Is Your 401(k) Too Boring?

If you are in the market for some excitement and exoticism in your boring old 401(k), then boy was this a good week of headlines for you. First there was Basic Capital building a product that allows leverage within 401(k)s, and then there was Empower beginning to offer private investments through several firms like Apollo and Goldman Sachs. Hilariously, after the first one, Matt Levine conjectured that the leverage Basic Capital aims to offer may be nothing more than a tool to get private credit funds into retail accounts, and then the next day the Empower headline hit. Maybe they aren’t related! But I don’t know. 

I should say here that there is nothing morally or philosophically wrong with the idea of leverage (which is essentially taking out a mortgage to buy investments rather than a house) or private credit (which is non-bank lending typically engaged in between companies who for various reasons don’t have access to traditional bank loans and the institutional investors who provide loans to them directly). From a purely mathematical perspective, maybe a young person levering up a stock-heavy 401(k) makes more sense than mortgaging a house (though pragmatically speaking the Basic Capital product is not really that, as you are actually leveraging a bond-heavy portfolio so that the interest on the leverage—negative carry—gets paid from the investments themselves and not you writing checks to cover it every month). And private credit is providing an important financial service for those who need it (though, as Levine notes, “Private asset managers looooooooooooooooove to find retail investors to sell to”–adverse selection!). 

So, no, just purely on the highest conceptual grounds neither of these headlines is worthy of derision. And maybe you can even get past the high fees, high risk, and lack of liquidity and transparency on top of all my parenthetical disclaimers above.  

But you still have to cross the giant threshold of Is This Too Cute?  


There are many practical uses for the application of Is This Too Cute? in your life. Perhaps any local gym would be ground zero for the mantra. But to help you apply it for our purposes today, here are a few questions to ask yourself before you start using leverage or private investment options in your 401(k): 

  • Are you consistently hitting all your saving targets?  
  • Do you have a full understanding of the fees, risks, illiquidity and complexity of these products? 
  • Could you explain your reasoning to get into one of these products to a 7-year old in a way that would make sense to them? 
  • Is the decision more about aesthetics or content?  
  • Is the time and energy spent on these decisions the best use of your time and energy? 

Most of the time, for most people, if there is marginal improvement to be had in their financial situation, that improvement will come not from complex instruments or strange behaviors, but through a few tried and true, evidence-based habits that are easily repeatable and consistently followed.  

Jared Korver
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A product of small-town North Carolina (Carthage, to be exact), I’m proudly married to my best friend and co-adventurer, Amy. Together, we have two sons–Miles and Charlie–and could more or less start a library from our home. I love being outside, can’t read enough, am in the habit of writing haikus, and find food and coffee to be among life’s greatest treasures.