrencies may sound exciting, but they shouldn’t drive your portfolio decisions. If the investment does not match your long-term goals and risk tolerance, it may not be worth it.

4. How much will I lose – How much should I take?

Any investment in a high-risk alternative should be sized so that even the total loss does not derail your retirement. For most people, this means maintaining a small portion of their total portfolio.

Big takeaway

Alternatives can be useful tools in retirement plans – but only for the right reasons, alternatives can be useful tools only at the right time, the right time size.

Cover the basics and then consider higher risk options

Before Trump’s 401k order can allow high-risk alternatives in 401(k), make sure the heart of the retirement plan is reliable – continuous savings, cost-effective investments, and the right combination of stocks, bonds and cash. Only then can you consider adding speculative assets like private equity, real estate or cryptocurrencies, and even then, be humble.

At Boldin, we believe alternatives can have a place in a diverse retirement plan, but should be steadily cautious. Our mission is to help you focus on what really matters and understand the tradeoffs. Boldin retirement planners give you control over your funds. The most reliable way to build lasting retirement safety is not to chase the latest opportunities. It is educating itself and sticking to a disciplined plan that is cost-effective, transparent and aligned with your long-term goals, not Wall Street marketing.