Thursday, 16 June 2022 07:39

Alternatives Options in 401K Plans?

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Alternative assets are exploding, but when will they become available in defined contribution plans? Diversified investing is one of the first things taught to advisors, but with many asset classes becoming correlated, it becomes tough to truly diversify portfolios. Alternative assets are one solution. They have the potential to hedge volatility, increase portfolio income, and provide that diversification. Research firm Preqin is projecting that global alternatives assets will hit $23.2 trillion by 2026, up from an estimated $13.3 trillion at the end of last year. However, 401K participants can’t access these asset classes, aside from exposure in target-date funds. Some plan fiduciaries are looking to change that and are reviewing DC plan menu options. But they face a series of tailwinds such as low liquidity and high costs, not to mention concerns from the DOL. As organizations such as the Defined Contribution Institutional Investment Association are exploring the issue, it’s not too far-fetched to think it may become a reality at some point.

Finsum: Defined contribution plans such as 401Ks currently only include traditional investment options, but that may change in the future as plan sponsors and organizations look for ways to add alternatives to the menu.

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