Adding Private Equity And Crypto To 401(k)s

Are these alternative investments worth the risks?

by Aaron Cirksena

Mr. Cirksena is the founder and CEO of MDRN Capital. He has devoted his entire career to financial planning, distribution planning, and managing client money. Before creating his own independent services firm, he worked with multiple $1 billion teams at Morgan Stanley and independent firms. He has been featured in Forbes, Yahoo Finance, Kiplinger, and the Wall Street Journal. He graduated from the University of Maryland, College Park, where he studied economics, in 2011.

On August 7, 2025, President Donald Trump issued an Executive Order (EO) directing various government agencies to begin work that would eventually enable investors to include alternative investments from private equity and cryptocurrency in their employer-sponsored retirement plans.

Since signing an EO is not the same thing as signing a bill into ‌law, these changes, if they do happen, will only come about slowly and with buy-in from the relevant financial institutions themselves. Still, investors of all kinds, but especially those who are nearing retirement or who have already retired, should understand the consequences and implications of this new policy.

Here’s everything retirees need to know about adding private equity and cryptocurrency investments to their 401(k)s, should this possibility ever open up.

How Alternative Investments Could Reshape Investing For Retirement

In the EO, President Trump’s rationale for these changes is that “alternative assets, such as private equity, real estate, and digital assets, offer competitive returns and diversification benefits.” He seeks to permit investors to include these alternative investments in their 401(k) portfolios, which would be a major departure from the current rules for retirement plans.

Having more choices sounds good on its face, and if these new options are approached correctly, perhaps they would be. However, retirees should be wary, since these alternative investments contain hidden risks that could have devastating effects on their everyday lives.

The Hidden Risks Of Alternative Investments For Retirees: Illiquidity

The first risk that these alternative investments would bring is illiquidity. Many private equity, private credit, and real estate investments tie investors’ money up for long periods. They often take seven to 10 years to mature. Investors may only get the chance to take money out a few times a year, and then only after their account has been vested for several years.

This means that, outside of those very limited time windows, investors would not be able to withdraw funds from those investments or move them elsewhere. For instance, it’s very common for people to want to shift their entire 401(k) into a more conservative investment mix as they approach retirement. However, they would not be able to move the funds that they have invested in these kinds of products until the next quarterly withdrawal window or even for years.

This illiquidity becomes particularly problematic if they suddenly need a large infusion of funds. Perhaps they needed to go to the emergency room and now have to pay a large medical bill. Perhaps they’ve changed jobs or decided to retire sooner than expected. With frozen assets, part of their portfolio is locked up just when they need it most.

The second major risk of these alternatives is their volatility.

Losing Lots Of Money Fast: Volatility

Investments of all kinds are vulnerable to losing value. However, certain types of assets are safer than others.

Notably, the history of cryptocurrency’s big swings places it among the riskiest. These digital assets can lose 20 to 50 percent of their value in only a few days or weeks. If that downturn happens close to the time that someone retires and starts taking allocations, it can have a disproportionately negative impact on them and their expectations.

Also, volatility is stressful. Watching an investment start dropping can tempt people to react emotionally and sell. At that point, the loss becomes real, whereas it might have been erased if the investor had held and waited for the asset to swing back up.

Moreover, most retirees don’t want to have to stay glued to their portfolios, monitoring what’s going on. Yet a product’s erratic behavior can be impossible to look away from.

Finally, when an asset is volatile, it also becomes functionally illiquid.

Why Volatile Assets Are Also Illiquid

When a crypto token is worth $100 one day, $60 the next, and then $120 the day after that, it becomes critical to pick the right time to sell. Most investors already know they shouldn’t take their funds out when it is dropping or low, but they also don’t know when the best time to sell would be, which makes them hesitate. They feel locked in psychologically.

It’s like having a boat during a storm. Technically, you’re free to leave the dock, but any attempt to actually do so risks capsizing. In reality, indecision will likely paralyze you. Chances are, you will not leave the dock, even though nothing traps you.

