A new executive order signed by U.S. President Donald Trump is changing the types of assets Americans can hold in their 401(k)s and other tax-advantaged retirement accounts. This order allows for the inclusion of certain "alternative assets," such as private credit, private equity, and even cryptocurrencies, in these portfolios. This marks a significant shift from traditional investment options.
Key Takeaways
- President Trump's executive order permits alternative assets in 401(k)s.
- Alternative assets include private credit, private equity, and cryptocurrencies.
- Proponents highlight broader investment access; critics warn of complex risks.
- Historically, these assets were limited to "accredited investors."
- Private market funds often have high fees and limited liquidity.
New Investment Options for Retirement Accounts
The recent executive order from President Trump aims to expand investment choices for everyday Americans. Traditionally, retirement accounts primarily held publicly traded stocks, bonds, and mutual funds. The new directive opens the door to a broader range of assets. This includes private equity, which invests in companies not listed on public exchanges, and private credit, which involves lending directly to businesses.
Cryptocurrencies, digital assets using blockchain technology, are also part of this expanded list. This change could mean that retirement savers have more diverse options for their portfolios. The White House states that this move helps to "democratize" access to investment opportunities. These opportunities were once only available to large institutions and wealthy individuals.
Fact: Accredited Investor Rules
Historically, alternative assets were restricted to "accredited investors." According to the U.S. Securities and Exchange Commission (SEC), these individuals had a net worth exceeding $1 million (excluding their primary residence) or an annual income above $200,000.
The Drive for Diversification and Potential Risks
Retail investors have shown increasing interest in alternative assets. A survey conducted by market research firm Opinium revealed that 21% of retail investors have considered alternative assets. Another 5% plan to invest in them. The primary motivation for this interest is diversification. Investors seek to move beyond traditional stocks and bonds. They aim for potentially higher returns.
However, financial experts caution about the complex and less transparent risks associated with these assets. Unlike public market investments, alternative assets often lack easy liquidity. This means they can be difficult to sell quickly without affecting their price. Their valuation can also be less clear compared to publicly traded securities.
“If there’s a desire to pull out of private equity, there isn’t a way to actually sell that company or sell shares — there’s just no market for it,” said Charles Rotblut, vice president of the American Association of Individual Investors, in an interview with CNBC.
Understanding Hidden Costs and Performance
Private market funds often promote the potential for higher returns. In practice, these targets can hide significant costs and inconsistent performance. As of May 2025, Morningstar tracked 14 private equity and venture capital funds. Only two of these funds had outperformed the S&P 500 since their inception. This highlights the challenge of achieving superior returns in this sector.
Fees for private equity can be substantial. Hamilton Lane reports that typical private equity fees include 1% to 2.5% in annual management fees. Additionally, there are performance fees that can be 20% or more. These costs can significantly reduce an investor's net returns over time. The lack of a deep secondary market for private assets means exiting investments can be challenging.
Systemic Risk Concerns
The Institute for Economic Policy Research (SIEPR) warned about broader economic risks. Their report stated that widespread retail access to illiquid and opaque assets could create a “systemic risk machine.” This could increase the likelihood of financial instability during future economic downturns.
Protecting Your Retirement Portfolio
For most investors, maintaining a strategy focused on low-cost index funds remains a sound choice. These funds offer broad market exposure and typically have lower fees. They also provide greater liquidity compared to many alternative assets. This approach aligns with long-term retirement planning goals.
If you are considering private assets, consulting a financial advisor is crucial. An advisor can help determine if these investments fit your overall financial plan and risk tolerance. They can also explain the specific risks and costs involved. This professional guidance ensures that any investment aligns with your retirement goals.
Strategic Allocation for Alternative Assets
Lisa Kirchenbauer, founding partner and senior advisor at Omega Wealth Management, suggests a cautious approach. She told NPR that allocating a small portion of your portfolio to these asset classes, specifically around 5% to 10%, can be sensible. This strategy allows investors to explore potential diversification benefits.
At the same time, it limits the potential risks to a small part of their overall retirement savings. This balanced approach helps to protect your long-term financial security while allowing for some exposure to these new options. Understanding the trade-offs between potential returns and inherent risks is vital for all investors.
- Evaluate liquidity: Understand how easily you can sell the asset.
- Review fees: Be aware of all management and performance fees.
- Diversify broadly: Do not concentrate too much capital in illiquid assets.
- Seek expert advice: Consult a financial advisor for personalized guidance.
