Trump 401(k): Investment Options to Include Alternative Assets

President Donald Trump is paving the way for a significant shift in retirement investing by permitting 401(k) plans to include alternative investments like private equity, real estate and digital assets. Trump’s recent executive order¹ aims to provide 401(k) participants with greater access to diversified investment opportunities, potentially enhancing retirement outcomes. However, these alternative investments come with increased risks, including higher fees, limited liquidity and greater complexity. As federal agencies work to redefine regulatory guidelines, 401(k) participants may soon face more options and greater complexity.

A financial advisor can help you adapt your financial plan amid changing laws and regulations. Connect with an advisor for free.

Trump Looks to Open 401(k)s to Alternative Assets

Trump’s executive order, signed on August 7, 2025, directs federal agencies to reevaluate and potentially revise regulations under the Employee Retirement Income Security Act (ERISA) and broaden the scope of “qualified assets” permissible within 401(k)s and other defined contribution plans. The initiative seeks to facilitate the inclusion of alternative investments like private equity, real estate and cryptocurrencies in retirement portfolios, which traditionally have been dominated by stocks and bonds.

Specifically, the order instructs the Department of Labor to collaborate with the Securities and Exchange Commission (SEC) and other federal entities to assess and amend existing guidance. This would reduce regulatory barriers and litigation risks associated with offering these alternative asset classes.

While the executive order does not mandate immediate changes, it sets in motion a process that could significantly alter the investment landscape for 401(k) participants. However, implementation will depend on the completion of regulatory revisions, which may take several months.

Potential Risks of Investing in Alternative Assets

Investing in alternative assets within a 401(k) plan can offer diversification and potentially higher returns. However, it also introduces a range of risks that participants should carefully consider.

Liquidity Concerns

A key drawback of alternative assets is their limited liquidity. Unlike stocks or bonds that trade daily on public exchanges, holdings such as private equity or real estate cannot always be converted into cash quickly. For 401(k) participants, this lack of flexibility may create difficulties if funds need to be accessed on short notice.”

Valuation Issues

Valuing alternative assets is often more complex than valuing traditional investments. While stocks and bonds have market prices determined by supply and demand, private equity and real estate assets require periodic appraisals, which can be subjective. This lack of transparency can make it difficult for investors to understand the true value of their holdings, which can lead to potential mispricing.

A study by Richard Ennis ² analyzing 54 public pension funds between 2008 and 2023 revealed that increasing allocations to alternatives like private equity and real estate led to underperformance. Despite doubling private equity investments from 7% to 13%, these funds did not see the expected gains. Instead, they faced higher costs and lower returns ³ .

Higher Fees

Alternative investments tend to come with higher management fees than traditional asset classes. Private equity funds, for instance, often charge both a management fee and a performance fee. For 401(k) participants, this means that fees may significantly reduce their investment gains. In turn, this could impact their overall retirement savings over time.

Regulatory and Legal Risks

The inclusion of alternative assets in 401(k) plans is still a new development, and the regulatory landscape surrounding them is evolving. Changes in government policies or tax laws could impact the returns or tax treatment of these investments. This could create uncertainty for plan participants.

How ERISA Fiduciary Duties Complicate Alternatives in a 401(k)

Beyond the general regulatory uncertainty described above, alternative assets create a more specific legal exposure tied to how 401(k) plans are already regulated today under ERISA. Plan sponsors and the committees that oversee 401(k) investment menus owe participants a fiduciary duty, meaning they’re legally required to act in participants’ best interests when selecting and monitoring investment options.

Alternative assets test that duty in a way traditional stock and bond funds don’t. Because private equity and real estate holdings are valued periodically rather than priced continuously, and because they can’t be converted into cash as easily as public securities, a plan sponsor who adds these options to a 401(k) menu takes on added responsibility to monitor whether the pricing participants see is fair and whether participants can actually access their money when they need it.

This has already become a live litigation risk, not just a theoretical one. Plan sponsors have faced lawsuits alleging breach of fiduciary duty over investment menu decisions in the past, and legal observers have flagged that adding illiquid, harder-to-value alternatives could expose sponsors to similar claims if participants are harmed by delayed access to funds or valuations that don’t reflect what an asset could actually be sold for.

For participants, this dynamic cuts both ways. On one hand, the fiduciary duty is meant to protect you, plan sponsors are supposed to vet these options carefully before adding them. On the other, it also means that if your plan does offer alternatives, it’s worth understanding that the legal and regulatory framework around them is still being tested in court, and outcomes for participants in a dispute may take time to resolve given how new this area of litigation is.

