Jean Chatzky cautions against assuming more 401(k) choices mean better results

As retirement plan lineups move beyond standard stocks and index funds, ordinary savers are being offered a broader set of alternative investments. Former NBC “Today” financial editor Jean Chatzky says the growing menu may sound attractive, but it does not automatically translate into stronger retirement outcomes.

One of the biggest additions to the defined-contribution world is private equity, an investing approach that pools capital to buy, restructure, or invest directly in private companies that do not trade on public exchanges.

These assets have long been available mainly to wealthy individuals and institutional investors, but Chatzky warns that high fees, limited liquidity, and long holding periods can work against workers who depend on consistent compounding for retirement savings.

“Wall Street will always innovate,” Chatzky wrote on HerMoney. “And when it sees an opportunity to expand access to a product — especially one that has traditionally been limited to high-net-worth investors — it will. But more options don’t automatically mean better outcomes.”

“For many investors, low-cost diversified index funds remain a powerful, proven foundation,” she continued. “For others, a small allocation to alternatives may make sense, but only as part of a well-thought-out plan.”

Chatzky points to private equity fees in 401(k)s

According to Chatzky, private equity has traditionally operated under a “2 and 20” model, with a 2% management fee and a 20% share of investment gains.

“If you’ve been able to buy into private equity as an individual investor, it’s way more than your average index fund ETFs, where we’ve gotten down to fractions of a percentage point,” Chatzky wrote.

Chatzky raised the issue with Liz Miller, a CFP, CFA and former chair of the CFP Board, asking her about those fees.

“These have always been very expensive. I have always felt that as the years go by, these structures all tend to provide lower and lower returns,” Miller said.

“Investors who were in these funds were comfortable with that because, over time, they were getting much higher returns than public market returns,” she added.

“Like any product, as we build it out and it becomes a bigger and bigger slice of the market, I’m not sure we’re going to see those kinds of returns.”

Traditional or Roth 401(k): another key choice

Beyond the debate over private equity in retirement plans, another major decision deserves attention: whether to use a traditional 401(k) or a Roth option.

Over years of reporting on personal finance and retirement savings, it becomes clear that investors should step back and consider tax consequences, no matter what their 401(k) menu includes.

The central question is whether a worker should contribute to a traditional 401(k) or choose a Roth account.

Fidelity Investments explains the difference clearly.

“With a traditional account, your contributions are generally pre-tax (401(k),” Fidelity wrote. “A Roth account is the opposite: Contributions are made with money that has already been taxed (your contributions don’t reduce your taxable income), and you generally don’t have to pay taxes when you withdraw the money in retirement.”

“This means you need to choose between paying taxes now or in retirement,” Fidelity explained, framing the decision around whether taxes are likely to be lower today or later.

Vetted Prop Firms CPA Dat Ngo sees it differently.

“One thing I always walk clients through is the idea that the Roth vs. traditional decision isn’t just about where you expect tax rates to go — it’s about your income trajectory right now,” Ngo told me. “If you’re in a lower tax bracket today and expect meaningful income growth over the next decade, paying taxes upfront with a Roth contribution is often the smarter long-term move.”

“That said, for someone already in a higher bracket who anticipates a lower income in retirement, the traditional IRA’s deduction can provide real, immediate relief,” he added. “There’s no universal right answer, which is exactly why people should run the numbers for their specific situation rather than defaulting to a rule of thumb.”

Ngo is a certified public accountant and personal finance specialist with a focus on tax planning.

Five questions Chatzky says investors should ask

Before putting private equity into a portfolio, Chatzky says investors should consider five important questions:

• Do I fully understand how this investment works?
• How will the fees affect my long-term compounding?
• What am I giving up in liquidity?
• Does this fit my time horizon and retirement income plan?
• Am I investing because it matches my strategy, or because it sounds sophisticated?

Chatzky’s main point is straightforward.

“The most important takeaway isn’t whether private equity is ‘good’ or ‘bad,'” she wrote. “It’s that you never feel pressured to adopt a new investment simply because it’s being marketed more broadly.”

This article is for informational purposes only and should not be construed as individualized tax or investment advice.

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