President Trump’s recent executive order opens the door for 401(k) plans to offer alternatives like private equity, private credit, real estate, and even cryptocurrencies — options that promise bigger returns but come with far bigger caveats. While more choice can sound empowering, these investments are often illiquid, high-fee, and complex, and they’ve historically been the province of large institutional investors with deep expertise. Before you jump into private deals or crypto through your retirement plan, it’s essential to understand the risks, who really benefits, and whether a small, deliberate allocation fits your long-term strategy.
Which asset types are newly available?
| Asset class | What it is | Typical investor profile |
|---|---|---|
| Private equity | Equity stakes in privately held companies | Institutional or experienced accredited investors |
| Private credit | Direct lending to businesses outside public markets | Institutional lenders and specialist funds |
| Real estate & infrastructure | Non-public property and infrastructure investments (not just REITs) | Long-term capital allocators with active management |
| Cryptocurrencies | Digital assets traded on various exchanges and platforms | High-risk, speculative traders and long-term allocators with strong risk tolerance |
Why this matters: potential benefits and key hazards
Allowing these options into workplace retirement plans can, in principle, increase return opportunities. At the same time, each category brings structural features that can be difficult for the average 401(k) participant to assess or tolerate.
Core hazards to understand
Four structural drawbacks recur across these alternatives:
- Illiquidity: capital often becomes unavailable for years.
- Fee structure: costs can be many times higher than passive index funds.
- Valuation opacity: pricing is infrequent and may rely on subjective judgments.
- Performance variability: returns can swing widely and are not guaranteed.
These features mean that alternatives are not substitutes for low-cost, liquid core holdings for most savers.
Quick comparative snapshot
| Criteria | Private Equity | Private Credit | Real Estate & Infrastructure | Cryptocurrency |
|---|---|---|---|---|
| Liquidity | Very low | Low to moderate (contract-dependent) | Low | Variable — some liquid, some not |
| Fees | High | High | High (management + transaction) | Varies widely; platform fees + spreads |
| Valuation transparency | Limited | Limited | Limited | Often transparent for traded tokens, opaque for private offerings |
| Volatility / Return dispersion | Wide dispersion | Variable; credit risk dependent | Depends on market/asset type | Extremely wide swings |
Who benefits and who should be cautious
Firms that manage and sell alternative investments stand to attract large new pools of capital if 401(k) plans route participant dollars into these products. By contrast, individual savers must weigh complexity and potential harm to retirement outcomes.
Two distinct perspectives
- Asset managers: can access a broader retail capital base and scale products.
- Participants: face harder-to-evaluate offerings and potentially higher net costs.
Decision framework: four questions to ask before allocating
Treat each potential alternative investment as a decision problem. Ask these questions and document your answers before moving money.
| Question | What to evaluate | Concrete test |
|---|---|---|
| 1. Can I afford illiquidity? | Time horizon and emergency access needs | Estimate when you’ll need the funds and ensure commitments don’t exceed that window |
| 2. Are fees and risk compensated? | Total fees, expected returns net of costs | Compare net expected return vs. low-cost alternatives and stress-test downside scenarios |
| 3. Is this aligned with my plan or just trendy? | Fit with long-term goals and risk tolerance | Check if the allocation changes your plan’s risk profile in ways you can accept |
| 4. What’s the worst-case loss and how much should I risk? | Loss severity and portfolio impact | Size exposure such that a total loss won’t derail retirement objectives |
Practical steps to apply the framework
- Run a liquidity check: identify upcoming cash needs and match them to investment lock-up schedules.
- Request a fee breakdown: ask for total expense ratios, carried interest, and any hidden charges.
- Simulate outcomes: model several return scenarios and stress-test the portfolio.
- Limit exposure: set a cap as a percentage of total retirement savings (typically modest).
Recommended order of operations for plan participants
Before experimenting with high-risk alternatives inside a 401(k), make sure the fundamentals are in place. Those basics form the safety net that lets you take measured risks without jeopardizing retirement.
Baseline checklist
- Consistent contributions (automatic if possible)
- Low-cost core holdings (index funds or diversified ETFs)
- A strategic mix of stocks, bonds, and cash matched to your goals
Only after these elements are robust should you consider adding a small allocation to alternatives, and then only with clear documentation of fees, lock-up terms, and worst-case loss scenarios. Alternatives can complement a retirement plan, but they should be added sparingly, after solidifying core savings behaviors and cost-efficient holdings.
