Would you consider adding private equity funds to your 401K? We’ll weight the pros and cons of this interesting idea as we explore the retirement headlines. No listener questions today, instead, this episode is all about the headlines. We have news about RMD’s, private equity funds, tax strategy in retirement, and a shocking Fidelity study. Make sure to listen until the end to hear the surprise twist.

Outline of This Episode

[1:22] All unwanted RMD’s taken in 2020 can be returned
[2:16] Including private equity funds in your 401K
[8:08] Many Retirees forget to plan for taxes in the long term
[10:35] A Fidelity study stated that ⅓ of investors over 65 moved their money out of stocks

What are private equity funds?

You may have heard of private equity funds before but many people aren’t exactly sure what they are. So before we explore this retirement headline I want to define the term. Private equity funds are an investment class of their own which consists of capital that isn’t listed on the public exchange. Whereas public equity involves buying shares on the stock exchange, private equity funds invest directly in private companies.

Do Private equity funds belong in your 401K?

Recently changes were made that opened the door to allow private equity funds into 401K plans. There are pros and cons to this idea. One positive is that they can provide added diversification to your investments. Another positive is the potential for increased returns.

However, there are 3 serious downsides you need to consider before adding private equity funds to your 401K.

A lack of transparency - It’s difficult to understand what you own when you own a private equity fund. Mutual funds are designed to be transparent, but with private equity, you won’t have that same clarity.
A lack of liquidity - With mutual funds, if you need cash out of your retirement account you could sell and have the funds within 3 days. However, it could take months to get your money out of a private equity fund.
High fees - Private equity funds can charge 2 & 20 which means that they have a 2% annual fee and take 20% of your profits. This is a huge difference when compared to the ever-lowering fees of mutual funds.

Listen in to hear my opinion about private equity funds in your 401K.

Many Retirees forget to plan for taxes in the long term

The pandemic has caused many of us to reevaluate a number of things in our lives. One of those considerations was taxes. 59% of Americans surveyed said that they are more worried about taxes now than before. And 63% responded that it’s more important to develop a tax strategy in retirement. I am a proponent of long-term tax strategy in retirement in conjunction with your yearly tax planning. My takeaway from this article is that it is important to get professional tax advice early on so that the taxman doesn’t sneak up on you.

The importance of accurate reporting

The Wall Street Journal published an article that stated that ⅓ of investors over age 65 moved their money out of stocks. But the article published inaccurate data. Although the article was corrected, it took 3 days for the correction, an eternity in this time of instant news. Mistakes in reporting will inevitably happen which is why it is important to read news surrounding statistics and investing with a grain of salt. It’s also important to be conscious of your own bias when reading news articles.

Resources & People Mentioned

Unwanted RMD’s can be returned by August 31
Market Watch story on private equity
Retirees planning for taxes
Wall Street Journal article about retirees withdrawing from the market
Think Investor correction article

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