Thinking of adding crypto and private equity to your 401(k)? Here are the 2 biggest risks you should know.

Business Insider

a day ago

If you're nervous about retiring, you may have even more to worry about in the near future, depending on your appetite for financial risk.
On August 7, President Donald Trump signed an executive order that could mean big changes for the many Americans with retirement accounts. It will make it easier for 401(k) investors to access non-traditional assets such as cryptocurrency and private equity.
The Trump administration has prioritized crypto-friendly policies that may help spur crypto adoption. This has sparked significant momentum for crypto markets, with bitcoin leading the way.
As Business Insider reports, though, the idea of opening up 401(k)s to alternative assets originally raised red flags for many people in the asset management and financial advisory spaces.
In their view, this policy change could compromise the low-risk, uncomplicated nature of 401(k)s, which is considered to be part of why many people trust them. However, the new executive order could mean both higher risk and reward for those who want to explore this new opportunity.
As Marcus Sturdivant Sr., managing member of The ABC Squared said, financial advisors had been discussing these issues with clients long before Trump's executive order.
Private equity in a 401(k)
Many people outside the financial sector may not fully understand what private equity is. This is partially because the private equity process of gaining exposure to companies that are not publicly traded has been reserved for high-net-worth individuals.
"Private equity lacks the transparency of publicly traded companies, and if they are placed inside a fund, the already lagging effect of the reported data will be increased," Sturdivant told Business Insider.
He added that the private equity industry also funds many companies that do not end up going public and, in some cases, lose a lot of money. That said, Sturdivant also acknowledged that some consider private equity to be one of the best long-term measures to grow wealth.
However, there are still tradeoffs, and opening up a 401(k) to private equity may disadvantage some users due to timing, specifically the lock-up period on an investment, which can be either a pro or con.
"If you are older and near retirement or leave it as an inherited account, the private credit portion may be locked in for a period that makes the ten-year period to use an inherited retirement account impossible to access the funds," he noted.
Crypto in your 401(k)
It is well known that crypto is subject to volatility, which has sparked concern among some policymakers who see it as high-risk for consumers.
A group of Senators recently raised it in a letter to Federal Housing Finance Agency (FHFA) director William Pulte, highlighting concerns with his plan to have Fannie Mae and Freddie Mac count crypto as an asset in some mortgage applications.
Sturdivant described the prospect of adding crypto to a 401(k) as intriguing but noted that coin and token performance can depend on a multitude of factors.
"How they grow can depend on the fund they are in, or whether they are individual, and if they are backed by a stablecoin," he said. "If they are backed by a stablecoin, the returns will be tempered and inflation sensitive, not the outsized growth or loss as a token or coin, not a fiat-backed coin."
That said, Sturdivant also described the typical crypto volatility as simply the cost of the technology as it progresses, highlighting the fact that some prominent policymakers hold bitcoin.
"This legislation will not be a complete backstop to a bitcoin decline, but could stabilize a move as the US and countries around the world already hold and are adding bitcoin to their reserves," he predicted.