What You Need to Know About Private Equity In Your 401(k)

Speaker 1 I live in LA now, but lately I have been craving the seasons. Snow, hot cocoa, the whole thing.

Speaker 1 I don't even ski, but I have been daydreaming about working remotely from somewhere really cozy on the East Coast, like a cute little ski town for a little bit.

Speaker 1 And whenever I know I'm going to be gone for a while, I always remind myself that my home can actually be working for me while I'm away because I host my space on Airbnb.

Speaker 1 It is one of the easiest ways to earn passive income from something you already have, and that extra income feels particularly helpful this time of year as we approach the holidays. holidays.

Speaker 1 A lot of my friends say that sounds amazing, but where do you find the time to manage guests and bookings? And that's when I tell them about Airbnb's co-host network.

Speaker 1 Through Airbnb, you can find a local co-host who can help you set up your listing, handle reservations, communicate with guests, provide on-site support, even help with design and styling.

Speaker 1 I like to give a personal touch when I'm hosting on Airbnb. So I make a list of my favorite restaurants in the area and I hand write a note welcoming my guests to the property.

Speaker 1 My guests love it, but I also know that some of those little personal touches can take a lot of extra time. So this is the exact kind of thing that you would want your co-host to help you with.

Speaker 1 Whether you're traveling for work or chasing the snow or escaping it, or you've got a second place that just sits there empty more often than you'd like, your home doesn't have to just sit there.

Speaker 1 You can make extra money from it without taking on extra work. Find a co-host at airbnb.com slash host.

Speaker 2 Here's one piece of advice that I've given for years. Build an emergency fund.
Aim to stash away enough to cover at least three months of expenses in case your income suddenly drops.

Speaker 2 Sounds simple, right? But let's be honest, it's not. Saving even one month's worth of living costs can feel impossible.

Speaker 2 Just when you're making progress, that check engine light blinks on and derails your plans. Life already throws enough curveballs.
You don't need your bank adding to the chaos.

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Speaker 2 Work on your financial goals through QIIME today. Open an account in just two minutes at chime.com/slash MNN.
That's chime.com/slash MNN. Chime feels like progress.

Speaker 3 Chime is a financial technology company, not a bank. Banking services and debit card provided by the Bank Bank NA or Stripe Bank NA.
Members of DIC.

Speaker 3 Spot me eligibility requirements and overdraft limits apply. Timing depends on submission of payment file.

Speaker 3 Fees apply at out-of-network ATMs, bank ranking, and number of ATMs, according to US News and World Report 2023. Chime, checking account required.

Speaker 2 Here's one piece of advice that I've given for years: build an emergency fund. Aim to stash away enough to cover at least three months of expenses in case your income suddenly drops.

Speaker 2 Sounds simple, right? But let's be honest, it's not. Saving even one month's worth of living costs can feel impossible.

Speaker 2 Just when you're making progress, that check engine light blinks on and derails your plans. Life already throws enough curveballs.
You don't need your bank adding to the chaos.

Speaker 2 That's why it's so important to choose one that makes savings easy and doesn't nibble away at your hard-earned money with ridiculous fees. QIIME understands that every dollar counts.

Speaker 2 That's why when you set up direct deposit through QIIME, you get access to fee-free features like free overdraft coverage, getting paid up to two days early with direct deposit, and more.

Speaker 2 With qualifying direct deposits, you're eligible for free overdraft up to $200 on debit card purchases and cash withdrawals. To date, QIIME has spotted members over $30 billion.

Speaker 2 Work on your financial goals through QIIME today. Open an account in just two minutes at chime.com/slash MNN.
That's chime.com slash MNN. Chime feels like progress.

Speaker 3 Chime is a financial technology company, not a bank. Banking services and debit card provided by the Bankor Bank NA or Stripe Bank NA.

Speaker 3 Members, FDIC, spot me eligibility requirements and overdraft limits apply. Timing depends on submission of payment file.

Speaker 3 Fees apply at out-of-network ATMs, bank ranking, and number of ATMs according to U.S. News and World Report 2023.
Chime, checking account required.

Speaker 4 I'm Nicole Lappen, the only financial expert you don't need a dictionary to understand.

Speaker 1 It's time for some money rehab.

Speaker 1 You've probably heard people say that private equity is where the real money is made, and they are not wrong.

Speaker 1 For decades, some of the biggest returns have come from investments that happen before a company goes public.

Speaker 1 That's how big pensions, university endowments, and billionaires have been compounding their wealth forever now.

Speaker 1 They get in early, they ride it out, and they cash in when the company finally IPOs or sells for a fortune.

Speaker 1 But here's the thing: regular investors, people like you and me, we have been locked out of this game. The 401k options, for example, have been mostly public stocks and bonds.