Do Alternative Assets Belong in Your 401(k)?

Alternative assets have traditionally been excluded from 401(k) plans due to concerns over their complexity, illiquidity and risk. Historically, retirement accounts were designed to offer relatively simple, low-cost investments like stocks and bonds that could be easily monitored and traded. Introducing private equity, real estate and digital assets brings challenges around valuation, liquidity and regulatory compliance.

Before considering alternative assets in your 401(k), it’s important to assess whether these investments align with your financial goals, risk tolerance and liquidity needs.

When to Consider Alternatives for Your 401(k)

Alternative assets can provide significant diversification and growth potential within a retirement portfolio. However, they aren’t for every investor. Here are some situations where adding alternatives to your 401(k) may make sense, assuming they align with your investment strategy and financial goals:

• Long-term investment horizon: Alternative assets like private equity or real estate often require a long investment horizon, since they’re not as liquid as traditional investments. If you are many years away from retirement, you may have the ability to absorb the illiquidity and volatility that come with these investments. The long-term nature of retirement savings makes it easier to ride out the inherent risks of alternatives.
• Well-established portfolio: Alternatives may be worth considering once you have a well-established portfolio built on diversified traditional assets. For investors who already hold a mix of stocks, bonds and other liquid investments, allocating a modest share (for example, below 10%) can introduce exposure to different return drivers. In certain market environments, this type of allocation may help smooth volatility or expand return potential, though results vary depending on the specific alternatives used.
• High risk tolerance: Alternative investments often come with higher risks. These can include valuation uncertainty, regulatory changes and illiquidity. If you’re comfortable with this volatility and can withstand potential losses without compromising your retirement goals, alternatives might be suitable. For example, private equity can be high-risk but may offer the potential for outsized returns over time.

When Not to Invest in Alternatives in Your 401(k)

While alternative assets can offer higher returns, they also come with unique risks and challenges. For some retirement savers, the complexities and potential downsides of alternatives may outweigh the benefits.

Here are some situations where you may want to avoid these investments in your 401(k):

• Short-term investment horizon: If you’re nearing retirement or plan to access your 401(k) funds in the next five to 10 years, alternatives may not be ideal. The illiquid nature of assets like real estate or private equity can make it difficult to access cash when you need it. As a result, you might end up selling assets at unfavorable times. In the lead-up to retirement, preserving capital and maintaining liquidity is typically more important than chasing higher returns.
• Lack of knowledge or experience: If you’re not well-versed in how alternative assets work, investing in them within a 401(k) may be more harmful than helpful. These assets are often more complex and less transparent than stocks or bonds, making it difficult for inexperienced investors to assess their true value.
• Insufficient diversification: If your retirement portfolio is already heavily weighted in one or two types of assets (like stocks or bonds), adding alternative investments could expose you to concentrated risks. Alternatives may be better suited to play a supporting role in a portfolio, complementing core holdings rather than replacing the traditional assets that often provide stability and long-term growth potential.

Bottom Line

The potential addition of alternative assets to 401(k) plans could expand the investment choices available to retirement savers. These investments may offer opportunities for diversification and growth, but they can also introduce additional risks, costs and complexity. As regulations evolve and plan participants evaluate their choices, considering how alternative assets could affect a broader retirement strategy may help inform investment decisions.

“Whether you decide to include alternatives in your portfolio or not should be about how they fit into your overall investment strategy and how they complement other holdings,” said Brandon Renfro, CFP®.

Brandon Renfro, CFP®, RICP, EA provided the quote used in this article. Please note that Brandon is not a participant in SmartAsset AMP, is not an employee of SmartAsset and has been compensated. The opinion voiced in the quote is for general information only and is not intended to provide specific advice or recommendations.

Retirement Saving Tips 

• A financial advisor can help you evaluate and manage your retirement savings. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Rather than holding the same portfolio in every account, consider placing different types of investments where they’re most tax-efficient. For example, you may keep bonds or REITs in tax-deferred accounts, growth stocks or ETFs in taxable accounts for favorable capital gains treatment and high-growth assets in Roth accounts for tax-free compounding. Coordinating asset location can meaningfully boost after-tax returns without changing your overall investment mix.

Photo credit: ©iStock.com/Andrii Dodonov, ©iStock.com/Damir Khabirov, ©iStock.com/Cn0ra