The Future of 401(k) Investing: How Trump’s Crypto and Private Assets Order Could Reshape Retirement

• A new Trump Executive Order paves the way for more options in your 401(k) lineup, but we lay out why that might not be a good thing

• Most investors struggle with allocating within workplace plans due to a knowledge gap and behavioral factors

• Tax diversification and a macro strategy are required to ensure your financial independence

Changes are coming to your 401(k). In early August, the Trump administration was hard at work crafting trade policy and reshaping the makeup of the Federal Reserve. Those are heavy-hitting issues economywide, but the president also signed an Executive Order (EO) that will directly impact how you and millions of other American workers save and invest for retirement.

The order directs regulators, including the Department of Labor (DOL) and the Securities and Exchange Commission (SEC), to allow alternative assets such as cryptocurrencies, private equity, real estate, and private credit to be offered within 401(k) plans. This is a game-changer for the $12.5 trillion of wealth tied up in so-called “defined contribution” accounts housed through their employers. 

Heralded by some as further democratizing the world of finance, the shift has deep macroeconomic implications. Bringing high-return, non-traditional opportunities to everyday savers is not without potential peril, however.

Private Assets: Superior Returns Recently, But the Future is Uncertain

Source: Apollo Global

At Allio, we believe in transparency and the power of informed decisions. All people have the intellect to think for themselves and become financially literate, even in today’s climate of high-tech investment innovation. 

The 401(k) EO, while it may sound exciting and lucrative for workers with decades of investing ahead of them, warrants a pause. We’ll take a fresh look at what 401(k) investing is today, what you should prepare for, and why a macro approach may be your best route to achieving financial independence.

Executive Order: Democratization or Pandora’s Box?

The workplace 401(k) has long been the cornerstone of American retirement planning, built on the promise of tax-deferred investment growth and employer matching to nurture a nest egg for later life. But should you buy into the hype that comes with exciting asset classes in your plan?

Supporters argue that private securities historically reserved for the ultra-wealthy can enhance returns and diversification beyond public stocks or bonds. Plan administrators might deliver these asset types through separately managed accounts (SMAs) or target-date funds (TDFs) under the new federal policy. 

Advocates also assert that young people benefit from having long time horizons, making it easier for them to stomach the natural ups and downs that come with private equity, private credit, and digital currencies. Moreover, they claim that folks approaching retirement can now tap high-yielding products that may add years' worth of additional retirement income.

Critics counter by calling out the costs. For decades, regulations have kept these less transparent and often costlier assets out of 401(k) plans for a reason. Private markets, from which the bulk of the new investment options will stem, suffer from unclear valuation processes, commonly relying on complex models to determine a fair price. Unlike stocks, ETFs, and mutual funds, private equity and debt products mask their actual volatility and liquidity risks. 

Our take? This is a slippery slope that likely does more harm than good. It opens up a world of possible pitfalls, both from an asset performance perspective and in light of what we now know about behavioral finance. Furthermore, there’s a broader question at hand: Is allocating more to your 401(k) even a good idea? We’ll get into that later.

Private Assets and Alternatives in 401(k)s: Not All That Glitters...

A Changing 401(k) Landscape: Buyer Beware

Buried beneath the headlines was a key change to the workplace retirement plan playing field. Past 401(k) policies focused on the fiduciary standard, the notion that employers and plan administrators had to work in the best interests of plan participants (the workers). That meant only allowing straightforward investment options into 401(k) fund lineups. Factors like risk and cost were paramount. 

A “facts and circumstances” standard is now enforced, whereby those in charge must evaluate alternative assets on a case-by-case basis. Private assets, physical real estate, and crypto are now expected to be allowed in. 

Oh, aren’t we lucky that the regulator overlords are granting us access to investments that were previously reserved for institutional investors and the ultra-wealthy? Maybe not. Along with the squishy valuation techniques mentioned above, tying your money up in private markets or relying too much on the whims of the crypto could throw your long-term financial plan off course. Let’s home in on the silent killer: fees.

Fee Forces: When 401(k) Costs Outpace Brokerage Accounts

Spicing in a dash of private equity and crypto into your retirement allocation might juice up its performance potential. Along with private debt, returns have been somewhat less correlated with, say, the S&P 500 in the past. The problem is that private assets typically carry much higher fees than straightforward, plain-vanilla index funds. We’re talking about upwards of 1.5 to 2 percentage points of added expense each year. 

