Americans’ Investment Options in Capital Markets for Retirement
link to page 2 link to page 2 
May 24, 2024
Americans’ Investment Options in Capital Markets for
Retirement
One of the main ways Americans prepare for retirement is
through certain institutional investors, such as pension
to invest in various financial assets. Their investment
funds.
options include investing directly in stocks, bonds, and
investment funds through individual brokerage accounts
Investment Options
and investing indirectly through pension funds that invest
Americans’ investment options in capital markets and
on behalf of employees. This In Focus examines certain
securities that would generally be available both directly or
investment options related to retirement preparedness and
indirectly include the following instruments if they are
provides CRS resources on investment management and
publicly traded pursuant to related SEC regulatory
regulation. CRS does not take a position on the relative
requirements: (a) stocks, also called equities or shares,
merits of particular investments and does not offer or
referring to ownership of a firm; (b) bonds, also called
endorse specific investment advice.
fixed income or debt securities, referring to the debt of a
firm or a government entity (e.g., corporate bonds and U.S.
Direct and Indirect Investments
Treasury securities); (c) mutual funds, also called open-
According to the Federal Reserve’s 2022 Survey of
ended funds, referring to a type of public fund that provides
Consumer Finances, close to all American families own
continual offering of shares and daily redemptions; (d)
some form of financial assets, such as bank accounts,
closed-end funds, which are publicly traded investment
certificates of deposit, stocks, bonds, investment funds,
funds that sell a limited number of shares rather than
cash value life insurance, retirement accounts, savings
continually offering them; (e) exchange-traded funds,
bonds, and other financial assets. This In Focus covers
which are investment funds that combine features of both
investments in capital markets and securities, such as
mutual funds and closed-end funds, allowing investors to
stocks, bonds, mutual funds, exchange-traded funds (ETFs),
pool their money into funds with continual share offerings
and digital assets. The investments in these types of
that can also trade on exchanges like a stock; and (f) digital
instruments could be direct—meaning held in accounts and
assets, such as cryptocurrencies, referring to digital
controlled generally without restriction by the individuals
representations of value.
themselves (e.g., in individual brokerage accounts)—or
indirect—meaning through a claim to a pension fund that
Investments that are generally available only indirectly to
invests on behalf of individuals or certain retirement
non-accredited investors through institutional investors
accounts with access restrictions and investment options
such as pension funds and certain insurance products
selected by plan sponsors, such as 401(k) plans. While
include (a) private equity, referring to pooled investment
defined contribution retirement plans, including 401(k)
vehicles that typically concentrate on investments not
plans, normally provide some investment choices for
offered to the public, such as ownership stakes in privately
individual decisionmaking, pension funds generally have
held companies; (b) private credit, including direct
their fund sponsors act as institutional investors in selecting
lending, referring to lending undertaken by nonbank
investment instruments and conducting transactions on
financial institutions and made to small and medium-size
behalf of plan participants.
private companies that are not publicly traded; (c) venture
capital, referring to startup financing for early stage, high-
An investment’s classification in securities regulations as
potential firms, such as high-tech startups; and (d) hedge
public or private plays a significant role in how accessible
funds, referring to asset management vehicles that
an investment is for direct ownership. Federal securities
generally pool accredited investors’ money and invest it on
regulation requires offers and sales of securities, such as
their behalf for a fee and are often identified by their
stocks and bonds, to be either registered with the Securities
complex investment strategies relative to other conventional
and Exchange Commission (SEC) or undertaken pursuant
funds. See “CRS Resources on Investments” section for
to specific exemptions. Registered offerings, often called
more details on the investment options mentioned above.
public offerings, are available to all types of investors. By
contrast, securities offerings that are exempt from certain
Investment Risks and Returns
registration requirements are referred to as private
The various investment instruments contain different levels
offerings and are generally available only to accredited
of risks and returns. In well-functioning capital markets, the
investors—institutions or individual investors who meet
higher the risks, the higher the expected returns for
certain net worth, income, or technical expertise thresholds.
investors. Typical investment risks include the safety of
Thus, while non-accredited individual investors can take
assets, possibilities of issuer defaults, market volatility,
direct ownership of public securities, they can generally
interest rate fluctuation, and liquidity (i.e., how readily and
gain only indirect exposure to private securities markets
quickly investors could get their money back without
affecting the price). For example, Figure 1 illustrates
https://crsreports.congress.gov
Americans’ Investment Options in Capital Markets for Retirement
medium-term historical returns for multiple public and
Financial education and financial literacy. As complex
private market investments using data consolidated by an
investment options become available to individual
asset manager.
investors, increased financial education may be necessary to
enable sophisticated investment decisionmaking.