Fiduciary advisors play a key role in protecting their clients from unwise investments. With the advent of these potential policy changes, there are several steps they can take to ensure retirees don’t fall victim to the pitfalls of alternative investments…

In addition, some of these volatile assets trade infrequently or in small amounts. If an investor wants to sell a significant portion of their holdings, it can destabilize the entire market for that asset, driving its value down. The more the investor sells, the less they get for each subsequent portion. The cost of exiting can also be a form of illiquidity.

While private equity and private credit investments often look more stable, this is largely because they don’t report their value continuously like stocks and bonds. Rather, they issue reports quarterly or annually, meaning that if they shed value over time, investors tend to see the loss all at once and potentially long after market conditions have deteriorated, which makes planning harder and introduces an important element of doubt. Meanwhile, the value of these investments is often only an estimate, and their managers often demand more and higher fees.

In short, these alternative investments would not make sense for many — if not most — ordinary investors and retirees. They could even hurt new or inexperienced investors who jump in without understanding the risks. Some people and organizations would actually benefit if these policy changes were to come about, however.

Who Would Actually Benefit From These Changes?

Major employers and large 401(k) plans would tend to benefit from these changes. Since they have extensive staff and legal resources, they could thoroughly vet alternative investment opportunities. Their large size would also give them negotiating power in these deals, resulting in more favorable terms. For instance, they could bargain for lower fees and safer structures.

The financial companies that provide retirement plans would also likely benefit. They could design new products around these alternatives, attracting new business and charging the fees that go with it.

In addition, this policy would open up new sources of revenue for the managers of these alternative investments, who could hope to see more money moving into their projects. In particular, cryptocurrency companies that can already offer tight security, demonstrable compliance, and regulatory licenses could see substantial growth. That said, no cryptocurrency asset is fully regulated like a bank deposit or SEC-registered fund.

Experienced, careful investors who are willing to conduct the extensive research required to vet these investments and stay abreast of regulatory developments could also benefit. They should also work with expert fiduciary financial advisors and allocate only small amounts to well-designed, well-regulated products within these asset classes. Only 5 to 10 percent of their total retirement portfolio should be allocated to these options — they should merely supplement a stable, dependable foundation in broad-based index or target-date funds. These investors should also have at least a decade before reaching retirement age.

How Fiduciary Advisors Should Protect Their Clients

Fiduciary advisors play a key role in protecting their clients from unwise investments. With the advent of these potential policy changes, there are several steps they can take to ensure retirees don’t fall victim to the pitfalls of alternative investments.

First and foremost, don’t allocate to these products without fully educating clients on their pros and cons. In particular, make sure they understand that these are long-term commitments, not short-term trades.

Second, allocate only up to ten percent of a given client’s total portfolio to these alternative options. The amount should probably be even smaller for those who are approaching retirement. If your client wants to invest a larger chunk in them, then emphasize that these assets are like spices in a dish — a little can add flavor, but too much can ruin the whole thing.

Third, be transparent about liquidity and timing constraints. In addition to making sure that clients understand when they can — and cannot — access their money, explain that they may find themselves needing the funds during an emergency but not be able to access them. Invite them to ask any questions they may have and answer them honestly.

Finally, make sure to document all client discussions in full. Include the rationale for the allocations they have decided to make, as well as the explanations you have given them regarding the risks.

Ignore The Hype, Stick To Your Plan

The new policy in President Trump’s EO will not become reality for a long time, and perhaps never. Actually including these alternatives in retirement plans depends on regulatory guidance, plan sponsor adoption, and product availability.

If this new policy becomes reality, then it could expand investment options. But it would also expose retirees to risks.

Alternative investments often seem attractive, and the marketers of these products know how to make them sound trendy and exciting. For some investors, they could actually be a good choice. But most retirees should ignore the hype and adhere to the strategic plan they and their financial advisor have already put into place.