Doug Boneparth, Bone Fide Wealth president, joins 'The Exchange' to discuss private assets coming to 401(K)s and the risks it presents.

A recent discussion on CNBC explored the potential for private market assets, such as private equity and private credit, to become more widely available in 401(k) retirement plans. While current regulations do not prohibit these investments, many plan administrators have been hesitant to include them due to fiduciary concerns and the complexity involved.

Doug Boneparth, president of Bone Fide Wealth, cautioned that most retail investors may not benefit from these complex assets, citing challenges with consistency, discipline, and understanding of basic investment fundamentals. He noted issues such as liquidity, transparency, fees, and a lack of long-term performance data for private assets, especially in the current high interest rate environment. While there may be cases where young investors with long time horizons could benefit, Boneparth emphasized the need for more comprehensive data and transparency before making private assets a common feature in retirement portfolios.

The risk-reward of private assets in 401(K)s

Make private market assets more available to 401K retirement plans. It would instruct the Labor Department and the SEC to provide more guidance to employees and plan administrators on these instruments and their offerings. Larger question is whether it's a good idea. Let's bring in Douglas Boneparth. He's president and financial advisor at wealth management company, Bonafide Wealth. Doug, it's great to have you here. Douglas, I don't want to overly, you know, informalize this, but it's not that this isn't already allowed. It's that a lot of people are hesitant to put them in plans out of a sense of fiduciary duty and all the rest of it. This might make it a little bit easier for it to become more common for people to be able to pick private equity, maybe private credit and so forth. Do you think it's a good idea? For most retail investors, sorry, private equity, this is probably not the best idea. I think we're having hard enough time getting the basics and the fundamentals, you know, down for most investors. It's hard to be consistent and disciplined just with passive investments, just with sticking to a strategy that you can hold on to for the next 10 years. So now we're going to introduce some complexity to that. It might not be the best idea, but there are plenty of cases where this actually would work. So let's talk first, you know, and I believe it was Jack Bogle who had a funny line for this, but when you include something in a list of options for the typical person, they're more likely to just say a little bit of this, a little bit of that, a little bit of this, a little bit of that. So they might well over diversify into something. My issue is I would like a better track record for this asset class, especially through this era of high interest rates. We're still learning exactly how well PE is performing over the last couple of years. It's now a massive industry. It's much different than it was 20 years ago when the returns were much better. Do you feel like you have enough data to look at and point to, to say this deserves similar billing up there with stocks or something else in people's retirement accounts? Not only is that a concern, but you have liquidity issues. You have pricing issues. These aren't marked every day. I want to look at fees. What cut of private equity are we putting in these portfolios versus what a ultra high net worth investor would be able to or an institutional investor would be able to get. Right. So I would imagine the fees are higher. Liquidities are concerned. The flip side of that is if you have a young investor with time on their side, the 401k is that long term retirement asset. This might be a great place to actually go long on an asset class like that. But again, that's the exception, not the rule. For instance, when we look at stock market, we say, OK, over the past 150 years, whatever the number is, typically returns 7 percent. Here's kind of the risk reward. All of those things, bonds difference. What would you what is the pitch as far as you're concerned? What does the data tell you about the performance of some of these private assets? You might get greater diversification. You might get non-correlation to your portfolio. Those are going to be the number one and number two things. But to your point, what do we have to demonstrate that other than the buzz? The headlines, the ideal or the vibes that this is different, right? You're right. We don't necessarily have that. And again, back to the central issue of, you know, is this something that belongs in mom and pop's portfolio? It begs the question, why do we have this here? I would I would almost view it as perhaps more appropriate for someone older in age than younger in age. I mean, it just depends on what's the composition of these portfolios. Is it are we talking about private credit at some point, which has been a great performing asset class the past several years, but it's also been new, hasn't had a lot of competition, has had some tailwinds going for it that are now possibly an issue. So I would just love to see like the comprehensive data on why exactly somebody should put any amount of any allocation towards it. Yeah, my cynical take is you're not going to get the transparency that you're looking for here to make that, you know, objective call as to how much you should even be allocating. All we're going on right now is are you young or are you old? How much time do you have on your side is and also how large the account is. I mean, for clients, we don't start talking about the umbrella of alternative investments until we get to a certain size of an account. What are we going to do? Allocate ten dollars, you know, to private credit here. So some will argue that, yeah, that should be a part of your portfolio. But again, back to the central point of let's get really good at just investing in large caps, mid caps, small caps, international and credit and get that down, Pat, grow our balances and then maybe we can look to the whole wide world of alternative assets, including Pokemon cards inside of your 401k. When are we going to see that? But we also have crypto. We have all kinds of things that, you know, are trying to get into these portfolios. I think you're going to see it no matter what. We're trending that way. But you know. But do your homework, I think the advisers, the public and everybody, and maybe let's see some more performance and and get some more data points. Doug, thanks. Appreciate it today.

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