Financial advisors, what do average investors/those investing for retirement, need to know about the push for retirement plans like 401(k)s to back private equity investments? Include both the pros and cons.

ANSWER: Private equity is an investment in one or more privately held companies not traded on public exchanges. They're usually made by accredited, high-net-worth investors looking for high-growth returns. While retirement plans, such as 401(k)s and 403(b)s, are not prohibited from offering private equity investments to participants, they typically aren't standard options. The primary pros of including these investments in tax-advantaged retirement plan menus are the potential for profit and diversification. The main downside of making private equity investments an option for average workers' retirement plans is that they usually come with higher risks, such as being complex and illiquid, and may not offer transparent data. Investors may not fully understand the risks of owning private equity investments in retirement plans, jeopardizing their future financial security. Laura Adams, MBA, is an award-winning personal finance author and expert with Finder.com. Reach her at at Laura.Adams@Finder.com. Learn more at https://www.linkedin.com/in/lauradadams.

Average investors must be aware that 401(k) plan private equity presents exciting opportunities and serious risks. The biggest upside, I think, is the high return because private equity is generally looking at low-cost or early-stage companies with tremendous growth potential. This would add up to large portfolio gains for long-term investors - those with between 15 and 25 years left until retirement. But, they are typically not liquid, so your money will be locked up for 7-8 years or longer. This restricts flexibility, which can become a drawback if one needs money early on in life. Investors should weigh if such sacrifices are worth it in light of their overall liquidity needs. Private equity is even more risky, in my experience, given its intransigence and high fees. Fees can be over 2% per year, which added up over the years affects net returns significantly. Additionally, private equity valuations are not always as reliable as public market valuations. This can render it difficult to monitor performance and determine whether the investment is performing well. These uncertainties make it important for retirement investors to have a broad portfolio, and to look closely at private equity, perhaps with the advice of a knowledgeable advisor. Risk and return should be considered in making sure that these investments are beneficial for long-term financial objectives without adding unnecessarily volatile returns.