Key Insights
- A newly passed executive order lets Americans invest 401(k) savings in crypto and other alternative assets.
- The move is part of Trump’s push to grow the US as a crypto and digital asset hub.
- Meanwhile, experts warn that these investments carry high risks and fees.
President Donald Trump has signed a new executive order. This allows Americans to invest their 401(k) retirement savings in crypto, real estate, and other alternative assets.
This move is a significant change in how US retirement accounts can be managed. It could also open the $12 trillion retirement fund market to high-risk assets.
Crypto in 401(k) Accounts
Until now, 401(k) accounts have mainly been limited to investments like stocks, bonds, and mutual funds. However, Trump’s order now directs the Department of Labour, Treasury, and Securities and Exchange Commission (SEC) to update their regulations.
This effectively clears the way for alternative investments and attracts optimism and concern.
The decision to include crypto in 401(k) plans is part of Trump’s efforts. He aims to set up the U.S. as a hub for digital finance. While Trump once called Bitcoin a scam, he recently embraced crypto and launched his token earlier this year.
As part of the executive order announcement, Trump criticised “regulatory overreach.” He also stated that the goal is to give Americans more choices for retirement savings and better returns.
However, financial experts say including crypto in 401(k) plans introduces massive risks.
“Cryptocurrency is volatile and largely unregulated,” said Anil Khurana, director at Georgetown University’s Baratta Centre, according to The Guardian. “Putting it into retirement portfolios could expose savers to unnecessary danger, especially if they don’t fully understand how it works.”
How Alternative Assets Could Change Retirement Investing
This order allows 401(k) plans to include assets like private equity, real estate, and crypto. These types of investments aren’t new to institutional investors. However, they are rare in retirement portfolios. This is because of how complex, illiquid, and risky they can be in the legal sense.
The executive order gives asset managers like BlackRock and Vanguard the green light. They can now create new investment products that could include these alternative assets.
BlackRock is already preparing to launch a retirement fund featuring private equity and private credit assets. According to its CEO, Larry Fink, in a recent call, “There’s a lot of litigation risk, and that’s going to slow things down.”
Why Some See Crypto in 401(k) Plans as a Step Forward
Supporters of the move argue that retirement investing needs to be more accommodating. Portfolios don’t always meet the goals of younger savers or those looking for higher returns.
As a result, adding a small portion of crypto or real estate could provide the kind of growth that some investors want. This could happen especially in a long-term plan like a 401(k).
“People in their 20s or 30s may benefit from a diversified strategy that includes alternative assets,” said Ted Rossman, a senior industry analyst at Bankrate, to ABC News. “[However], it should be done with care, and only if investors understand the risks.”
What Are the Risks of Investing in Crypto for Retirement?
Including cryptocurrency in 401(k) plans may sound appealing at first glance, especially during market booms. However, crypto assets are known for being highly volatile in price swings.
This is without mentioning how Scams and pump-and-dump schemes are still common. Certain assets in the crypto markets can also suffer from a lack of liquidity sometimes. There, fast access to cash can be a problem.
Finally, unlike stocks or mutual funds, crypto isn’t always easy to evaluate. The risks might make this asset class a poor fit for many long-term savers, especially those near retirement.
