April 3, 2026: Caution - Private Investments are Coming to Your 401(k)

Your 401(k) contains stocks and bonds of publicly-traded companies. You can’t often purchase individual companies in your 401(k) so you have to purchase mutual funds.

Are broadly-diversified mutual funds too “vanilla” for people saving for retirement? If you think so, then you’ll be happy to learn that private investments may be coming to your 401(k).

The Department of Labor released a proposed rule that would permit private investments in 401(k) plans.

Private investments are much different than the stocks and bonds you are familiar with purchasing. Private investments don’t follow the same reporting rules as publicly-traded companies - they don’t hold public earnings calls, publicly release their annual or quarterly financials, nor inform the public of major, triggering events like bankruptcies or leadership changes.

There’s no doubt that private investments can be profitable ventures. However, they are fundamentally different. Private investments can carry high fees (e.g. 2% management fee and claiming 20% of the profits). They can also be different in terms of riskiness - they often hold fewer companies, use a not insignificant amount of leverage (debt), and are highly illiquid.

Private investments have no market to be easily bought and sold. Compare that with the mutual funds - you place an order to buy or sell today and it WILL get filled. Private investments can take YEARS to be sold. It’s entirely realistic that a private investment might take 10 years to go full cycle.

Finally, private investment don’t magically appear in a 401(k). The advisor for the 401(k) plan decides what investments are available. That means that the plan advisor has its own due diligence process for selecting the private investments. It is so incredibly difficult and time-intensive to choose the “best” investments when there are so many options. When you’re buying a private investment, you’re not just buying the assets - you’re “investing” in a fund manager. You are putting your trust in the fund manager to execute its investment strategy.

This proposed rule hasn’t gone into effect yet, but this latest proposal comes after years of discussions about including private investments in retirement plans. Proceed with caution and remember that if it sounds too good to be true, it probably is.