A new order from President Trump means much broader opportunities for Americans to invest their 401(k) retirement funds to turn a profit.
But riskier for those who try.
“Are private investments a good idea in a 401(k)?” asked KTRH Money Mann Pat Shinn. “Yes. No.And maybe.”
The president has signed an executive order to let 401(k) retirement savings funds be invested in private-market investments and other alternatives. 401(k) funds are normally invested in conventional stocks and bonds.
The change would allow them to be put into vehicles like hedge funds and real estate trusts, or invested in growing companies whose do not yet offer publicly traded stocks. “Most of them are smaller or mid-sized type companies,” Pat pointed out. “There’s going to be some that are going to do very, very, well. There’s going to be some that go to ‘zero.’ So, you want to be very diversified.”
The president’s order calls on the Labor Department to set up guidelines for investment in broader types of assets. That could require changes in regulations from the Treasure Department and the Securities and Exchange Commission as well.
These new investment opportunities have another attribute investors may want to remember. Unlike stocks or bonds, they can’t necessarily be sold, and investors cash taken out, at the drop of a hat. Some have specific timelines making withdrawals take much longer.
“The limited liquidity,” Pat explained, “the possibility you can’t get your money out if you want it, and then also, a tremendous amount more risk. For somebody that wants to load up on this stuff, they’d better know what they’re doing and have a real long-term time horizon.”