Let’s talk about 401(k) investments. If you have one it’s because the company you work for offers it or your past employer offered it. It is a tax-qualified, defined contribution pension plan to which employees may contribute pre-tax or post-tax dollars. In some cases, the company also contributes to the plan on behalf of the employee. On the whole, the investments which make up the plan are located in publicly traded stocks and bonds. They run the gamut from very conservative plans to higher risk (a.k.a. “growth”) plans. Some of the major players include Vanguard, Fidelity, and T. Rowe Price. These companies formulate the plans that are then presented to the employer, who in turn makes them available to the individual employee. These plans have taken the place of old, traditional pensions, and now make the employee responsible for his or her own retirement plan rather than relying on the company to provide one.
They are considered reasonably safe and transparent since the funds in the plans are public and watched over by the Securities and Exchange Commission. The retirement funds market is valued in the trillions of dollars.
In June of this year (2020), the Department of Labor (DOL), issued an Information Letter that opens the door for 401ks to include private equity investments. Following a statement made by President Trump, the DOL said, “On May 19, 2020, President Trump issued Regulatory Relief to Support Economic Recovery Executive Order 13924. President Trump directed agencies “to remove barriers to the greatest engine of economic prosperity the world has ever known: the innovation, initiative, and drive of the American people” in order that we may “overcome the effects the virus has had on our economy.
“This Information Letter will help Americans saving for retirement gain access to alternative investments that often provide strong returns,” U.S. Secretary of Labor Eugene Scalia said. “The Letter helps level the playing field for ordinary investors and is another step by the Department to ensure that ordinary people investing for retirement have the opportunities they need for a secure retirement.”
These announcements make it clear that developers and owners of 401(k) plans can include private equity funds in their plans. Of course, this has sparked debate from both sides of the discussion. Backers of it say that private equity has a part to play in helping retirement accounts recover from the economic upsets caused by the Covid-19 pandemic by allowing access to more sophisticated funding that can stimulate growth.
Detractors of the idea say it is irresponsible. “The last thing the Department of Labor should be doing is enabling or encouraging retiree money to be diverted from transparent public markets with significant disclosure and investor protections to high-risk, dark private markets with little disclosure and few investor protections. To use the pandemic as a pretext for this irresponsible action is adding insult to injury,” said Dennis Kelleher, CEO of Better Markets, a “non-partisan” organization that promotes the public interest in financial markets.
At Paradyme, we believe that you—as the investor—should be able to decide for yourself if you want to include private equity funding in your portfolio, especially if that PE funding is in safe, proven, secured investments such as real estate.
Paradyme was founded on the belief that everyone should have access to one of the safest, most satisfying investments around. Real Estate investing has shown itself to be resilient to the ups and downs inherent to the stock market. It has pockets of strength that were recession-resistant even when the economy was reeling from the 2007 downturn. Investments in commercial real estate, such as storage unit buildings, multi-family and senior retirement facilities, have shown steady growth throughout the years resulting in solid returns for their investors.
As with any investment, you need to thoroughly understand the process and what the funds are doing; a relationship of trust is important between the investor and the fund manager so that you feel comfortable asking questions or getting the clarification you need.
Now, a range of private equity investment options previously available only to institutional and accredited investors, is available to “Main Street” investors. According to the DOL, “With cautions in place and prudent analysis by the fiduciary, investors now have additional opportunities for diversification and enhanced returns.”
Said U.S. Secretary of Labor Eugene Scalia, this is a way to “help Americans saving for retirement gain access to alternative investments that often provide strong returns.”
For more information and a deeper understanding of investing in private equity real estate, please call Paradyme Investments, (866) 218-4739, and let’s talk about more growth for your retirement.
