Retirement planning in the United States is breaking new ground. One new regulatory trend is that your 401(k) — the lovingly cultivated nest egg — will soon see more money put into it than stocks, bonds, and mutual funds. For the first time in history, “alternative assets” like private equity, private credit, and even cryptocurrency could become part of the standard retirement accounts.
It does sound tantalizing at first glance. More choice, more potential for higher returns, and the ability to invest like the wealthy. And yet with potential, there is peril, and financial experts warn that all doors opened do not have to be entered blindly. Let us stroll through what is occurring, why you need to care, and how you can protect yourself.
Why this change is happening
The shift can be traced back to an executive order that was signed during the Donald Trump reign. The order licensed managers of retirement accounts to make some alternative investments that were previously off-limits.
For decades, these investments were limited to so-called “accredited investors.” That is, people who already had a net worth of over $1 million (beyond their main homes) or incomes of $200,000 or more annually. The logic was simple: these investors could afford to lose money and had access to teams of financial planners.
Now, with retirement investors requesting more choices, regulators have relaxed the guidelines. It’s considered a means of “democratizing” investing — allowing ordinary Americans to gain access to the same possibilities as institutional giants.
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Why certain investors are interested
You may wonder why anyone would even consider adding these complicated investments to retirement funds in the first place. The response typically boils down to one word: diversification.
Stock and bonds are stable in the long run but may change with the market. Private equity or property funds are not necessarily moving in the direction of the stock market. That helps to smooth the volatility of a portfolio.
Based on a recent poll, more than 20% of retail investors have considered these alternatives, and 5% intend to add them. The siren song of greater returns — and getting to invest differently from everyone else — is seductive.
The hidden risks
This is where it doesn’t make it onto the tabloid front page: alternative assets are volatile, expensive, and hard to understand.
For example, private equity funds often charge high fees — sometimes 1% to 2.5% per year, along with a 20% cut of profit. That is steep compared to low-cost index funds that may charge as little as 0.03%. These high fees eat into returns.
Performance is yet another issue. Though private equity is sold on the promise of tapping into huge profits, the statistics are another thing altogether. To date, as of May 2025, only two of 14 private equity and venture capital funds Morningstar had been tracking had actually outperformed the S&P 500 in the long term. That is to say, most failed to deliver on the promise.
And liquidity. Stocks and bonds are readily liquidated in a pinch if you need cash. But hedge fund or private equity investments may have money locked up for years. If you’re close to retirement and unexpectedly need a large amount of money, you may be stuck with your money.
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What this means for your 401(k)
If your company’s retirement plan makes these other investments available, you might see them on the menu along with your standard offerings. But just because it’s an option does not always mean it is the best one.
Think of it like a buffet: just because there is a plate of hot food does not necessarily mean you should pile it on if your stomach cannot handle it. The same goes for your retirement fund. These funds may be good for some people but not for others.
Financial advisors suggest that everyday investors approach with caution. Alternative assets can play a role, but they should never replace the foundation of your retirement savings. For most people, that foundation remains diversified, low-cost stock and bond funds.
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How to protect yourself
- If you’re tempted to explore these new options, here are a few simple steps to keep in mind:
- Do your homework. Discover exactly what the investment is, how it works, and what fees are incurred.
- Cut exposure. If you want to take risks, do it in small increments — maybe 5% or less of your total portfolio.
- Make your base solid. Leave most of your money in tried-and-true investments.
- Talk it over with an advisor. A reputable financial planner will help you decide if these properties are for you.
- Think long term. Retirement funds should be stable and consistent, not a venue for taking gambles.
