A new executive order from President Trump could open the door for alternative assets, such as cryptocurrency, private equity (PE), real estate, and digital tokens, to be invested in 401k plans. While it doesn’t mean you can yet, it’s a possibility that is moving to a future reality.
As the old saying goes, just because you may soon can, doesn’t mean you should begin loading your retirement plans with these assets.
While this might sound like an opportunity to diversify your retirement portfolio, there are several reasons to pause before adding them to your long-term plan.
Liquidity & Valuation Risks
Traditional 401k holdings like mutual funds or ETFs are liquid and transparent. What this means is you you can buy or sell them daily, and their values are easy to track and price. Private equity, real estate, and crypto tokens have varying degrees of transparency and valuation.
These alternative assets often lack daily pricing, which makes it harder to know what your portfolio is truly worth at any given time. Even worse, accessing your funds could involve long hold periods or redemption restrictions, especially when the market or the asset significantly falls in value.
For investors counting on clarity and flexibility in retirement savings, these assets complicate that equation.
Elevated Fees & Limited Oversight
Alternative assets often come with higher costs. Private equity funds may charge 1%-to-2% (or more) in management fees, plus a percentage of profits. Crypto funds can layer on custody, trading, or platform fees. And these costs aren’t always obvious to the investor.
Higher fees eat into performance and aren’t always justified by better returns, especially when the alternative could be a low-cost index fund with long-term staying power.
For retirement savers, these elevated expenses could silently drag down results over decades of compounding.
Volatility & Allocation Risk
Cryptocurrencies remain some of the most volatile assets out there. Even if crypto is only a small piece of your 401k, wild price swings can distort your portfolio’s risk profile and your net worth.
Real estate and PE investments may be less volatile on paper, but that’s often because prices are reported less frequently, not because they’re truly stable.
Net-net, when you’re evaluating your ability to retire or whether you should save more (or less), the spot prices of these tools can make it appear as if you have far more in your 401k than you actually do. That’s particularly problematic as you near retirement.
If They Lose in a 401k, You Lose Twice
One of the most under appreciated risks of putting speculative or high-risk assets into a 401k is how losses are treated.
If your crypto holdings tank, or your private equity fund underperforms, those losses stay locked inside the tax-deferred account and you can’t claim them on your tax return.
Unlike losses in a taxable brokerage account, which can offset capital gains or even reduce your taxable income up to a certain amount, retirement account losses offer no such relief.
So, if you take on additional risk in a 401k for the potential of higher return, and it doesn’t work out, then you’re absorbing 100% of that downside with no tax benefit to soften the blow. If it’s a $100,000 investment in a PE fund, which goes under, that $100,000 is a loss in the portfolio, and cannot be used (potentially for years) to reduce your taxes.
That’s a risk not worth taking, in most cases.
