John, good to see you. Diving into the headlines a little bit today. Should you buy risky assets in your 401k? Potential changes could be coming to your workplace retirement plan. That's because President Trump recently signed this executive order that would pave the way for riskier assets to be included in your 401k. What's new here?

Well, just like you said, it paves a way for new asset classes to be inside 401ks, specifically private equity and alternative investments that can carry great potential, but have a lot of risk involved in them that I think the normal 401k participant may not feel comfortable with.

You mentioned private equity. What is private equity exactly?

So private equity is essentially you're investing in a private company whose goal is to purchase that of another company, make it more profitable, and sell it. So let's use a simple analogy: you and your buddies are general partners or limited partners. You see a nice rundown house, you've been binge-watching the do-it-yourself channel and you're like, "Let's fix her and flip her." So you go in and renovate this house. Then, hopefully, with the money you've put in, your purchase price, your sweat equity, and the cost of fixing it up you sell it for a profit.

They make it look so easy on TV, right?

They do. The problem is, do you want to gamble with that in your retirement? And what people have to understand is private equities, they're not like listed stocks or mutual funds or ETFs. You're buying into this private company. It's illiquid. I kind of get that it's a bit of a conundrum because your 401k is for the most part illiquid too, but I'm not a big fan of a lot of illiquid investments. And you have to understand that these are very complex, and these companies can be less transparent than the normal investments you're in.

Right, right. So I always wouldn't put them in the companies I manage 401ks for the vast majority of 401k participants, they just want simplicity, and this is far from it.

Right. So what are the risks and rewards of these alternative investments? Because we all have fear of missing out, John.

Yeah. Well, the good thing about the fear of missing out is, unless someone's in it and bragging at the office, it's not something that gets posted on the 5:00 news like the S&P 500, Dow Jones, and NASDAQ are thrown in our faces every day. The upside is a private equity firm bought a struggling company and turned it into a monster company and sold it for a large profit. Or, like I said with the fix-it-and-flip-it. Yes, these guys are professionals, but the investments don't go as planned and you lose what you put in. Not to mention what we're going to talk about next.

Yes. And my next question is specifically regarding fees, because private equity funds typically charge a 2% management fee plus 20% of profits, known as the "2 and 20" model. In a 401k, fees like that can be devastating over time. Critics say the biggest beneficiary of this rule change will be the companies that offer them, not the plan participants. What do you think?

Yeah, I mean, that's a lot of money. Yeah.

Cost becomes an issue when there's an absence of value, and for normal 401k people who want simplicity, I just don't think they're going to see that. So let's go back to the 2 and 20 rule. Let's say you're investing in this company at a 2% fee. That's expensive.

That's expensive, and a lot of people don't even understand the real cost within their 401ks to begin with. So 2%, plus any other plan administration fees on top, that's a lot of money when you compound that over however long you hold the investment. Then you have the 20% of profits that goes back. So, gross of fees and net of fees: say you have a 10% return one year. Take off your 2% expense ratio for the cost of doing business, now it's an 8% return. And they're keeping 20% of the profit — so say you had a 10% return, they're keeping another 2% of that. All of a sudden it's your money you're investing, and you're at a 6% return when the fund's returning 10%. That's just the cost of doing business with the fund.

So then, John, the question boils down to: who should consider buying risky assets in their 401k?

Someone who is extremely diligent. I really don't know how many plan administrators or advisers are going to put this in there maybe for some very high-end 401ks. But most 401k participants have to understand they are the adviser on their own policies; they're making the investment decisions. In most cases, I see a lot of people who just bought target date funds because they want plug-and-play, they want simplicity. In my own company's 401ks, we offer models that say, "This is not a target date fund, this is a diversified model", still plug-and-play, and 98% of my participants use that. People want simplicity. They have a job; investing isn't it, and they don't want to do that. If you're going to invest in this, you have to understand these companies can be less transparent, you have to understand the fees, and you have to read that novel of a prospectus.

When we also talk about riskier investments, something we haven't really covered because we focused on private equity, crypto. The ability to have crypto inside 401ks is now becoming mainstream. I'd say this is something you could consider, as long as it's a crypto ETF and it's liquid, so you can sell it at any time. I think nowadays, mainstream, Bitcoin, Ethereum, not Dogecoin or whatnot, is becoming more and more of a reality to have. Now, you have to understand Bitcoin is volatile it can spike up one day and drop the next. So you have to go in with the mindset of, "I can lose all this money, but I can also make a lot of money", that risk/reward.

However, if you just took 1 to 3% of your portfolio and I just put out a newsletter for my clients today saying, "When our signals state we are going to buy some of these crypto holdings," it can have a substantial impact. There have been a couple of studies done over the years showing that if you put a 1% holding into crypto and it went to zero, it's really going to have a negligible effect on your portfolio, you might lose 1% or so, not going to kill you. However, if you hit crypto right and we've seen these big crypto swings even this year and crypto really shoots up and you have a big return, that 1%... if you had a 7% return on your portfolio, it could easily double it. So I think the risk/reward there is a little more tangible and feasible than diving into the world of private equities and private placements like we're watching Billions on HBO.

No, but it is interesting to talk through, John, and I do appreciate having you as a resource. Friendly reminder to everybody that all of your financial questions, you can probably find answers to them on John's YouTube channel. But John, if somebody wants to sit down and discuss whether they should be investing in alternative investments, what's the best way to reach you?

Yeah, well, you mentioned it, visit our website, www.gosecurus.com. I think we've got over a hundred videos easily. Yeah.

Plus my podcast, which is over a hundred episodes, where we dive into details with my good friend Tom O'Connell, the Retire Happy podcast. But while you're looking for answers and searching for knowledge on my website, if you want to set up an appointment, head over to the Contact Us tab and you can schedule a 20-minute phone call where I'll answer any general questions for you during that period. Or, if you want more in-depth help, you can schedule a one-hour complimentary vision and clarity consultation, and we will meet with you.

Right, John? Thank you.

Thank you, Erin.