Private Equity, Crypto Allowed in 401ks: Lottery Tickets Coming Soon?

Now that 401(k) investors are free to jeopardize their retirement security by betting on private equity and crypto, it may be time to allow 401(k) lottery tickets. Get ready for “fun slots”!

In June 2020, the US Department of Labor opened the door for plan sponsors to add private equity funds to their 401(k) plans. That was a huge victory for the private equity industry as 401(k)s have nearly $9 trillion in assets and a monstrous setback for American workers who invest in 401(k)s for retirement security. If private equity is adopted, 401(k) costs will skyrocket, risk will rise dramatically and transparency will plummet, I wrote at the time.

The agency’s explanation for its reckless action was perverse.

Private equity in 401(k)s, the DOL said, will “overcome the effects that the coronavirus has had on our economy” and “level the playing field for ordinary investors.” That’s right: The federal government paving the way for workers to stake their retirement savings was a form of COVID relief. (Most likely COVID relief for Wall Street.)

As I noted in 2020, Warren Buffett, arguably the world’s most respected investor, had stepped up his criticism of private equity just a year earlier.

Fidelity Investments recently announced that it will offer investors the option to put bitcoin into their 401(k), making it the first provider to offer cryptocurrency for retirement savings. The cryptocurrency offering will be available to 23,000 employers who use Fidelity to manage their retirement accounts by mid-2022. Fidelity is the nation’s largest provider of retirement plans, and its decision could make cryptocurrency even more popular and mainstream. .

John MacGregor, Certified Financial Planner (CFP) and author of the international bestseller, Top 10 reasons the rich go bankrupt, had this to say about crypto in 401(k)s:

“Thinking it’s a smart move to invest part of one’s 401(k) in crypto right now is crazy. I don’t like to use terms like that, especially in the financial market, but come on. It’s the shiny new shiny object mentality, which in my experience always leads to trouble. This is a horrible mistake.

People want to participate in something new just because it sounds cool and exciting, and once again they get sucked into the FOMO (“Fear of Missing Out”) mentality. This reminds me of the dotcom crash in 2000, where I witnessed some great, hard-working people lose everything.

Investing your 401(k) in cryptocurrency right now, with the troubles brewing in this economy, is dangerous. Is irresponsible. You could also give your teen the keys to your fancy car and say, ‘Have fun!’ What suddenly happens in both situations is completely out of your control, and both are reckless.”

What does Warren Buffett have to say about investing in cryptocurrencies?

In 2019, Warren Buffett told CNBC that he would stay away from cryptocurrencies. “Cryptocurrencies are basically worthless and don’t produce anything… I don’t own any cryptocurrency and never will,” he added.

I won’t speculate on why government agencies like the SEC and DOL, as well as private asset managers, are so hell-bent on making it easy, at this particular time, for 401(k) investors to stake their money. -got savings in unproven and lightly regulated investment schemes such as private equity and crypto funds.

But if we’re going to open the door to 401(k) gambling, the simplest alternative would be to allow investors to buy state lottery tickets in hopes of winning a jackpot. At least when they lose, investors’ retirement savings will help support state and local economies, unlike Wall Street.

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