In August 2025, President Trump signed an executive order aimed at allowing 401(k) account holders to invest in private equity assets. This means that American workers may be able to invest in companies that are not publicly traded on the stock market, such as private real estate investments (1).
Supporters of the change say it’s a way to expand investment choices for everyday Americans and even the playing field (2), while other experts insist this shift poses a “huge exposure to risk” and question how plan holders will determine which assets to offer their account holders (3).
So, what does this executive order actually mean for everyday investors? Here is what you need to know and how to determine whether or not to invest in private equities.
Traditionally, most 401(k) plans have offered a menu of publicly traded mutual funds, including large-cap stock funds, bond funds, target-date funds and index funds. These investments trade daily on public exchanges. Prices are transparent, fees are clearly disclosed and workers can easily move money in and out of funds.
Private equity works differently. Private equity firms raise money to invest in companies that are not listed on public stock exchanges. That might mean buying and restructuring a private business, investing in a startup before it goes public, or acquiring mature companies. These funds typically lock up investors’ money for years — sometimes a decade or more — before returning profits, if any materialize.
Supporters argue that much of today’s economic growth is happening in private markets, not public ones. They say fewer companies are publicly traded today, which limits exposure for everyday investors (4). Some money managers, including BlackRock, estimate that adding private assets could increase long-term returns by about 0.50% per year, potentially resulting in roughly 15% more savings over a 40-year career (3).
But critics say those numbers don’t tell the whole story. Private equity funds are complex. Evaluating them requires “significant expertise in the asset class as well as resources for due diligence in the manager selection process,” according to Wharton professor Bilge Yilmaz (5). Most individual savers don’t have those tools, and many plan committees may not either.
Read More: The average net worth of Americans is a surprising $620,654. But it almost means nothing. Here’s the number that counts (and how to make it skyrocket)
There’s also a legal aspect to consider. Under the federal Employee Retirement Income Security Act (ERISA), companies that oversee 401(k) plans must act as fiduciaries. That means they are legally required to act in workers’ best interests and can be sued if they fail to do so (6).
Attorney Jerome “Jerry” Schlichter, who has won more than $750 million in settlements tied to excessive 401(k) fees and investment choices, says he is watching how corporate executives decide whether or not to offer private equity in their 401(k) plans.
“Buyer beware … Each and every firm is going to have to validate and authenticate the risk that is being implied when they add private markets,” Schlichter said in an interview with WealthManagement.com. “You better be prepared for defending that choice” (3).
Private equity allows investors to invest in funds that buy, restructure, or grow private businesses. While that can sound appealing, especially when framed as access to the same types of investments wealthy institutions use, these assets come with real trade-offs.
Here’s what retirement savers should keep in mind:
Higher fees: Private equity funds often charge much more than traditional index funds. Those extra costs can eat into returns over time, especially in long-term retirement accounts.
Limited liquidity: Unlike stocks or mutual funds that can be sold daily, private equity investments may lock up money for years, sometimes a decade or longer. That can create complications if you change jobs, need to rebalance your portfolio, or approach retirement.
Less transparency: Public companies must regularly disclose financial information. Private companies face fewer reporting requirements, which can make it harder for investors to understand their risk.
Performance isn’t guaranteed: While some private funds have delivered strong returns, experts caution that success often depends on access to financial managers, something everyday 401(k) participants may not have (2).
The reality is, more choices don’t automatically mean better outcomes. If private equity becomes an option in your 401(k), make sure you understand the fees, the risks and how long your money could be tied up before deciding whether it belongs in your retirement plan.
Join 250,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
The White House (1); Kiplinger (2); Wealth Management (3); CNN (4); Knowledge at Wharton (5); Department of Labor (6)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
Source link