Figure 1. Annualized Returns of Different Investments
During the Past Five Years Ending December 5, 2023
Availability of regulated financial advice intermediaries.
Given the challenges facing financial education, increased
access to investment intermediaries who could help
individuals to navigate complex investment decisions (e.g.,
SEC-regulated investment advisers and broker-dealers) may
benefit those individuals’ retirement savings outcome.
Financial readiness for retirement. Retirement readiness
does not have a standardized measure. Each family or
individual may perceive their savings goals and retirement
financial needs differently. Surveys from investment
management firms (e.g., Fidelity, Goldman Sachs, and
Northwestern Mutual) uniformly convey the existence of
retirement savings gaps. Investment options and asset
Source: CRS using data from Kohlberg Kravis Roberts.
allocation could affect retirement preparedness. See CRS
Risk versus return considerations apply to retirement
Reports R46617 and R47341, coordinated by Zhe Li, for
investment in particular ways because of the long-term
more on income for older Americans.
nature of a retirement timeline. Even small differences in
CRS Resources on Investments
returns can lead to large differences in accumulated assets
over the long run. In addition, volatility over short time
CRS has multiple product series to address investment
periods is less important when retirement assets are not
regulation and investment instruments.
going to be liquidated for many years or even decades.
Investment Regulation Overview
Arguably, then, retirement investment would be more
CRS In Focus IF11062, Introduction to Financial Services:
attracted to high-return investment options. However, some
Capital Markets
of the higher-return investment opportunities available are
CRS In Focus IF11714, Introduction to Financial Services:
private investments. That means that (1) if individuals
The Securities and Exchange Commission (SEC)
could gain access directly to certain private investments, it
may help their retirement readiness, but they may also face
CRS Report R45957, Capital Markets: Asset Management
higher risks; and (2) pension fund sponsors may gravitate to
and Related Policy Issues
the higher-risk, higher-volatility, higher-return options. For
CRS Report R47431, Capital Markets: Overview and
example, CalPERS, the largest U.S. public pension plan
Selected Policy Issues in the 118th Congress
with around $500 billion in assets under management,
CRS Report R45221, Capital Markets, Securities Offerings,
announced in March 2024 that it plans to increase its total
and Related Policy Issues
private market allocation from 33% of plan assets to 40% to
“
CRS In Focus IF11278, Accredited Investor Definition and
maximize returns from the highest performing asset
Private Securities Markets
classes.”
CRS In Focus IF10747, Private Securities Offerings:
Policy Issues Concerning Investments
Background and Legislation
To prepare for retirement, Americans could save more or
seek better investment returns. Policy considerations from
Investment Instruments
an investment and capital markets regulation perspective
CRS Report R47309, Money Market Mutual Funds: Policy
(regulation of retirement savings account operations is
Concerns and Reform Options
beyond the scope of this In Focus) include:
CRS Report R45318, Exchange-Traded Funds (ETFs):
Issues for Congress
Investors’ access to potentially higher-return investment
CRS Report R47053, Private Equity and Capital Markets
opportunities. While broadened investment options, such
Policy
as increased access to private equity, may provide higher
returns and diversification benefits, it also comes with
CRS In Focus IF12642, Private Credit: Trends and Policy
potential risk exposure and financial risk management
Issues
challenges.
CRS In Focus IF12511, Hedge Funds: Background and
Policy Issues
Financial stability concerns. With the increased
CRS In Focus IF12412, Venture Capital Operations and
investment flow into the less-transparent private securities
Regulation
markets, the markets’ increased size and complexity have
CRS Report R46208, Digital Assets and SEC Regulation
drawn financial stability concerns. Relative to the more
transparent public securities markets, private markets pose
more challenges for market-wide risk assessments and
Eva Su, Specialist in Financial Economics
systemic risk monitoring.
