As the retirement planning landscape continues to evolve, so too does the conversation around the types of investments that can help individuals achieve long-term financial security.
Traditionally, workplace retirement plans have relied on mutual funds, exchange-traded funds, stocks, and bonds as foundational components. While these investments remain essential, alternative investments — such as private equity and cryptocurrency — are increasingly entering the discussion, offering new opportunities for growth and diversification for all individuals.
Within the proper framework, these options can play a meaningful role in helping individuals reach their savings goals, particularly through their workplace savings plans. To help employers evaluate these solutions, let's explore why they're gaining traction, what they consist of, and how they fit in the investing landscape.
A need for greater diversification
Diversification is one of the most powerful tools in any investor's toolkit. Having access to a mix of options, including alternatives, within one's workplace retirement savings plan can help individuals build portfolios that are better equipped to weather market volatility while still focusing on their long-term growth.
Add to this the reality that the number of public companies in the U.S. has dropped by nearly half since the mid-1990s, and many of today's most innovative, high-growth companies remain private longer, or in some cases, never go public. This means fewer opportunities for individuals to access growth through traditional public markets. Compounding this trend, private market investments have historically delivered higher long-term returns than public equities. As a result, private markets are becoming an increasingly critical part of the investment landscape.
Defining private equity
One of the more widely used alternative assets is private equity, which has long been viewed as a high-potential asset class, offering access to non-public markets. While traditionally reserved for institutional investors, there is growing interest in making private equity more accessible to individual retirement savers.
Within retirement plans, private equity typically includes active strategies that aim to enhance portfolio diversification through private debt and tangible assets (such as real estate), which are not traded on public exchanges. These investments are typically offered through professionally managed vehicles, such as target-date funds, which continue to gain popularity. This approach can provide significant value, enabling individuals to capitalize on private equity's potential while maintaining a well-balanced portfolio.
The evolution of alternative assets
Cryptocurrency is one of the newest and arguably most debated alternative investment asset classes. While its inclusion in workplace retirement plans remains a divisive topic, it continues to gain momentum as more individuals look for ways to diversify beyond traditional markets. Recent industry data shows that about 10% of U.S. adults with retirement accounts say they hold at least some crypto in their plans, with younger investors reporting even greater interest (18% of millennials and 14% Gen Z report crypto retirement holdings).
Within the proper framework, access to crypto investments can be a viable component of a long-term investment strategy. However, like any investment, its suitability depends on one's individual goals and risk tolerance. For example, someone nearing retirement may be more risk-averse and may avoid more potentially volatile assets. Younger investors with longer time horizons may be more open to emerging asset classes, knowing they have time to ride out market fluctuations before they need to draw on their savings.
Finding the right framework
Every financial journey is unique, which is why flexibility and choice remain critical components of building retirement portfolios. For employers operating within the proper guardrails, providing access to alternative investments could help plan participants achieve better long-term financial outcomes. But access alone is not enough; these investment options must be implemented thoughtfully, with professional oversight, to add value without introducing unnecessary risk.
The good news is that the retirement landscape is constantly evolving. As alternative investments in workplace plans gain acceptance, the infrastructure to support them is strengthening. While there is no one-size-fits-all solution, thoughtful implementation can make providing access to alternatives in the workplace investment lineup a valuable part of a well-constructed retirement strategy for today's workforce.
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