Use This New 401(k) Strategy the Way Billionaires Build Wealth

If you have been managing your own 401(k) for years, you have probably noticed something frustrating. Your investment menu looks almost identical to what it did a decade ago: stock funds, bond funds, target-date funds, maybe a money market option.

Meanwhile, the pension funds, endowments and family offices have access to a completely different playbook. They invest in private equity, venture capital, real estate deals and infrastructure projects that most of us never see.

That gap is starting to close. In August 2025, President Donald Trump signed an executive order directing regulators to clear the path for alternative investments in 401(k) plans. Within days, the Department of Labor rescinded guidance that had discouraged these options.

This matters for entrepreneurs. But before you start reallocating your retirement savings, you need to understand what you are actually getting into.

What this actually means for your account

The executive order covers six categories: private equity, private credit, real estate, cryptocurrency funds, commodities and infrastructure investments. These are the same asset classes that institutional investors have used for decades to boost returns and reduce volatility.

The logic is straightforward. The top 10 companies in the S&P 500 now represent nearly 40% of the index. Even a diversified index fund carries more concentration risk than many investors realize. Adding uncorrelated assets could help.

BlackRock estimates that including private equity could generate roughly 15% more wealth over a 40-year career. That sounds compelling. But there is a catch.

The risks nobody is talking about

Traditional 401(k) funds charge fees around 0.1% to 0.5% annually. Private equity funds typically charge 2% plus 20% of profits. That fee structure can wipe out any performance advantage if the fund does not significantly beat public markets.

Research from Johns Hopkins found that many private equity funds do not actually outperform the stock market after fees. Jeffrey Hooke, who led the study, puts it bluntly: The recent track record has been mediocre at best.

Then there is liquidity. Private investments can lock up your money for a decade or more. If you change jobs, need a hardship withdrawal or want to rebalance before retirement, you may not be able to access those funds when you need them.

Finally, transparency is limited. Unlike public stocks with daily pricing and SEC filings, private investments are valued quarterly using subjective methods. You may not know what your holdings are actually worth until the fund eventually sells.

How to approach this as an entrepreneur

Running a business teaches you to evaluate risk and reward clearly. Apply that same discipline here.

First, check your timeline. These investments make sense only if you have 15 or more years until retirement. If you are closer to that finish line, the illiquidity risk is not worth it.

Second, look at the vehicle structure. Target-date funds with a small private asset allocation are probably safer than standalone alternative options. They provide professional management and automatic rebalancing that individual investors cannot easily replicate.

Third, scrutinize fees before committing any capital. Calculate what the fund needs to return just to break even against a low-cost index fund. If the math does not work, walk away.

Fourth, keep your allocation modest. Even advocates for these investments are not suggesting you put everything into private equity. A 5% to 15% allocation captures potential diversification benefits while limiting downside exposure.

The bottom line

More choice is generally good. But more choice also means more ways to make expensive mistakes.

The regulatory changes are real, and products designed for 401(k) plans are already in development. Your plan sponsor will eventually need to decide whether to offer these options. When they do, you will need to decide whether they belong in your portfolio.

As Wharton professor Burcu Esmer noted, we should not expect individuals to navigate private equity alone, but we also should not assume they must be excluded entirely. The right approach sits somewhere in the middle: educated, cautious and clear-eyed about both the opportunity and the risk.

You built your business by understanding tradeoffs. Apply the same thinking here.

If you have been managing your own 401(k) for years, you have probably noticed something frustrating. Your investment menu looks almost identical to what it did a decade ago: stock funds, bond funds, target-date funds, maybe a money market option.

Meanwhile, the pension funds, endowments and family offices have access to a completely different playbook. They invest in private equity, venture capital, real estate deals and infrastructure projects that most of us never see.

That gap is starting to close. In August 2025, President Donald Trump signed an executive order directing regulators to clear the path for alternative investments in 401(k) plans. Within days, the Department of Labor rescinded guidance that had discouraged these options.