Now that 401(k) investors are free to jeopardize their retirement security by gambling on private equity and crypto, maybe its time to allow lottery tickets in 401(k)s. Get ready for “slots of fun!”
In June 2020, the U.S. Department of Labor opened the door for plan sponsors to add private equity funds to their 401(k) plans. That was a huge win for the private equity industry since 401(k)s hold nearly $9 trillion in assets and a monstrous setback to American workers who invest in 401(k)s for retirement security. If private equity is embraced, 401(k) costs will skyrocket, risk will dramatically increase and transparency will plummet, I wrote at the time.
The explanation the agency provided for its reckless action was perverse.
Private equity in 401(k)s will, said DOL, “overcome the effects the coronavirus has had on our economy” and “level the playing field for ordinary investors.” That’s right—the federal government paving the way for workers to gamble their retirement savings was a form of COVID-relief. (More likely, COVID-relief for Wall Street.)
As I pointed out in 2020, Warren Buffett, arguably the world’s most respected investor, had escalated his criticism of private equity just a year earlier.
Recently, Fidelity Investments announced it will offer investors the option to put bitcoin in their 401(k)s, making it the first provider to offer crypto for retirement savings. The crypto offering will be available for 23,000 employers that use Fidelity to administer their retirement accounts by midyear 2022. Fidelity is the nation’s largest retirement plan provider and its decision could make crypto even more popular and mainstream.
John MacGregor, Certified Financial Planner (CFP) and author of the international bestseller, The Top 10 Reasons the Rich Go Broke, had this to say about crypto in 401(k)s:
“To think that it’s a smart move to invest part of one’s 401(k) in cryptocurrency right now is insane. I don’t like to use terms like that, especially in the financial market, but come on. It’s the bright, shiny new object mentality, that in my experience always leads to problems. This is a horrible mistake.
People want to get in on something new just because it sounds cool and exciting, and they are once again getting sucked in to the F.O.M.O. (”Fear Of Missing Out”) mentality. This reminds of me the dot-com bust of 2000, where I witnessed some great, hard-working people lose everything.
Investing your 401(k) in cryptocurrency at this time, with this economy’s troubles looming, is dangerous. It’s irresponsible. Might as well hand the keys to your fancy car to your teenager and say, ‘Have fun!’ What suddenly happens in both situations is completely out of your control, and they are both reckless.”
What does Warren Buffett have to say about investing in crypto?
In 2019, Warren Buffett told CNBC he’s staying away from cryptocurrencies. “Cryptocurrencies basically have no value and they don’t produce anything… I don’t own any cryptocurrency and I never will,” he added.
I won’t speculate as to why government agencies such as SEC and DOL, as well as private asset managers, are so hell-bent upon making it easier—at this particular moment in time—for 401(k) investors to gamble their hard-earned savings on lightly-regulated, unproven investment schemes, such as private equity funds and crypto.
But if we’re going to open the door to 401(k) gambling, the simplest alternative would be to allow investors to purchase state lottery tickets in hopes of winning a jackpot. At least when they lose, investors’ retirement savings will help support state and local economies—as opposed to Wall Street.