How to Make Your Retirement as Profitable as Possible

Keith Fitz-Gerald Mar 16, 2016

James Altucher thinks 401k retirement plans are scams.

In a video that went viral after being posted last year on Business Insider, the 48-year old hedge fund manager, entrepreneur and best-selling author says that “I honestly think that you should just take your money out of 401ks.”

His reasons?

He lists three. You’ll have no idea what’s happening to your money when it’s tied up in a 401k. You won’t be able to touch it for years, maybe even decades, without paying a penalty. And, his most serious condemnation: “I mean, the average 401 k, they won’t really tell you this, probably returns maybe 0.5% a year.”

Don’t get me wrong, Altucher is a brilliant guy. But this is wrongheaded analysis, pure and simple, for reasons I’ll share below. Even so, there’s a grain of truth to his warning.

And that’s what we’re going to talk about today.

If you don’t understand 401ks “Total Wealth-Style,” you’ll probably fall victim to the kinds of dire returns Altucher predicts.

Here’s what you need to know about planning for retirement.

“Buy and Hold” Isn’t a Viable Investment Strategy – Even for Retirement

Altucher makes a fabulous living by saying and writing things that see him pilloried by the masses. He’s witty, obviously highly intelligent, and very entertaining. I love the fact that we both believe you have to break free of the old ways of doing things in order to succeed in today’s world.

But that’s where we part company.

It’s almost too easy to knock down Altucher’s arguments against 401ks one by one.

First of all, there’s nothing hidden when it comes to 401k’s.

Anybody with the desire to learn what’s in them can do so at the touch of a button. The index funds that are part of many funds, for example, are required to show investors what companies they invest in. There’s even a tool from Morningstar called “X-Ray” that will allow you to compare your holdings in great detail if you’d like. There’s nothing hidden about it.

That said, you should never put money into a fund without knowing what its holdings are, even if the fund has a pretty good track record over the last few years. Past performance never guarantees future results, so the fact that a fund beat the markets over the last few years doesn’t mean you should concentrate all your money there, wait a few decades, and expect it to continue to outperform.

But are 401ks really so lousy that the average one returns “maybe 0.5% a year” as Altucher claims?

Yes… and no.

A quick look at Vanguard funds will show you that there are a few funds with the dismal performance that Altucher claims is normal.

For example, the SPTN Index Fund (FSIVX), has returned barely 0.5% over the last five years as of last February, according to Vanguard. That’s an extremely serious underperformance, and harmful to the retirement prospects of anyone who bet heavily on that fund in their retirement planning strategy.

But Altucher’s not telling you the whole story.

There’s a variable that sends this kind of thinking right out the window: employer matches.

According to the American Benefits Council, nearly 80% of America’s workforce – that’s about 88 million people – had access to some kind of employer-sponsored retirement plan in 2014. Many include matching, meaning your employer will match your contribution up to a specific limit. Fifty percent up to 7% of your paycheck pretax is not uncommon, to give you an idea.

This means that, if you earned $1,000 each pay period in gross income, and automatically deducted 6% pre-tax to stow away in a 401k, your account would grow by $90 each pay period. That’s an automatic 50% return on every dollar of yours that the company matches. And, it makes almost any underperformer downright appealing.

All you have to do is decide to put it there, but that’s a conversation for another time. offers a financial calculator that lets you game out how much you’d have in a 401k amount accounting for all sorts of variables like how much you start out with, what your employer match is, what the rate of return is, and how early or late you start.

Here’s what happens if you start out with a paltry $1,000 at age 25, pick a fund with the puny 0.5% annualized return Altucher sets out, and have an employer match of 50%, up to 6% of your paycheck:

Guess what?

You still wind up with $85,367 more money.



My point is that it’s absolutely possible to start out with just $1,000 – a relatively small amount of money – and manage a return that would be regarded by most investors as pathetic, while on your way to building an eventual $428,070 in 40 years. When you factor in all your contributions out of your own paycheck down the road, you’ll be sitting on $428,070 after having put in just $295,728 into the fund.

