Why Private Investments Don't Belong in 401(k) Accounts

Rob from NC posted 11 months ago:

I have no problem with people being offered more freedom. Some of us make money by doing things differently than the crowd. If I wanted to ban something to protect the investing public, it would probably be those silly "target date" funds and roboadvisors. That said, I agree with Charles that most of the new investment options are unsuitable for purchase in a 401(k)---or anywhere else. I would not own them. A year or so ago, I opened a NASDAQ Private Market account, thinking I would be able to research the available pre-public companies from their site. I recently closed the account because the LACK of such information (and I did not buy anything while I was there). It's essentially a crapshoot.

Monk Monk from Texas posted 11 months ago:

Charles, Your point is on the mark and thank you for a finally fresh Thursday article. The progression from defined benefit retirement in the 1970's to what we have now has not worked well for the average citizen who lacks the financial acumen or training to manage complex investments, and this executive order is not a step to make the citizens more secure. The government has long eyed the 401(k) assets in different ways. Remember Clinton's idea of confiscating them and enacting a universal retirement system like Europe? Now, Trump is eyeing 401(k) to finance infrastructure projects, gamble on cryptos, and invest in illiquid instruments. Who gets to benefit from that? I doubt that the average citizen is going to be more prosperous as a result. I thought managing stocks and bonds and real estate was complex enough, now the average citizen has to deal with more complexity and more risks. I think it should be made available only to people who pass a deep financial literacy test, and then they also must meet a certain wealth threshold. Otherwise, the losses will make paupers out of people who can ill afford losing their retirement assets and they will become a public charge for the rest of us to carry. Also, the post 911 swing toward fascism has been gaining momentum over the years (and both parties have been guilty thereof). When will we return to a functioning democracy when important decisions are debated and voted on instead of being shoved down our throats with executive orders? I don't think the founding fathers would have approved of what is going on.

Barry from TX posted 11 months ago:

Charles, thank you for reminding us and keeping us aware of rising risk levels in markets. A big part of investing success is knowing your weaknesses and limitations. If you don’t accept this principle, the market will teach it to you soon enough. #1 Every investment company asks users to guess their “risk tolerance,” but most overestimate because they can easily see that saying you have a higher tolerance opens the door to the possibility of higher returns. #2 Markets share similarities with community swimming pools. They are legally considered to be “attractive nuisances.” They require owners to mitigate known dangers to potential users or be liable for any harm they cause through their negligence. #3 There is a place for everyone at the community swimming (investing) pool. #4 At the safe end of the pool, there is a highly supervised wading pool where new swimmers/younger investors learn to get their feet wet, but not drown. #5 Then a shallow end of the big pool where learners/waders/investors can wade in up to their waists, splash around, practice floating and swimming, and watch and learn from other swimmers/investors. #6 Then the larger part of the big pool, where swimmers can practice their skills in the deeper end of the pool using lanes that allow separate skill levels. #6 There is a pool-level diving board where the pool is deeper, so users can demonstrate their skills, and #7 high diving boards for the advanced/expert swimmers and trained divers. #8 Community pools and investment markets share many features that generate an environment that produces a “tragedy of the commons.” This is a common law concept that describes situations where individuals, acting in their own self-interest, excessively degrade or deplete a shared resource for their own gain, even when it's clear that doing so is ultimately detrimental to everyone involved. This happens because each benefits from using the resource, but the costs of misuse are shared by all, leading to overconsumption and degradation … and sometimes regulation … or elimination. #9 We live in a new “Gilded Age” where everyone wants to get rich quick (through aggressive investing using exaggerated imaginary skills), retire early (“FIRE”), live forever on imagined good fortunes, and demonstrate their “conspicuous consumption” (a term coined by Thorstein Veblen in his 1899 book The Theory of the Leisure Class) via their $2,000 iPhones. #10 The previous Gilded Age not only produced a “nouveau riche,” it also produced “robber baron” families that created exotic investment vehicles (trusts, holding companies, Ponzi and pyramid schemes, pump and dump, High Yield Investment Programs, etc.) to transfer the new riches of the “nouveau riche” into their pockets. #11 Nothing has changed with time. “Caveat emptor” is ancient advice. The smart money is out to get your dumb dollars from your dumb … Like the sign posted on every swimming pool says, “Swim at your own risk.”

Kevin from Ohio posted 11 months ago:

I agree with Charles - Private Equity investments don't belong in a 401k. I have been a member of an Angel Investor Group for 20 years. The risks and liquidity issues are real. You need to make sure your safety savings, core living expenses and a solid retirement fund are 120% secured before you risk Private Equity investments.

Kevin from NC posted 11 months ago:

I like the idea of democratizing investments, but think this will only lead sheep to slaughter. I expect there will be a call for federal bailouts at some point for all the sheared workers. CALPERS and others use private equity investments all the time - and they pay high fees for the privilege of doing worse than they would with an index fund. Someone will make money, but it won't be the line workers. Count me out.

Barry from TX posted 11 months ago:

If Charles can't convince you of the folly in investing in "alternative assets" like hedge funds, private equity, and venture capital, etc., and maintaining sufficient near-cash reserves in your portfolio during times when cash costs more to get than to hold, maybe Jason Zweig's article in the 08/22/25 WSJ might help make the case: "The Ivy League Keeps Failing This Basic Investing Test" with the subtitle, "Elite universities are again stuck with illiquid assets just when they badly need cash." ========================================================================================================================== Here's a gift link to cut and paste --- https://www.wsj.com/finance/investing/the-ivy-league-keeps-failing-this-basic-investing-test-747c8b8c?st=FT1jFC&reflink=desktopwebshare_permalink. ========================================================================================================================== Regards