If you’ve ever wondered what it’s like to be a private equity investor or dabble in cryptocurrencies like Bitcoin, then you might soon get your wish.
On August 7, 2025, President Trump signed an Executive Order to allow workplace retirement plans such as 401(k)s the ability to offer alternative assets. In an official fact sheet published by the White House, alternative assets are defined as private equity, real estate, and digital assets.
The goal, according to President Trump, is to give Americans access to competitive returns and better diversification. The executive order asks various Federal agencies (such as the Department of Labor and Securities and Exchange Commission) to clarify their position on alternative assets, facilitate their accessibility, and give guidance on a fiduciary’s duties.
Classically, 401(k)s and other employer-sponsored retirement plans have only been allowed to invest in highly regulated, publicly traded securities such as mutual funds, stocks, and bonds. Since its establishment in 1974, the Employee Retirement Income Security Act (ERISA) says that retirement plan administrators must act with prudence and loyalty solely in the interest of the plan’s participants and beneficiaries. In other words, even though no investment is ever truly “safe”, plan administrators can and should stick with investment selections that have been well vetted and stand the best chances of providing long-term financial security.
While the prospect of investing in private equity or crypto may have some advantages, the potential downsides could also be greater. In this post, we’ll explore how this change may impact your retirement plan and whether alternative assets are right for you.
Benefits of Alternative Assets
For some investors, the thought of including private equity and crypto in their workplace retirement plan might seem appealing for several reasons.
Potentially Higher Returns
Let’s start with the obvious: more money! It’s no secret that some people have gotten rich quickly from betting on crypto.
Take Bitcoin, for example. According to a study by Bankrate:
- If you invested $1,000 in Bitcoin in 2024, your investment would be worth $1,712.
- If you invested $1,000 in Bitcoin in 2020, your investment would be worth $11,748.
- If you invested $1,000 in Bitcoin in 2015, your investment would be worth $408,108.
- If you invested $1,000 in Bitcoin in 2010, your investment would be worth about $1.07 billion.
Though not as extreme, private equity is looking frothier too. On average, it has produced a 13.1% annual return over the previous 25 years, according to data from Cambridge Associates. That’s well ahead of the 8.6% average return posted by the S&P 500 stock market index during the same period.
Opportunity
Another reason this executive order might be exciting is that it opens the door to a class of investments that were previously exclusive to only the rich.
Specifically with private equity, you almost always have to be what’s considered an accredited investor before you can participate. An accredited investor is defined as someone with a net worth over $1 million (excluding their primary residence), or a consistent income of over $200,000 (or $300,000 with a spouse), or who holds certain financial licenses.
If private equity is now made available to 401(k) participants, that means these financial requirements are no longer a barrier.
Diversification
Finally, some people might welcome the prospect of investing in something other than regular old stocks and bonds. For decades, most retirement plans have been tied to funds that are basically a mixture of these two types of securities. As private equity and crypto become more mainstream over time, there’s naturally going to be more curiosity and higher demand for these assets.
Drawbacks of Alternative Assets
As you might suspect, investors need to be cautious of alternative assets before integrating them into their long-term portfolios.
Risk
First and foremost, private equity and crypto are very risky.
With private equity, there’s no guarantee that these firms will be able to make the struggling companies they’ve purchased profitable again. Their efforts may continue to be undermined by ineffective management, failing products, or fierce competition. At the same time, private equity firms may take on more debt than traditional businesses, which can also reduce investor returns.
Likewise, crypto isn’t exactly known for being stable. Over the years, Bitcoin volatility has been approximately 54% vs. 15.1% for gold and 10.5% for global equities – experiencing at least four drawdowns in excess of 50%. Seeing your investment get cut in half is not exactly something you want your retirement savings to do.
Transparency
Whereas stocks and bonds are heavily regulated by the SEC, private equity is … “private”. Because these organizations aren’t publicly traded, they’re not subject to the same reporting and disclosures as a company you’d find in the stock market.
This can leave investors in the dark as to what exactly the private equity firm does or the methods it uses. Often, when they acquire another company, they will go to extreme measures to cut costs, shut down locations, and eliminate certain products.
This has sometimes led to a vilification of private equity – painting them as someone who will squeeze every last dollar out of a company before it collapses entirely. If you don’t think so, look up what happened to once prominent retailers like Toys R Us, Sears, and Payless Shoes.
Cryptocurrency is even more unregulated. Back in 2022, it was revealed that one of the largest and most popular crypto exchanges at the time, FTX, was nothing more than a Ponzi scheme. Its founder, Sam Bankman-Fried, was found guilty of funneling money into the company’s sister hedge fund, Alameda Research, where funds were then misappropriated for various purposes. The courts determined Bankman-Fried had stolen $8 billion from customers, $1.7 billion from investors, and $1.3 billion from lenders.
Since then, legit financial organizations like BlackRock have successfully lobbied for the creation of ETFs that invest in crypto, essentially adding some buffer between investors and the crypto assets themselves. However, that still doesn’t take away the potential pitfalls that crypto is fundamentally susceptible to.
For example, in 2022, the popular Terra Luna token suddenly fell one day from a high of $118 to just $0.09. This was due to a glitch by its sister token, TerraUSD, a stablecoin that is supposed to maintain a consistent value of $1 but fell to $0.40.
Fees and Illiquidity
Though it’s common for funds in your 401(k) to charge fees, those involved with private equity will likely cost more. Typically, these firms will charge investors around 2% of the total assets under management to cover their operational expenses. Additionally, they also usually charge a performance fee of around 20% of the profits generated from successful investments to incentivize achieving high returns.
Private equity is also notorious for locking up capital due to the nature of its business. That means if you need your funds early, you may either have to wait or face some kind of hefty early redemption fee.
Who Really Benefits from Who?
Even though the executive order to allow alternative assets into 401(k) plans states that it’s doing so in the best interest of working Americans, one has to wonder if there are other intentions.
The U.S. 401(k) industry holds more than $8.7 trillion in assets. That’s an untapped and incredibly lucrative basket of cash that the alternative asset markets would no doubt love to get their hands on.
The Bottom Line
Does it make sense to make private equity and crypto a part of your retirement savings plan? The answer will largely depend on your goals for your 401(k) and risk tolerance.
For instance, younger investors who will likely be saving for decades might be able to ride out the volatility of these assets and capture higher annualized returns. Meanwhile, investors who are closer to retirement may want to think twice about how much (if any) of their asset allocation includes private equity.
As always, be sure to do your own research before committing to moving any of your money and consult a professional if you’re unsure of what to do next.
Featured image credit: Unsplash
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