IF12674
https://crsreports.congress.gov
Americans’ Investment Options in Capital Markets for Retirement
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF12674 · VERSION 1 · NEW
May 24, 2024
Americans’ Investment Options in Capital Markets for
Retirement
One of the main ways Americans prepare for retirement is
through certain institutional investors, such as pension
to invest in various financial assets. Their investment
funds.
options include investing directly in stocks, bonds, and
investment funds through individual brokerage accounts
Investment Options
and investing indirectly through pension funds that invest
Americans’ investment options in capital markets and
on behalf of employees. This In Focus examines certain
securities that would generally be available both directly or
investment options related to retirement preparedness and
indirectly include the following instruments if they are
provides CRS resources on investment management and
publicly traded pursuant to related SEC regulatory
regulation. CRS does not take a position on the relative
requirements: (a) stocks, also called equities or shares,
merits of particular investments and does not offer or
referring to ownership of a firm; (b) bonds, also called
endorse specific investment advice.
fixed income or debt securities, referring to the debt of a
firm or a government entity (e.g., corporate bonds and U.S.
Direct and Indirect Investments
Treasury securities); (c) mutual funds, also called open-
According to the Federal Reserve’s 2022 Survey of
ended funds, referring to a type of public fund that provides
Consumer Finances, close to all American families own
continual offering of shares and daily redemptions; (d)
some form of financial assets, such as bank accounts,
closed-end funds, which are publicly traded investment
certificates of deposit, stocks, bonds, investment funds,
funds that sell a limited number of shares rather than
cash value life insurance, retirement accounts, savings
continually offering them; (e) exchange-traded funds,
bonds, and other financial assets. This In Focus covers
which are investment funds that combine features of both
investments in capital markets and securities, such as
mutual funds and closed-end funds, allowing investors to
stocks, bonds, mutual funds, exchange-traded funds (ETFs),
pool their money into funds with continual share offerings
and digital assets. The investments in these types of
that can also trade on exchanges like a stock; and (f) digital
instruments could be direct—meaning held in accounts and
assets, such as cryptocurrencies, referring to digital
controlled generally without restriction by the individuals
representations of value.
themselves (e.g., in individual brokerage accounts)—or
indirect—meaning through a claim to a pension fund that
Investments that are generally available only indirectly to
invests on behalf of individuals or certain retirement
non-accredited investors through institutional investors
accounts with access restrictions and investment options
such as pension funds and certain insurance products
selected by plan sponsors, such as 401(k) plans. While
include (a) private equity, referring to pooled investment
defined contribution retirement plans, including 401(k)
vehicles that typically concentrate on investments not
plans, normally provide some investment choices for
offered to the public, such as ownership stakes in privately
individual decisionmaking, pension funds generally have
held companies; (b) private credit, including direct
their fund sponsors act as institutional investors in selecting
lending, referring to lending undertaken by nonbank
investment instruments and conducting transactions on
financial institutions and made to small and medium-size
behalf of plan participants.
private companies that are not publicly traded; (c) venture
capital, referring to startup financing for early stage, high-
An investment’s classification in securities regulations as
potential firms, such as high-tech startups; and (d) hedge
public or private plays a significant role in how accessible
funds, referring to asset management vehicles that
an investment is for direct ownership. Federal securities
generally pool accredited investors’ money and invest it on
regulation requires offers and sales of securities, such as
their behalf for a fee and are often identified by their
stocks and bonds, to be either registered with the Securities
complex investment strategies relative to other conventional
and Exchange Commission (SEC) or undertaken pursuant
funds. See “CRS Resources on Investments” section for
to specific exemptions. Registered offerings, often called
more details on the investment options mentioned above.
public offerings, are available to all types of investors. By
contrast, securities offerings that are exempt from certain
Investment Risks and Returns
registration requirements are referred to as private
The various investment instruments contain different levels
offerings and are generally available only to accredited
of risks and returns. In well-functioning capital markets, the
investors—institutions or individual investors who meet
higher the risks, the higher the expected returns for
certain net worth, income, or technical expertise thresholds.
investors. Typical investment risks include the safety of
Thus, while non-accredited individual investors can take
assets, possibilities of issuer defaults, market volatility,
direct ownership of public securities, they can generally
interest rate fluctuation, and liquidity (i.e., how readily and
gain only indirect exposure to private securities markets
quickly investors could get their money back without
affecting the price). For example, Figure 1 illustrates
https://crsreports.congress.gov
Americans’ Investment Options in Capital Markets for Retirement
medium-term historical returns for multiple public and
Financial education and financial literacy. As complex
private market investments using data consolidated by an
investment options become available to individual
asset manager.
investors, increased financial education may be necessary to
enable sophisticated investment decisionmaking.
