Canada (EN)
Alternative investments (ALTs) in 401(k) plans are a compelling idea. While they certainly introduce additional risk, they can also provide meaningful long-term diversification and return potential, which aligns with the fundamental purpose of retirement investing.
That said, if we are going to promote ALTs within defined contribution plans, they must be coupled with robust financial education and personalized advice. This is intentionally not a "but" statement, it is an "and" statement. Financial education and guidance are absolute requirements for responsible implementation.
Participants need to understand the potential risks, the long-term investment horizon, the role ALTs play within a diversified portfolio and how they fit within target-date funds and broader glidepath strategies.
Defined Contribution and 401(k)s
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Without that understanding, there is a risk that participants misinterpret the purpose of these investments or make decisions that are inconsistent with their retirement objectives.
In short, ALTs may have a place in 401(k) plans, but their success will depend as much on participant education and advice as on the investment options themselves.
Alight is uniquely positioned to bridge the gap between investment innovation and participant understanding.
As plan sponsors evaluate the role of alternative investments in 401(k) plans, success will depend not only on offering the right investment vehicles but also on ensuring participants have the knowledge, guidance and confidence to use them appropriately. This is not meant as a short term investment or a “sexy investment.” It’s meant to be integrated as a long-term investment vehicle inside of a 401(k) plan.
Alight's integrated capabilities across retirement, financial wellbeing, managed accounts, using next best dollar and personalized advice can help participants understand the risks, return expectations and long-term role of ALTs within diversified portfolios and target-date strategies. This combination of investment access, education and advice creates the foundation for better participant outcomes and greater fiduciary confidence for plan sponsors. To learn more about Alight’s expertise with Defined Contribution, visit Defined Contribution and 401K | Alight.
