Trump to sign executive order allowing crypto and gold investments in U.S. retirement plans like 401(k)s possibly this week, says FT

Trump to sign executive order allowing crypto and gold investments in U.S. retirement plans like 401(k)s possibly this week, says FT

President Donald Trump is reportedly set to sign an executive order this week that could significantly expand investment options for U.S. retirement plans like 401(k)s. The order, expected to be signed in the coming days, would direct the Labor Department and the Securities and Exchange Commission to issue guidance for employers and plan administrators on incorporating investments such as cryptocurrencies and gold into 401(k) plans [3].

This move comes on the heels of the Trump administration's rollback of Biden-era guidance that discouraged 401(k) plans from including cryptocurrencies in their investment lineups. The new guidance, which emphasizes asset class neutrality, makes it easier for plan sponsors to offer crypto investment options [1].

The executive order is part of a broader effort to open up 401(k) plans to private-market investments, including those from large private equity firms like Apollo Global Management and Blackstone. This could potentially allow these firms to tap into the significant retirement savings held by workers without traditional pensions [2].

While the order is still under review and its details are not yet final, experts suggest that investors could see cryptocurrencies and gold in their primary investment menu or a self-directed brokerage window. "Many plans, especially larger ones, have brokerage windows where a participant can go in and invest in individual stocks, ETFs, or other strategies that you typically don't get in a standard investment lineup," said Michael Espinosa, CFP and President of TrueNorth Retire [1].

However, the decision to offer cryptocurrencies and gold as investment options in workplace retirement plans has been met with criticism. Some experts caution that investors should exercise caution before allocating retirement funds towards these assets, given their high volatility and speculative nature [1].

For example, Espinosa urges that investors exercise caution before allocating retirement funds towards crypto. "For me, [there's too] much at stake when putting a significant amount in speculative assets for retirement," said Espinosa. "If you have an appropriate savings rate and you're averaging a 6% to 10% average rate of return over 30 or 40 years, [there's] no need to add extra layers of risk" [1].

David Rosenstrock, a CFP and founder of Wharton Wealth Planning, suggests that investors limit their investments in crypto to 1% to 2% of their overall portfolio. "One of the most important questions you should ask yourself is whether Bitcoin fits into your investment strategy and risk tolerance," wrote Rosenstrock in an email to Investopedia. "If you're considering buying it just because it has risen 18% year-to-date, you may just be chasing returns and speculating rather than investing" [1].

The executive order is expected to build on the 2020 Labor Department letter that allowed private equity allocations in target-date funds under specific conditions. However, the Biden administration reversed that position in 2021, declaring that it "did not endorse or recommend such investments" [2].

While the order could potentially lead to more plan sponsors providing crypto and gold investment options, it is important to note that plan sponsors are still required to act as fiduciaries and meet certain legal obligations. This means that they have a legal obligation to act in the best interest of their participants [1].

In conclusion, the Trump administration's proposed executive order could expand investment options for U.S. retirement plans, potentially including cryptocurrencies and gold. However, investors should exercise caution and ensure that any new investments align with their overall retirement strategy and risk tolerance.

References:
[1] https://www.investopedia.com/cryptocurrency-in-your-401k-11746285
[2] https://www.nasdaq.com/articles/trump-sign-executive-order-open-401k-private-markets
[3] https://finance.yahoo.com/news/trump-set-sign-executive-order-113030234.html