You may have recently seen headlines about 401(k) plans adding private or alternative investment options. This increased attention follows a proposed rule from the U.S. Department of Labor (DOL) that outlines how employer-sponsored retirement plan fiduciaries can evaluate and potentially include alternative assets in a plan’s investment lineup.
If your plan adds one of these options—or you’re hearing about them for the first time—here’s what to know before making any changes.
What Are Private and Alternative Investments?
Private investments generally refer to strategies that invest in assets not traded on public exchanges. Common examples include:
- Private equity
- Private credit
Some alternative investments may also include assets such as cryptocurrencies, though these can vary widely in structure and risk.
Unlike publicly traded mutual funds or ETFs, private investments typically involve more limited access, less frequent pricing, and additional complexity.
Why Are These Investments Being Discussed in 401(k) Plans?
The DOL’s proposed guidance focuses on how plan fiduciaries can prudently evaluate nontraditional investments while still acting in the best interest of participants.
For plan sponsors, the conversation often centers on diversification and whether certain private assets could complement traditional stocks and bonds over the long term.
Potential Benefits Often Cited
You may hear proponents point to:
- Broader diversification beyond public stocks and bonds
- Exposure to areas of the market less represented in public indexes
Diversification alone does not eliminate risk, and outcomes can vary significantly depending on structure and implementation.
Key Risks and Tradeoffs to Understand
Before considering a private or alternative option inside a 401(k), it’s worth understanding some of the key considerations:
Liquidity limits and lockups
Private investments are generally less liquid than public investments. This may mean limited ability to buy or sell at certain times, potentially impacting access to funds or pricing.
Valuation and benchmarking complexity
Pricing and performance comparisons can be less transparent or less frequent than traditional investment funds.
Higher fees and complexity
Depending on the structure, private investments may involve higher fees, additional layers of management, and greater operational complexity.
Our Viewpoint
Diversification remains a cornerstone of long-term investing, but it should always reflect an individual’s goals, time horizon, and risk tolerance. While diversification may help manage risk, it does not eliminate the risk of loss.
Our investment team continuously monitors industry developments and conducts ongoing due diligence across both public and private investment opportunities. We generally believe public investments serve as the foundation of most portfolios, given their liquidity, transparency, and accessibility, with any additional allocations considered thoughtfully and case by case.
Considering a Change to Your 401(k)? Let’s Talk
If your employer’s retirement plan introduces a new private or alternative investment option and you’re wondering whether it makes sense for you, we’re happy to review it together.
We can help ensure any decision aligns with your:
- Financial goals
- Time horizon
- Risk tolerance
This material prepared by Journey Advisory Group is for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Economies and markets fluctuate. Facts presented have been obtained from sources believed to be reliable. Journey Advisory Group, however, cannot guarantee the accuracy or completeness of such information, and certain information may have been condensed or summarized from its original source. Past performance is not an indicator of future results.
Related Resources
- U.S. Department of Labor – ERISA fiduciary guidance
- SEC – Investor education on alternative investments
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