Trump Wants Your 401(k) to Access Crypto and Private Equity. Here's What to Know

President Donald Trump has signed an executive order that could change the way Americans invest in their retirement accounts. The move opens the door for 401(k) plans to include so-called alternative investments like private equity and cryptocurrencies. These are not the traditional stock and bond portfolios that have long been the mainstay of retirement savings in the U.S.

The order, which is part of a broader effort to reshape retirement investment options, aims to give workers more choices. However, it comes with significant caveats. Alternative investments such as private equity and cryptocurrencies are known for their high risk and lack of transparency, which could make them unsuitable for many investors.

Under the new directive, the Department of Labor and other agencies will redefine what constitutes a qualified asset under 401(k) rules. This could allow for a broader range of investment options, but it also means that workers will need to carefully consider whether these assets align with their financial goals and risk tolerance.

While some experts believe that alternative investments can offer strong long-term returns, they also warn about the potential pitfalls. For instance, private equity investments involve companies that are not publicly traded, making it difficult to assess their performance in real time. Cryptocurrencies, on the other hand, are known for their extreme volatility, with values fluctuating dramatically from day to day.

There is also uncertainty about how quickly these changes will take effect. The complexity of the Employee Retirement Income Security Act (ERISA) means that it could take months or even years before crypto and private equity become widely available in retirement plans. Employers will need to revise their investment options, and it is unclear whether they will be willing to offer these new strategies.

Despite the potential for higher returns, alternative investments often come with higher costs, such as pricier fees for fund managers. These costs can eat into returns, making them less attractive for some investors.

As the debate over retirement investment options continues, one thing is clear: the future of retirement savings in the U.S. is being reshaped by bold new ideas and significant risks.