Alternative investments for the 401(k) set

Editor’s note: This article first appeared in Money Matters, a newsletter from Britannica Money, on August 5, 2026.

Open full sized image

Institutional investing sounds compelling, but the details matter.

© ArtFamily, cunaplus, blacksalmon, STOCK88PHOTOGRAPHER/stock.adobe.com; Photo illustration Encyclopædia Britannica, Inc.

An economist and an accountant are walking down the street. Suddenly, the accountant looks down, points, and says, “Look! There’s a $100 bill just lying on the sidewalk.”

“Don’t be ridiculous,” the economist scoffs. “If it were a $100 bill, someone would have already picked it up.”

Economics often assumes markets quickly eliminate easy opportunities. But in the real world, who gets access to those opportunities—and on what terms—can matter just as much. That’s why the Labor Department’s recent proposal to allow 401(k) plans to include alternative investments caught my attention. It’s billed as the “democratization” of investing—allowing retail investors access to private equity, hedge funds, real estate, and other “alts” that have previously been the domain of pension funds, endowments, and the ultra-wealthy. 

Considering how lucrative some alternative investments have been, the economist in me says, “It’s about time.” But my accounting side reminds me that theory and reality don’t always balance.

The case for bringing alts into 401(k) plans is easy to understand. The number of publicly traded companies has been shrinking for years as companies stay private longer, meaning more of their growth happens before us retail investors ever get a chance to participate. Meanwhile, big pension funds, university endowments, and other institutional investors have been allocating to private markets for decades, helping many outperform traditional stock-and-bond portfolios over long periods.

So why should the rest of us have to watch from the sidelines?

The economist in me has a hard time arguing with that logic. If a larger investment universe has benefited institutions, opening those same opportunities to millions of retirement savers sounds like a logical next step. After all, one of the hallmarks of healthy markets is broad participation, not exclusivity.

It’s leveling the playing field—in theory, anyway. As with many ideas in economics, the theory is elegant. The real world tends to be a little messier.

This is where my accounting side starts asking questions.

Institutional and ultra-wealthy investors don’t outperform simply because they own alternative investments. They have advantages the rest of us don’t have. They negotiate lower fees, hire teams to perform due diligence, gain access to top-tier fund managers, and can afford to leave money tied up for years without worrying about next month’s mortgage payment—or, if you’re already in retirement, next year’s required minimum distribution.

Your 401(k) won’t come with those advantages. Large institutions can afford to leave money tied up for years. Most individual investors will eventually need their retirement savings to be available—and can’t necessarily choose the timing.

If alternative investments make their way into retirement plans, they’ll likely be packaged inside target-date funds or other diversified retirement funds, adding another layer of management and another layer of fees. The goal is to make alternatives easier to own, but the trade-off is that you’re no longer investing the way large institutions do.

The question isn’t whether institutions have benefited from alternative investments. They clearly have. The question is whether individual investors are being offered the same opportunity—or a watered-down product inspired by it.

If alternative investments eventually arrive in your 401(k), don’t invest just because they’re the shiny new toy. Take a step back and assess whether—and to what degree—you should participate.

The economist in me still thinks broader access is a good thing—theoretically. The accounting side just reminds me that institutional investors and individual savers aren’t the same. We have different resources, different responsibilities, and different end goals.

That doesn’t make one approach better than the other. It just means the best investment decisions start with our own circumstances, not someone else’s portfolio.