When the Revenue Act of 1978 made the tax-advantaged 401(k) investment possible, it revolutionized retirement. It placed more options conveniently in the hands of employees investing their money, including different levels of risk and potential benefits to accommodate a variety of investing ideologies and life circumstances. 

As the person who earned the money, it is only logical that you earn the choice of investment options, and better access to all possible alternatives in your portfolio is your right. 

This includes adding private equity (PE) to your 401(k) portfolio, an ability that has been restricted, largely to the wealthy and political elite, due to judicial and regulatory actions. 

President Trump’s recent executive order, “Democratizing Access to Alternative Assets for 401(k) Investors,” aims to curb this practice. 

Independent Women supports this measure and wants to make this progress permanent. We are currently holding a comment drive, extending a powerful opportunity to make your voice heard on this issue, and we want to make sure you are armed with relevant information to make an informed decision.

Better Yields

PE investments are likely to net you considerably higher gains over an extended time than traditional public company investments. Between 2000 and 2020, PE yielded average annual returns of 10.5%, whereas the Russell 2000 Index yielded only 6.7% annually, and the S&P 500 yielded just 5.9%.  

Imagine you invested $100,000 in PE in 2000, and your neighbor invested the same amount in the S&P. By 2020, average returns would have left you with a total of $733,961.55, as your neighbor finished with only $315,311.17. 

Liquidity Considerations

One downside for any short-term investors is that PE investments are less liquid, and they are therefore best utilized by investors playing the long game. 

They may also have higher fees, but these are usually offset by the higher yields over time. Again, they are ideal for longer-term investors.

Free Choice: No Investing Mandates

Like any other 401(k), this proposed regulation allowing PE investments does not force you to invest in one place or another, and employers and employees maintain discretion over how and where the funds are allocated. All involved parties must know and agree to the expected timetable for withdrawals, fee schedules for doing so earlier, etc. 

Furthermore, federal law states that entities legally entrusted to oversee any 401(k) have a strict fiduciary responsibility “to run the plan solely in the interest of participants and beneficiaries.” They must “act prudently and must diversify the plan’s investments in order to minimize the risk of large losses,” and any fiduciary found to have violated these terms “may be personally liable to restore any losses to the plan, or to restore any profits made through improper use of plan assets.” 

This is still true when PE is added to your portfolio.

The Principle

Aside from all these noteworthy facts, the principle at hand here is freedom. Investors have the right to freedom from paternalistic regulators and judges who, at best, know nothing about the lives of the people whose financial futures they are determined to control. 

Please join Independent Women everywhere to express your thoughts to support this important issue.