CD vs Treasury bonds: 5 factors to decide what's best for you
Schwab Center for Financial Research fixed income strategist Cooper Howard joins Wealth with Brad Smith to outline five factors to take into consideration when deciding between investing in a CD or Treasury bond.
To watch more expert insights and analysis on the latest market action, check out more Wealth here.
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What Do President Trump's New 401(k) Asset Rules Mean For Your Retirement?
Key Points President Donald Trump has ordered the exploration of adding new kinds of investment options to 401(k) plans. These proposed offerings include alternative investments that are currently barred from being held in most retirement or conventional brokerage accounts. Most investors are better served by sticking with more conventional and more liquid stocks, bonds, and funds. The $23,760 Social Security bonus most retirees completely overlook › Investors could soon have a whole new slate of investment options in their 401(k) accounts. That's the goal of an executive order recently signed by President Donald Trump, anyway. The order instructs the Secretary of Labor to confer with the Secretary of the Treasury and the Securities and Exchange Commission to determine the most feasible way of adding private equity, real estate, digital currency (crypto), and other alternative investments as options for 401(k) plans. Even though it could take years for the idea to become reality, it's a significant potential shakeup for the usually conservative business. The question is, given the spotty track record of less-than-mainstream investment options, are these something the average investor would actually want to invest in with their retirement savings? After all, they've done well enough without them to date. What's the heck is private equity anyway? There's no ironclad definition of the term alternative investments. Broadly speaking, though, they are any investments outside of the familiar sphere of options like publicly traded stocks, bonds, mutual funds, and exchange-traded funds (ETFs). They generally include choices like hedge funds, real estate, or even collectibles, and more recently, the category has included cryptocurrencies like Bitcoin (CRYPTO: BTC) or XRP (CRYPTO: XRP). These investments aren't well-regulated -- if they're regulated at all -- nor do they trade on a conventional exchange that makes them easy to buy or sell. As such, not only do they often lack the transparency that most investors are accustomed to, but pricing them or even simply selling them can be difficult. Perhaps the most interesting category of alternative investments that the White House's official statement on the matter mentioned, however, is private equity. Why so interesting? Because it's the one that investors arguably know the least about, but also the one that could prove the most compelling yet also most problematic to future retirees. Just as the name suggests, private equity is an investment in a non-publicly traded entity. Some familiar privately owned companies right now include SpaceX, grocery store chain Aldi, car-rental outfit Enterprise, and 7-Eleven. A few of these companies are owned by one individual. Others are owned by conglomerates. Several have more than one owner. But you can't buy into any of them on your own -- their current owners must be willing to sell you a piece of their stakes. And, almost needless to say, they're not often looking for a bunch of small investors. Of course, these companies are also often the very ones you would love to be able to own a piece of, if you could. So what's the risk? The numbers involved in adding private equity to individual investors' 401(k) options raise some red flags. For perspective, Standard & Poor's says the global private equity market is currently worth about $15 trillion. The Investment Company Institute, meanwhile, reports that as of the end of the first quarter, there was more than $43 trillion worth of value sitting in Americans' retirement accounts. That's a lot of money up for grabs by an industry that isn't well regulated. It would be naive to believe there won't be at least a few bad actors looking to capitalize on investors' fear, greed, and lack of understanding in the midst of the chaos. And for the record, the private equity market is hungry. It's not been able to garner as much capital lately as it has in the past, largely because investors are finding it increasingly tougher to sell their stakes. (More on this in a moment.) To be clear, that doesn't mean there won't be any private equity options worth owning should they make their way into your 401(k) plan. Some of them certainly will be. Just know that some of them won't be, even though all of them will tout their potential upside. That's the risk, by the way. You won't necessarily know which private equity choices are actually worthy and which aren't, simply because private equity isn't subject to the same disclosure and transparency rules as publicly traded companies. Just remember this: Any privately owned company or any manager of several privately owned outfits looking for investors is looking to exchange control and ownership of their business (a business often built by them from the ground up, no less) in exchange for your capital, or cash. That's telling in and of itself. Most owners of businesses worth owning are usually looking for ways to maintain private control, not surrender it. If they're selling, there's a reason. In the case of private equity, that reason is often a steep annual management fee -- in the ballpark of 1% to 2% -- plus a very big performance bonus they pay themselves. If you don't think Wall Street is still capable of making some incredibly convincing sales pitches, consider this as well: Despite persistent underperformance by most hedge funds, the global hedge fund industry still somehow managed to garner more than $10 billion in new assets in 2024, bringing total assets under management to more than a record of $4.5 trillion, according Hedge Fund Research. You've already got access to such a choice The irony is, self-directed IRA owners already have access to private equity-like options that are suited to fill the gap that Trump is trying to fill. Ever heard of Apollo Global Management (NYSE: APO)? With a market cap of about $80 billion, it is the manager of several private equity companies as well as a lender to several privately owned outfits, including security tech company ADT, retailer Michael's, and Coinstar, which converts coins into currency. You can't own any of these companies directly. You can, however, own a stake in the company that does own them. Then there's Ares Management (NYSE: ARES) and its companion ticker, Ares Capital (NASDAQ: ARCC). The former is the fee-collecting manager of the latter, and the latter is a business development company (not terribly unlike a private lending outfit) that holds stakes in more than 500 companies, including Banyan Software, professional soccer team Miami Beckham United, and pest control chain PestCo, just to name a few. Brookfield Asset Management (NYSE: BAM), Blackstone (NYSE: BX), and KKR (NYSE: KKR) are some of the other names that operate as hybrids in this market, by virtue of being publicly traded owners and managers of assets that you can't directly invest in. KKR owns the online contact lens retailer 1-800 Contacts, for example, while Brookfield holds stakes in automobile battery outfit Clarios and lottery scratch-off ticket printer Scientific Games. Publicly traded private equity companies like these may work best for 401(k) accounts simply because -- even if their privately owned companies are walled off from public scrutiny -- these management firms at least offer the same transparency that's required of all publicly traded corporations. Shares of these companies also trade via an exchange just like any conventional stock, so you can get in or out at a market price whenever you want. That's in contrast with the current condition for some private equity outfits. Industry news site PitchBook reports that the private equity industry's new investments in non-publicly traded businesses are currently more than three times their sales or exits of similar privately owned businesses (a decade-high disparity), making it difficult for investors who want to cash out to actually get out. In other words, at least some private equity investors are locked into stakes they would like to sell. To this end, it's not yet clear how the private equity investments Trump is attempting to bring to 401(k) accounts would be priced, purchased, or sold. Probably not worth the hassle for most Obviously, we'll have to wait and see what happens next; the executive order only calls for an exploration of the idea. Unless the options added to 401(k) plans look more like Apollo and Ares and less like a hedge fund or other alternative investment that doesn't regularly trade on an exchange, though, most investors probably won't want to mess with these choices. At least with the stock market, you know what you're getting and you know you can get out. The $23,760 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Blackstone, KKR, and XRP. The Motley Fool recommends Brookfield Asset Management. The Motley Fool has a disclosure policy. What Do President Trump's New 401(k) Asset Rules Mean For Your Retirement? was originally published by The Motley Fool