Speaker 1 Maybe a little bit of real estate sprinkled in, but no venture capital, no private buyout deals, no unicorn startups until now, because something major just happened.

Speaker 1 President Trump signed an executive order directing the Department of Labor and the SEC to make it easier for private equity and also things like private credit, infrastructure products, even crypto to make their way into your retirement account, specifically your 401k.

Speaker 1 At first glance, this sounds like a major win. Finally, retail investors get access to the same high-growth companies that billionaires have been using for decades.

Speaker 1 Companies are staying private for longer, right? IPOs are slowing down. And if you want to grow your money, you've got to go where the growth is.

Speaker 1 That is definitely what you'll hear from people in the private equity firms. And trust me, they are thrilled about this.

Speaker 1 But we have to have an honest conversation about why this is happening, because it's not happening because private equity firms suddenly care about your financial future.

Speaker 1 They are opening the doors because they need something from you. They need your money.
Private equity has a problem, a liquidity problem.

Speaker 1 They've got assets locked up in companies that are not exiting, deals that are stalling, and funds that need fresh capital to keep going.

Speaker 1 They've already taken plenty of money from the wealthy, and now they are coming from the largest untapped pool of cash in America. Your retirement savings.

Speaker 1 Trillions of dollars sitting in 401ks, just waiting to be put to work. And that is the real story.
Now, could this still be good for us? It depends.

Speaker 1 In some cases, having a small slice of private markets in your retirement plan could boost diversification and maybe even returns.

Speaker 1 You'll probably see this through your target date fund or a managed portfolio, where a small percentage, like 5 or 10%, gets allocated to private assets.

Speaker 1 Big names like BlackRock and Vanguard are already starting to build these funds. They're being rolled out at some of the largest 401k providers.
But this isn't the same as buying a simple index fund.

Speaker 1 Private equity comes with strings attached. Your money is going to be locked up for longer periods of time.
These funds don't offer the same daily liquidity you're used to.

Speaker 1 That means if you need to pull out money early, you might not be able to.

Speaker 1 And then there's the fees. Private equity funds are really expensive, like really, really expensive.
You might be paying four or five times more than you would a typical index fund.

Speaker 1 Management fees, performance fees, sometimes extra fund expenses, god knows what. It all adds up and it directly eats into your returns.

Speaker 1 And here's the other thing no one likes to talk about, transparency. Public stocks report quarterly earnings.
They have very strict financial reporting.

Speaker 1 You can track performance on your phone any day of the week, anytime you'd like. Private equity? You're now relying on internal valuations.

Speaker 1 You might not really know how your investment is performing for years.

Speaker 1 So yes, the door is finally open and you can technically invest like a billionaire, but don't mistake access for advantage.

Speaker 1 Just because you can invest in something doesn't automatically make it a smart move. You have to understand the trade-offs here.
Less liquidity, higher fees, less transparency, more complexity.

Speaker 1 Now, if you want to explore these options, cool. Here's what I would recommend.
First, look at your 401k investment options.

Speaker 1 You'll probably start seeing funds labeled as private market allocation or alternative assets inside target date funds or blended funds. If you're curious, read the fine print.

Speaker 1 Ask your plan provider about fees, about liquidity terms, and about how performance is tracked. Second, if you want to invest, keep it small.

Speaker 1 5%, maybe 10% if you have a higher risk tolerance, private equity is not the place to be putting a huge portion of your retirement money, especially not when the fees are this high and the liquidity is this low.

Speaker 1 And finally, ask yourself, why? Why is the door opening now? After decades of shutting out regular old investors, why is private equity suddenly so eager to let us in?

Speaker 1 The answer is they need our money. And if you don't understand the product, chances are, you are the product.
And for today's tip, you can take straight to the bank.

Speaker 1 New investment options are exciting as heck, but your job isn't to chase what's shiny. It is to build steady, long-term wealth.
You don't need to follow the billionaires into every risky investment.

Speaker 1 You just need to follow a strategy that actually gets you to your goals and keeps you there.

Speaker 4 Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin.
Money Rehab's executive producer is Morgan Lavoy. Our researcher is Emily Holmes.
Do you need some money rehab?

Speaker 4 And let's be honest, we all do.

Speaker 4 So email us your money questions, moneyrehab at moneynewsnetwork.com, to potentially have your questions answered on the show or even have a one-on-one intervention with me.

Speaker 4 And follow us on Instagram at MoneyNews and TikTok at MoneyNews Network for exclusive video content. And lastly, thank you.

Speaker 1 No, seriously, thank you.

Speaker 4 Thank you for listening and for investing in yourself, which is the most important investment you can make.