Key Considerations for Adding Alternative Assets to a 401(k)

A shift is underway in retirement investing — and it may not be to the benefit of the average saver. Recent moves to allow private equity and cryptocurrency investments in 401(k) plans are being presented as a way to offer more choice and potentially higher returns. But behind the marketing, there is another motivation: private equity firms are increasingly struggling to exit old investments as traditional buyers dry up. In this environment, retail investors — especially those in 401(k) plans — represent a new, largely unsophisticated pool of long-term capital.

Institutional investors such as university endowments and sovereign wealth funds are already seeking to offload private equity holdings at discounts. As they look to exit, everyday investors are being encouraged to step in. That dynamic raises serious questions about who really benefits from this shift — and whether these complex, high-risk investments are appropriate for retirement savers.

(For a deeper dive into why private equity doesn’t belong in most 401(k)s, see the earlier article: Private Equity in 401(k)s: Why Retirement Savers Should Be Skeptical).

Can These Be Added to a 401(k)?

In some 401(k) plans — particularly those offered by larger employers — participants may see:

• Dedicated private equity or crypto investment options listed on the plan menu.

• Managed portfolios or custom strategies that include these assets as part of a broader allocation.

• Target-Date Funds (TDFs) that already contain small amounts of private equity, private credit, or other alternative assets, though this exposure is often not obvious unless fund details are carefully reviewed.

So even without directly selecting these assets, indirect exposure could already exist through a TDF or diversified fund.

Key Risks to Understand

Risk	Consideration
Volatility (especially crypto)	Crypto prices can swing dramatically, creating potential for large gains — but also sharp losses.
Illiquidity (especially PE)	Private equity funds typically require locking up capital for years. Not suitable if liquidity may be needed or retirement is near.
Valuation Uncertainty	PE assets are not priced daily and tend to have material opacity with pricing compared to public equities.
Higher Fees	PE investments often have high, layered fees. Crypto may not, but both require scrutiny of total costs to understand return potential.
Limited Transparency	These investments may be less straightforward than mutual funds, making it harder to understand what is really being invested in.

How to Evaluate These Options

1. Is the investment fully understood?
   Warren Buffett has long advised investors to only commit to investments they understand. Alternatives like private equity and crypto are complex; if they are not well understood, it is likely wise to avoid them.

2. Are the fees and lock-up periods acceptable?
   Private equity is known for high, opaque fees and long lock-up periods that restrict access to funds. Before considering these investments directly, it is important to weigh whether giving up liquidity for years is acceptable.

3. Does this align with the retirement plan — or is it just trendy?
   Private equity and crypto may sound exciting, but they should not drive portfolio decisions. If an investment does not align with long-term goals and risk tolerance, it likely does not belong.
   ➡️ Also see How to Approach Asset Allocation: A Practical Guide.

4. How much loss is tolerable — and how much risk is appropriate?
   Any investment in high-risk alternatives should be sized so that even a total loss would not derail retirement. For most households, that means keeping exposure to a very small percentage of the overall portfolio.

The Big Takeaway

Alternatives can be useful tools in a retirement plan — but only when they are the right size, at the right time, for the right reason.

Cover the Basics, Then Consider Higher-Risk Alternatives

Before taking on high-risk alternatives in a 401(k), the foundation of the retirement plan should be strong: consistent saving, cost-efficient investments, and the right mix of stocks, bonds, and cash to meet specific goals. Only once that foundation is in place should speculative assets like private equity, real estate, or crypto even be considered — and allocations should remain modest.

Additional Reading

1. Wall Street’s Big, Bad Idea for Your 401(k)
   https://www.wsj.com/finance/investing/wall-streets-big-bad-idea-for-your-401-k-f1003137

2. This New Investing Idea Isn’t Right for Your Retirement Plan
   https://www.wsj.com/finance/investing/this-new-investing-idea-isnt-right-for-your-retirement-plan-480582de

3. Private Equity Wants a Piece of Your Retirement Savings (Bloomberg)
   https://www.bloomberg.com/news/articles/2025-02-24/private-equity-wants-a-piece-of-your-retirement-savings

4. Private Equity Interest in 401(k)s (Bloomberg Video)
   https://www.bloomberg.com/news/videos/2025-02-27/private-equity-interest-in-401-k-video

5. Private Equity in 401(k)s Isn’t as Smart as It Seems (Bloomberg Opinion)
   https://www.bloomberg.com/opinion/articles/2025-06-06/private-equity-in-401-k-s-isn-t-as-smart-as-it-seems

6. Private Equity: Fooling Some of the People All of the Time (CFA Institute Blog)
   https://blogs.cfainstitute.org/investor/2020/01/20/private-equity-fooling-some-of-the-people-all-of-the-time/
   
   

Disclaimer

Your True Wealth is not a registered investment adviser. Our intent is to provide professional and credible financial education—resources often reserved for the affluent—in a way that is accessible to everyone. Therefore, this is financial education—not advice—and no buy or sell recommendations are provided. Every individual’s situation—and risk tolerance—is different, so readers should think critically, do their homework, and stay focused on long-term goals. Consult a licensed professional for personalized advice.