Should Private Equity Investments Be Part of Your Retirement Plan?
If you're only judging based on what's happening in the world and the financial markets, there's never a "perfect" time to retire. But 2025 is throwing a bunch of extra variables at seniors that are adding more complexity to an already complicated decision. Businesses are changing. The rules around investing are changing. And, most importantly, your life is changing. Your financial plan has to be flexible enough to keep pace while also maintaining focus on the best path towards your personal long-term retirement goals.
On today's show, we discuss two listener questions that touch on alternative investments and how to think about portfolio management at various stages of your life.
1. "I heard some 401k plans are starting to add private equity investments. What does that actually mean for someone like me saving for retirement?"
First, let's define "private equity investments" as a catch-all term for investments in illiquid or less liquid securities that are not traded on the public markets. Often this means contributing to group funds that invest in private companies, real estate, and private credit.
Typically these investment groups are run by a manager, and they often lend money to private companies that are willing to pay back loans at higher interest rates. Currently, investing in private equity is limited to accredited investors who have over $1 million in net worth or more than $200,000 in income the past two years.
Private equity investments are in the news right now because President Trump issued an executive order to make these products more easily available to people who don't meet the thresholds for being accredited. Giving all investors more options to grow their wealth sounds like a good idea, especially as the government continues to encourage folks to take personal responsibility for their retirement planning.
But there are a lot more questions than answers about how this could work. Investing in private equity isn't like investing in stocks and bonds. You usually can't buy and sell whenever you want. After making large initial investments, participants are often required to contribute additional funds to meet “capital calls.” Investments might also have "lock-up periods" where you're not allowed to take money out of the fund. And most private equity groups charge high fees as well.
It's unclear how these rules and regulations would work if, say, your 401(K) plan included illiquid private equity investments. The benefits to the private equity firms are obvious: a large new market of potential investors. The benefits to the average investor looking to steadily build their wealth towards retirement and easily access their money when they need it? Harder to see.
In general, be very, very suspicious of private investments that look too good to be true, and always talk to your financial advisor before cutting a check.
2. "I just read in The Wall Street Journal that people's retirement plans are more tied to stocks than ever. Since I'm already retired, should I be worried about that?"
Nope.
But I certainly understand the confusion that this sort of headline creates.
The writers seem to be suggesting that investors are buying a lot of stocks right now while the market is performing well and won't be prepared in the event of a downturn -- financially or emotionally.
There's some truth to that. Folks who let market movements play an outsized role in their financial planning decisions do open themselves up to unbalancing their portfolios, or trying to time the markets and "get out" during downturns.
On the other hand, as a retiree, this listener has already weathered dozens of ups and downs, from major events like the 2008 Financial Crisis and COVID to the shorter bouts of volatility that the markets experience just about every year. When you take the long view of your financial plan, intermediate periods of market decline are temporary pauses in the upward advance.
It's also true that how your portfolio is allocated will likely change over time. The Wall Street Journal article cites a Vanguard study that found that workers in their late 30s had 88% of their 401(K)s in stocks last year, up from 82% a decade earlier. For many investors that young, an 88% exposure to the markets might not be high enough! They're working on a 30-year or even 40-year timeline to build wealth before retirement. However, once you do retire, and you shift from building wealth to living off your wealth, you'll probably move a portion of your assets into more stable investments that will support your golden years during the inevitable periodic downturns.
I understand that folks on both sides of the retirement transition have quite a bit to think about right now. But before you make any big changes to your retirement plans, visit Keen Wealth. And if you have a question about retirement, financial planning, or the economy that you'd like us to discuss on a future episode, we'd love to hear from you.
About Bill
Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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