This Trump Proposal Could Result in Millions of Americans Losing Their Retirement Savings

Pressed by his Wall Street supporters, President Trump is moving to liberalize the types of investments Americans can make with their individual retirement accounts. Instead of betting their retirement savings on plain vanilla stocks and bonds, account holders would be allowed to move their funds into sexy sectors like private equity, private credit and cryptocurrency — no matter their complexity, risk and illiquidity.

Supporters of the switch make the case that individuals should have the same access to private assets with potentially higher returns as institutions and the wealthy. But this argument rests on the false premise that most Americans are equipped to evaluate these complex, opaque investments. They are not. And expanding access to them risks doing more harm than good.

All in all, the proposal, put forth by the Labor Department to fulfill a recent Trump executive order, is a consequential mistake. It could well exacerbate the challenges already posed by individual retirement accounts, a flawed replacement for the traditional corporate pension plans that many Americans used to enjoy.

At their core, today’s retirement accounts turn everyday Americans into money managers, faced with a dizzying array of choices for how to invest their money. What is an “Allspring Special Mid Cap Value Fund — Class R6”? Or a “Vanguard FTSE Social Index Fund — Admiral Class”? (Both are among the many mystifying choices in my 401(k) plan.)

I don’t know how a salesman or doctor or even an accountant could successfully sift through every flavor of stock and bond funds (like the aforementioned two), let alone navigate the bewildering world of alternative investments.

I’ve been a professional investor for decades and am still daunted by the challenges.

The obstacles are even greater for those who try to boost their retirement returns by betting on individual stocks or other single investments. In 2024, the average stock retail investor earned about 16.5 percent picking mutual funds, compared to 25 percent for the S&P 500, according to a study by Dalbar, a leading independent expert. In other words, most investors would have achieved markedly better performance by just putting their savings into an index fund designed to track the performance of the S&P 500.