That’s a high hurdle to overcome over the long haul, particularly now that private equity and debt are more richly valued compared to previous market cycles. Compound those asset-specific expenses with the inherent costs of being invested in a workplace retirement account, and your net return could fall far shy of those glossy numbers shown to you by plan administrators during a company lunch and learn.

Many 401(k) Plans Cost Upwards of 1% Annually or More

Source: Wall Street Journal

Why Fees Matter: John Bogle’s Enduring Wisdom

Amid these shifting ground rules, let’s make a call to the bullpen and bring in a crafty veteran, John Bogle, the late founder of The Vanguard Group. “Jack” always said, “In investing, you get what you don’t pay for.” Although we are not 100% Bogleheads, the Allio team embraces low-cost access to markets. Our concern is that millions of American workers will be spoon-fed the wonders of private assets and the promises of crypto without understanding the high costs relative to useful index funds.

Little things mean a lot, and even a seemingly small, incremental hike in a 401(k) account’s average expense ratio can snatch quite a bit of cash by the time you call it quits from the nine-to-five grind. How much? Consider this scenario:

Suppose you are 25 years old and plan to retire at 65. That’s 40 years of periodic investing through a 401(k). We’ll keep it simple and assume a $5,000 annual contribution. Invested in a diversified stock-heavy allocation, you should anticipate a 9% average rate of return. That yields a $1.69 million nest egg by age 65. Now, if we shave just one extra percentage point due to higher fees, your 401(k) value sinks to $1.29 million. $400,000 gone, just from a cost perspective, as illustrated below.

So, when it comes to 401(k) investing, keep things simple. Contribute up to the company match, but beyond that, be skeptical. The embedded fees within your plan could be punitive, and the investment choices may be sub-optimal. 

Who knows what high-cost private assets will get tossed in there once this new policy shakes out. As for crypto, you can own it efficiently outside of a workplace retirement plan and have much more control over your position in a regular brokerage account.

The Knowledge Gap

Investing in a 401(k) is like putting a passenger in the cock pit of a 747. Chances are, if they just sit in the left-hand seat and do nothing, the plane’s avionics will do the heavy lifting. If they tinker with the control panel, that’s when disaster can strike. What’s more, when action is needed, guardrails and a guide help ensure a successful outcome.

401(k) investors run the gamut, from novices who don’t know what a stock is to experts who have their own sophisticated valuation models. You probably fall somewhere in the middle. You are fully capable of allocating appropriately and mapping out a financial plan. 

Our concern is for the millions of people who lack the knowledge to determine how much to allocate to US large-cap growth, or small caps, or emerging markets, or REITs. Now, they want to add private equity, private credit, crypto (which is broad in itself), physical real estate, and venture capital to the lineup? It will be a tall task to deliver sufficient financial education to the middle class and mass affluent.

The Behavioral Investor

And while expert investors can determine on their own if private assets and digital currency holdings are a good fit for them, everyone involved in markets is susceptible to innate behavioral biases. 

Such pitfalls may be made worse by holding concentrated positions in illiquid pools like private equity and private credit. Cryptocurrencies, namely bitcoin and ether, are quite liquid, though, and we believe they should be part of a well-balanced portfolio.

Here’s a dire scenario we could see playing out with this type of 401(k) investing: An employee loses their job during the next inevitable macro downturn. They may seek to tap their workplace retirement account to pay their bills. The plan, if it holds a significant amount of private assets, could be forced to sell at unfavorable prices due to both illiquidity and depressed market values. Other investors may panic-sell in down markets when private equity is eventually revalued lower.

Rising Share of Investors Tapping 401(k)s Early, Leading to Higher Fees & Taxes

Source: Wall Street Journal

Even in an up-market, behavioral research time and again reveals that having too many 401(k) investment options leads to a sort of paralysis by analysis. Confronted with dozens of funds, many employees simply put an equal percentage in each option, resulting in a hodge-podge of holdings with no clear objective. Another behavioral reality is performance chasing among plan participants; allocating the most to funds that show the best recent performance, bypassing any and all risk-management tactics.

Another reality of today’s workforce is that employees often don’t stay with one employer for long. This can lead to small 401(k) balances and, in some cases, accounts that are completely forgotten. It’s common for people to simply withdraw from their old 401(k), paying income tax and a 10% early-withdrawal penalty, which negates the benefits.

