America’s retirement landscape may be on the verge of a seismic shift.

President Donald Trump has signed an executive order that significantly broadens the range of investment options available in 401k retirement plans—allowing access to alternative and private investments that were previously off-limits to everyday savers.

What’s changing?

Under current regulations, 401k plans are largely limited to publicly traded securities such as stocks, bonds, and mutual funds. This structure has kept portfolios relatively liquid, regulated, and accessible—but also confined within the borders of the traditional market.

Trump’s executive order directs the Department of Labor (DOL) to revise these long-standing rules. Here’s what the proposal would bring:

• Looser fiduciary standards: Financial advisors and plan sponsors could gain more flexibility in recommending and including a wider variety of investment products—potentially including those with higher risk, higher fees, and less transparency.
• Expanded access to alternative and private investments: The order actively encourages the integration of private equity and other alternative asset classes into retirement portfolios.
• Reduced regulatory oversight: The DOL may scale back enforcement mechanisms designed to ensure investments align with the best interests of plan participants.

In theory, these changes are intended to modernize retirement investing, foster economic growth, and open new avenues for wealth creation. But critics warn they may also expose unsuspecting investors to increased financial complexity, hidden fees, and liquidity traps.

The 401k is no small matter

This is no fringe reform. The 401k is the backbone of retirement planning for millions of Americans. According to the Investment Company Institute, over $7.4 trillion was held in 401k plans at the end of 2023—accounting for 70% of all defined contribution assets in the U.S. retirement system.

Changing the structure of these plans isn’t just about portfolio variety, it’s about potentially redefining the retirement experience for an entire generation.

Alternative investments: What they are and why they matter

So, what exactly are these “alternative investments” that could soon enter the 401k ecosystem?

In short, alternative investments include any asset that doesn’t fall into the traditional categories of stocks, bonds, or cash. They range from the institutional to the unconventional:

• Private equity - equity investments in private companies
• Hedge funds – unconstrained investment strategies that can take long or short positions in different securities and markets and can use derivatives and leverage to enhance or hedge returns
• Private real estate and infrastructure – direct ownership of assets
• Private credit – less liquid lending to private and public companies
• Commodities – direct exposure to energy, metals, agriculture, etc.
• Collectibles - art, wine, classic cars, and even baseball cards

These investments have long been popular with institutional investors and ultra-high-net-worth individuals for one key reason: they can deliver differentiated returns that don’t always move in tandem with public markets.

Why investors are interested

1. Possibility for enhanced returns

Private investments have historically delivered enhanced returns over public markets due to the ability of managers to actively add value through strategic, operational, and financial improvements in portfolio companies. Additionally, their longer investment time horizons allow for patient capital deployment and compounding growth, free from the short-term pressures of public market cycles. 

2. Higher income potential

Private lending to corporations or against assets like real estate or infrastructure can offer attractive yields and inflation protection. Some private funds target income streams far higher than traditional bonds or dividend stocks.

3. Access to growth 

Public equities represent just a fraction of the global economy. There are far more private companies than public ones—and many of today’s biggest corporate success stories are choosing to stay private for longer. In fact, only 13% of U.S. companies with over $100 million in revenue are publicly traded.

By opening access to private markets, investors could potentially tap into broader opportunity sets and access innovation earlier in its growth cycle.

4. Diversification beyond public market volatility

Some alternative investments, particularly those with low correlation to stocks and bonds, can serve as portfolio stabilizers during turbulent markets. This “non-correlation” can be a useful tool for managing risk and smoothing returns.

The flip side: Risks and tradeoffs

Of course, these benefits come with tradeoffs that retirement investors need to understand.

1. Illiquidity

Many alternative investments come with long lock-up periods. Investors might have to commit capital for 3, 5, or even 10 years without the ability to redeem. Even funds that offer quarterly liquidity may take months to return cash. That said, many 401k participants have years until they may draw on their capital, so it will be important for investors to match the duration of their investment portfolio with their timeline for capital usage.

2. High minimums and fees

Alternatives often have steep entry requirements and higher fee structures. For example, private equity and hedge funds may charge both a management fee (commonly 2%) and a performance fee (typically 20% of profits), far more than the average mutual fund or exchange-traded fund. These fees have typically been justified by the operational complexity and sophisticated investment acumen necessary to execute on these strategies.

3. Complexity and transparency

Many alternatives involve complex strategies or opaque structures. Due diligence is harder, performance is tougher to benchmark, and regulatory oversight is weaker. This raises the risk for unsophisticated investors and increases the importance of working with trusted fiduciaries.

4. Accessibility barriers

Traditionally, alternative investments were limited to accredited investors. While democratization has improved access through interval funds, tender offer funds, and retirement-focused private vehicles, these options are still far less accessible and standardized than traditional 401k offerings.

Who benefits from this change?

Proponents of Trump’s proposal argue that expanding access to alternative assets could:

• Improve long-term retirement outcomes through greater diversification
• Allow retail investors to benefit from opportunities once reserved for institutions
• Provide capital to private markets, fostering innovation and job creation

But skeptics point to a different beneficiary group: the alternative asset managers themselves. Critics argue that introducing illiquid, complex, and high-fee products into 401k plans could disproportionately benefit fund managers—at the expense of retirement savers who may not fully grasp the risks.

A new era of retirement planning?

Whether this move enhances or undermines the retirement system will likely depend on implementation.

If protections are preserved and education improves, giving investors access to a broader universe of assets could be a positive step. But if guardrails are removed too quickly, the consequences could be severe, especially for unsophisticated investors drawn to the promise of higher returns without a full understanding of the risks.

The bottom line

The retirement planning space is evolving, and alternative investments are playing a growing role. Trump’s proposed reforms could accelerate this shift—but they also raise serious questions about investor protection, transparency, and fairness.

For investors, the key takeaway is this: whether you're eyeing traditional stocks and bonds or eyeing more exotic alternatives like private equity or real assets, the right portfolio always comes down to your goals, time horizon, and risk tolerance.

If these rules do change, the need for thoughtful, fiduciary advice will be more important than ever.

There is no guarantee that asset allocation or diversification will enhance overall returns, outperform a non-diversified portfolio, nor ensure a profit or protect against a loss.  

Alternative investments may not be suitable for all investors and involve special risks such as leveraging the investment, potential adverse market forces, regulatory changes, and potential illiquidity. Investing involves risk, including possible loss of principal.

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