What Trump’s executive order on 401 (K) is for you: NPR

Last week, President Trump signed an executive decree that would facilitate the inclusion of “alternative assets” such as crypto, investment capital and real estate in retirement accounts. Is it a good idea?

Ari Shapiro, host:

The funds of most American retirement accounts are quite basic – shares and bonds. But what about investing in all kinds of other things? This is the idea behind a recent decree signed by President Trump. It opens the way to the inclusion of crypto, real estate and capital-investment that is previously exclusive in accounts 401 (K). The personal finance correspondent NPR, Laurel Wamsley, is there to speak to us. Hey, Laurel.

Laurel Wamsley, byline: Hey, Ari.

Shapiro: Remind us first what is normally in a 401 (K), then how what is proposed here is different.

Wamsley: Yes, 401 (K) and similar accounts are retirement plans offered by employers to which workers can contribute money. As an employee, I choose from several investment options, generally funds made up of stocks and bonds listed on the stock market. Now, what this decree aims to do is set the foundations for new investment categories from which employees could choose, such as the Crypto or Real Estate Funds or Investment Capital. He orders different agencies of the federal government to work on this, and it is also a signal for the financial industry. These types of assets are considered more risky than equity funds and bonds, although they obviously made certain people very rich.

Shapiro: The idea of investment capital specifically in 401 (K) attracted a lot of attention. How would it work?

Wamsley: Yes. Investment companies are investment companies that buy companies or assets, often businesses in distress. Sometimes, the investment capital company succeeds in overthrowing a business, and sometimes, as with “R” toys, the company is responsible for debts and goes bankrupt. Investors of investment capital have been large institutions, such as universities and state pension plans, as well as very rich people. But for ordinary people, investment capital was not an option. Making it at the disposal of the 401 (K) would be a big change, explains Lisa Kirchenbauer, founding partner of Omega Wealth Management in Arlington, Virginia.

Lisa Kirchenbauer: There is a little democratization here to make private and exclusive investments to the rich available for everyone. But, you know, that does not mean that you get the kind of things that have made the other rich.

Wamsley: This is because everything will depend on companies or investments in these new funds. And she is not convinced that it will be the best opportunities, which could still be reserved for richer investors.

Shapiro: Why were these types of assets not an option for 401 (K) S before?

Wamsley: Well, there is no law that forbids it, but there are good reasons to exclude them – higher risk, complexity, lack of transparency and, for investment capital, often much higher costs. What funds are offered concerning employers, because they are the administrators of plans 401 (K). And there is a federal law called Erisa who obliges them to act in the best interests of employees, and this gives workers the right to continue their employers if they do not do so, which gives employers a good reason to stick to vanilla and bond funds.

Shapiro: So the workers will start to see many more options in their retirement accounts?

Wamsley: Well, it could, but not right away. New types of funds must be developed for the retail market, and this is underway because it is a new huge market for these companies. And experts say that these assets may not be well suited to 401 (K) of each. Investment capital companies charge very high fees, and you are locked up for long periods, such as 10 years, which could become disorderly if you plan to retire soon or leave jobs – to change jobs and very volatile and crypto regulation.

Kirchenbauer says that you may want to consider making these new assets up to 5 or 10% of your wallet if you are really there and the retirement is far away. But if not, experts say that many people could decide that they are not worth risk and efforts, and they should simply stick to stock and bond funds.

Shapiro: It’s Laurel Wamsley of NPR. THANKS.

Wamsley: You are welcome.

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