Figure 1. Annualized Returns of Different Investments
During the Past Five Years Ending December 5, 2023
Availability of regulated financial advice intermediaries.
Given the challenges facing financial education, increased
access to investment intermediaries who could help
individuals to navigate complex investment decisions (e.g.,
SEC-regulated investment advisers and broker-dealers) may
benefit those individuals’ retirement savings outcome.
Financial readiness for retirement. Retirement readiness
does not have a standardized measure. Each family or
individual may perceive their savings goals and retirement
financial needs differently. Surveys from investment
management firms (e.g., Fidelity, Goldman Sachs, and
Northwestern Mutual) uniformly convey the existence of
retirement savings gaps. Investment options and asset
Source: CRS using data from Kohlberg Kravis Roberts.
allocation could affect retirement preparedness. See CRS
Risk versus return considerations apply to retirement
Reports R46617 and R47341, coordinated by Zhe Li, for
investment in particular ways because of the long-term
more on income for older Americans.
nature of a retirement timeline. Even small differences in
CRS Resources on Investments
returns can lead to large differences in accumulated assets
over the long run. In addition, volatility over short time
CRS has multiple product series to address investment
periods is less important when retirement assets are not
regulation and investment instruments.
going to be liquidated for many years or even decades.
Investment Regulation Overview
Arguably, then, retirement investment would be more
CRS In Focus IF11062, Introduction to Financial Services:
attracted to high-return investment options. However, some
Capital Markets
of the higher-return investment opportunities available are
CRS In Focus IF11714, Introduction to Financial Services:
private investments. That means that (1) if individuals
The Securities and Exchange Commission (SEC)
could gain access directly to certain private investments, it
may help their retirement readiness, but they may also face
CRS Report R45957, Capital Markets: Asset Management
higher risks; and (2) pension fund sponsors may gravitate to
and Related Policy Issues
the higher-risk, higher-volatility, higher-return options. For
CRS Report R47431, Capital Markets: Overview and
example, CalPERS, the largest U.S. public pension plan
Selected Policy Issues in the 118th Congress
with around $500 billion in assets under management,
CRS Report R45221, Capital Markets, Securities Offerings,
announced in March 2024 that it plans to increase its total
and Related Policy Issues
private market allocation from 33% of plan assets to 40% to
“
CRS In Focus IF11278, Accredited Investor Definition and
maximize returns from the highest performing asset
Private Securities Markets
classes.”
CRS In Focus IF10747, Private Securities Offerings:
Policy Issues Concerning Investments
Background and Legislation
To prepare for retirement, Americans could save more or
seek better investment returns. Policy considerations from
Investment Instruments
an investment and capital markets regulation perspective
CRS Report R47309, Money Market Mutual Funds: Policy
(regulation of retirement savings account operations is
Concerns and Reform Options
beyond the scope of this In Focus) include:
CRS Report R45318, Exchange-Traded Funds (ETFs):
Issues for Congress
Investors’ access to potentially higher-return investment
CRS Report R47053, Private Equity and Capital Markets
opportunities. While broadened investment options, such
Policy
as increased access to private equity, may provide higher
returns and diversification benefits, it also comes with
CRS In Focus IF12642, Private Credit: Trends and Policy
potential risk exposure and financial risk management
Issues
challenges.
CRS In Focus IF12511, Hedge Funds: Background and
Policy Issues
Financial stability concerns. With the increased
CRS In Focus IF12412, Venture Capital Operations and
investment flow into the less-transparent private securities
Regulation
markets, the markets’ increased size and complexity have
CRS Report R46208, Digital Assets and SEC Regulation
drawn financial stability concerns. Relative to the more
transparent public securities markets, private markets pose
more challenges for market-wide risk assessments and
Eva Su, Specialist in Financial Economics
systemic risk monitoring.
IF12674
https://crsreports.congress.gov
Americans’ Investment Options in Capital Markets for Retirement
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF12674 · VERSION 1 · NEW