With private equity becoming more accessible to everyday investors, it’s important to evaluate whether it truly fits your overall strategy.
If you’ve been following the headlines — or even just checking in on your 401(k) — you’ve probably noticed something: things are changing, and they’re changing quickly.
We’re not just talking about stocks and bonds anymore. Thanks to a recent executive order, private equity, private credit, and crypto could soon show up inside your 401(k) right alongside your traditional retirement options.
On one hand, more choice isn’t necessarily a bad thing. After all, there was a time when ETFs were considered the “new kid on the block.” But on the other hand, these alternative investments come with higher fees, more complexity, and serious questions about whether they’re appropriate for everyday investors.
So what do these changes really mean for your retirement?
This week, Liz Miller — CFP®, CFA, former Chair of the CFP Board, and founder of Summit Place Financial — joined the HerMoney podcast to explain what private equity and private credit actually are, how crypto fits into the conversation, and whether any of these investments belong in your 401(k).
What Is Private Equity?
Jean Chatzky: Private credit and private equity. What are they?
Liz Miller: So they’re all under this umbrella that we call alternatives. They’re alternatives because we can’t easily buy them with our brokerage account. They don’t trade every day on a public market. Private equity is when you’re buying into the stock, the private stock of a company, and it may or may not be valued over time, but you’re sort of buying it for the same reason you think the company is gonna be worth more in the future.
Now, private credit is the same as private fixed income. Instead of going to a bank to ask for a loan, companies go to investors like you, me, and others and say, “Hey, will you all give me this loan? Would you write me the IOU?” And now we’ve created a private bond, and we’re calling it private credit. You can do it specifically to an individual company, but particularly, when we think about what we might be seeing in 401(k)s, it’s going to be that fund structure, a basket of investments.
Does Private Equity Belong in Your Retirement Plan?
Jean Chatzky: Let’s talk about fees. Private equity is known for charging 2% fees, plus 20% of the profits. That’s sort of how the model has worked. If you’ve been able to buy into private equity as an individual investor, it’s way more than your average index fund ETFs, where we’ve gotten down to fractions of a percentage point. Is that likely to be typical in a retirement account? And what do you think investors are gonna need to understand about these costs and what they’re getting in return?
Liz Miller: These have always been very expensive. I have always felt that as the years go by, these structures all tend to provide lower and lower returns. Investors who were in these funds were comfortable with that because, over time, they were getting much higher returns than public market returns. Like any product, as we build it out and it becomes a bigger and bigger slice of the market, I’m not sure we’re going to see those kinds of returns.
The Bottom Line on Private Equity in 401(k)s
Wall Street will always innovate. And when it sees an opportunity to expand access to a product — especially one that has traditionally been limited to high-net-worth investors — it will. But more options don’t automatically mean better outcomes.
Before adding private equity (or crypto) to your portfolio, ask yourself:
- Do I fully understand how this investment works?
- How will the fees impact my long-term compounding?
- What am I giving up in liquidity?
- Does this align with my time horizon and retirement income plan?
- Am I investing because it fits my strategy, or because it sounds sophisticated?
For many investors, low-cost diversified index funds remain a powerful, proven foundation. For others, a small allocation to alternatives may make sense, but only as part of a well-thought-out plan.
The most important takeaway isn’t whether private equity is “good” or “bad.” It’s that you never feel pressured to adopt a new investment simply because it’s being marketed more broadly.
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