To be clear, we laud retail investors for their savviness compared to the pros in recent years. Still, upcoming 401(k) changes pressure everyday people to make decisions that even expert allocators have a tough time figuring out.

Macro Backdrop: A Tax World in Flux

There’s a broader macro issue that must be addressed. As lawmakers reshuffle 401(k) lineups, it might all be done as a distraction to the reality that investing on a tax-deferred basis grows riskier by the year. You see, most 401(k) contributions are done pre-tax, meaning you get a current-year tax deduction, but will then pay regular income tax on withdrawals, presumably in retirement.

Tax Risk: Why “All Pre-Tax” Is Dangerous

Vanguard notes that while 86% of 401(k) plans now offer a Roth option (in which you pay tax today and owe nothing in retirement), only 18% of workers invest through a Roth 401(k). Thus, the vast majority of Americans face a ticking tax time bomb. 

To be clear, it makes sense to contribute a great deal on a tax-deferred basis if you are in your peak earnings years and anticipate being in a lower marginal income tax bracket once retired. Avoiding a 32% tax hit today to pay a 22% rate decades from now is a 10-percentage-point win...until the tax code changes.

While a Roth 401(k) Option is Often Available, Just 18% of Workers Use It

Source: Vanguard Group’s How America Saves 2025

Fiscal Deficits, Inflation, and Tax Rates. Heeding Ray Dalio’s Wisdom.

With ballooning federal deficits, a national debt that’s busting at the seams, and zero accountability for reckless government spending, odds are that tax rates will eventually go higher, particularly for Americans above a certain income threshold. Meanwhile, aging demographics put pressure on Social Security and Medicare, casting further strain on federal finances.

Ray Dalio’s principles underscore that this is how it plays out—governments become irresponsible with taxpayer dollars, they borrow too much, interest rates rise, and policymakers are forced to either keep printing their way out of trouble (inflation) or increase taxes on their citizens.

If history is any guide, parking more than 25% or 30% of your wealth in pre-tax accounts puts your financial independence in jeopardy; a strategy of avoiding owing tax today could backfire. And we have not even gotten into the mess that comes with Medicare surcharges and Required Minimum Distributions in retirement.

Tax Rates Are Historically Low Today

Source: Tax Policy Center

Tax Diversification: The Only Free Lunch

By contrast, diversification in tax wrappers (using Roth IRAs, taxable brokerage accounts, Health Savings Accounts (HSAs), etc.) can reduce what the Brookings Institution dubs “tax regime risk.” 

You might aim for 50% of your investable wealth in after-tax accounts (which sometimes features a 0% long-term capital gains tax rate), 25% in pre-tax accounts, and 25% in Roth accounts. That puts you in control and promotes greater flexibility compared to going hog-wild in a regular pre-tax 401(k).

Know Your Account Types

A Managed Macro Strategy Beyond the 401(k)

The 401(k) is not the end-all, be-all that personal finance gurus proclaim. Employer matching contributions can speed up your path to retirement and financial independence, but sometimes high plan admin fees and high-cost mutual funds compared to very inexpensive ETFs can take a bite out of actual returns. And while historical performance data suggest that private equity, private debt, and crypto are the kings of asset class returns, they should be just a small part of your long-term investment mix. 

A better approach is to take control of your wealth through a Dynamic Macro Portfolio. Allio’s ALTITUDE AI™ technology combines AI with expert human insight to aim for robust, institutional-grade allocations at a competitive cost. Investing with the big picture in mind rises above the fray and debate about pre-tax investing. You can keep track of it all with Allio’s wealth tracking tools and macro dashboard.

It's important to consider various investment options and strategies, including but not limited to 401(k) plans. Over-concentration in one account type, with limited options and sometimes high fees (stacked one on top of another) chips away at your wealth. It compounds over time, leaving you less rich than you otherwise would be.

401(k) Investing Tips

The Bottom Line

The push to include private assets and crypto in 401(k) plans reflects a growing demand for alternative investments. But for most Americans, these additions introduce unnecessary risks, including increased portfolio volatility, higher fees, and liquidity traps, all of which could jeopardize your retirement security.

Rather than relying on a 401(k), savvy investors should take control of their overall portfolio by embracing a Dynamic Asset Allocation. A well-rounded approach aims to consider taxes, fees, and diversification. While others chase hot trends, you can build a resilient financial foundation, focused on risk management and based on what moves entire markets.