Warning….This article is about private equity, but I did my best to make it not sound like an investment pitch from Prestige Worldwide (“Management, Financial Portfolios, Insurance, Computers….Black Leather Gloves”) but if there’s ever any financial jargon that doesn’t make sense…LET ME KNOW!
Private equity (PE in this post from this point on) is becoming a more popular investment “buzzword” that seems to be catching steam. As you might have seen in a recent email, the The Lockheed Martin Investment Management Company (LMIMCo) has decided to add a private equity (PE) investment bucket to the Target-date funds (TDF) offered in your Lockheed employer plans. I’ve already received a few questions about these, so I decided to put together a FAQs on what the change might mean to you.
BLUF – What is changing?
In July of 2024, LMIMCo will add private equity investments to the target-date funds that you might be invested in inside your company 401k.
What is Private Equity?
Private equity is a stock investment in private companies (ones that are not traded on a stock exchange) that can sometimes be more complicated than traditional investments. PE firms invest in growing businesses that need cash to grow even larger. Typically, private equity investments can carry more risk, but also might get better returns if things go well. According to LMIMCo, PE “has a track record of producing higher returns than public equity.”
Business suits, private jets. Looks like PE to me. You don’t have to be one of these guys to invest in private equity.
When is this taking place?
PE will start to be part of the TDFs in July of 2024. The investment committee will gradually invest in the PE funds over a two-year period until the target allocations are where they want them.
How much private equity will be in the target-date funds?
The most aggressive target-date funds (the one that has the target-date that is furthest away from today, currently the 2065 fund) will only have about 8% in a private equity fund. The generally less-aggressive TDFs (ones that are closer to today’s date) will have very little or no investment in PE.
Can I invest in the private equity fund outside a target-date fund in my 401k?
No. As of right now the target-date funds are the only way Lockheed employees can invest in private equity. You can purchase a target-date fund (containing the private equity) in your QDIA account as well.
Is this a good thing?
That depends! It depends on your investment risk tolerance and time horizon. PE investments can generally be more volatile and more expensive, but they can possibly provide better long-term returns and diversification to your portfolio. You can see fee and expense info and even get online advice on the Savings Plan website lockheedmartinsavings.com.
What if I don’t want to invest in PE?
If you don’t want to invest in the PE funds, you’ll want to move your money out of the TDFs before July. You’ll miss out on the “hands-off” investment style of the TDFs, but that is the only way to not participate in the change.
If you have additional questions or not sure if the PE option is right for you, feel free to shoot me an email at Brian@TheAeroAdvisor.com. You can also contact your Empower team at 1-833-LMC-401k.
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This article was prepared by Brian Ruff, CFP®.
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Private equity may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses. The principal value of a target fund is not guaranteed at any time, including at the target date. The target date is the approximate date when investors plan to start withdrawing their money. Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