That’s a 44% gain that may not seem all that inspiring even when compared to a 0.5% annual return – but keep in mind, we’re discussing one of the worst-case 401k scenarios here.

Take a look at what happens if you invest under all the same circumstances – same pay, same meager 2% salary increase every year, same employee match – but change the abysmal 0.5% rate of return for the fund to a still-modest but obtainable 4%.


Now you’re up to $799,449 after contributing just $295,728 of your own money to the fund over time. That’s a 170% gain over time, and if you put off retirement just two more years, you’d be looking at a nest egg of $892,564 in this scenario – a more than 180% gain that could be a great complement to whatever Social Security payments you’d be receiving.

If you’re wondering if a 4% return is too optimistic given the year that 401ks have had so far, consider Christine Benz’s advice. She’s the director of personal finance for Morningstar, a very useful source for investors because of its independent financial research. In her opinion, 5% is a good annual rate of return over time to assume if you want to err on the side of caution, so our more conservative example of 4% is all the more powerful.

Again, you never want to pick a retirement fund without doing the research to make sure your expectations are realistic given past performance. When I first started, that meant reading reams of documents. But now, online brokerages and thousands of websites allow you to see the various holdings a mutual fund offers.

If you check out the John Hancock Funds Disciplined Value Mid Cap Fund (JVMAX), for example, you’ll find that it’s managed an eye-popping average annual return of 9.94% over the last decade. Its performance is so strong it rates an overall five stars from Morningstar’s analysis, even though its 1.13% expense ratio is about average.

The cost of JVMAX calls to mind one of my first articles for Total Wealth readers, where I cautioned them not to be put off by higher-than-normal expense ratios if performance justifies it.

How to Recognize Funds of the Future

You might be thinking that it’s tough to identify stars like JVMAX when there are so many duds out there. And, for 99% of investors, that’s indeed the case.

But JVMAX has advantages that should be immediately apparent to long-time Total Wealth readers, and mark it as an outperformer even before you see its 10-year track record, starting with its top 10 holdings.

The companies aren’t the most famous, nor are they glamorous. But they’re definitely “must haves.”

Crown Holdings Inc., for example, manufactures metal cans for food, beverages, and specialty packing. This ties it in neatly with the Unstoppable Trend Demographics, since as the population explodes globally, demand for food and therefore food packaging will also rise exponentially.

Edison International distributes electric power to whole cities while investing in energy technologies of the future, making it an especially promising company to back even indirectly through a 401k.

And Equity Residential, as a real estate company with holdings in the most in-demand markets like San Francisco, New York City, and Boston could also continue to outperform as properties become more and more valuable.

With companies tapped into the Unstoppable Trends making up all 10 of JVMAX’s top 10 holdings, it’s not surprising at all that the index fund outperformed others in such a dramatic fashion. And that’s something no analyst will tell you because they don’t look at Unstoppable Trends the way we do.

Keep in mind – every successful 401k company you’ll want to put your retirement money into will line up with at least one of our Total Wealth Unstoppable Trends. Any other company, as I’ve written before, is a waste of your time and money.

A Note to Late Starters

If there is a valid criticism when it comes to 401ks, it’s that they’re only “worth it” for investors who are lucky enough to be able to start stowing away significant portions of their paychecks early. There’s no doubt that’s true thanks to the power of compound interest.

What most people don’t realize though is that it makes no difference whether you’re in your 20’s or 70’s when it comes to tapping into the market’s enormous potential. And if your employer offers you a 401k match, take it!

It’s the closest thing you’ll see to free money and something everybody can use to make up for lost time – and then some.

Until next time,

Keith Fitz-Gerald

9 Responses to How to Make Your Retirement as Profitable as Possible

  1. Steve says:


    I checked my Fidelity mutual fund page. JVMAX has a front-end load fee up to 5% !

    Front End Load 5.00%

    Front-End Load Schedule
    $0.00 – $49,999.00 5.00%
    $50,000.00 – $99,999.00 4.50%
    $100,000.00 – $249,999.00 3.50%
    $250,000.00 – $499,999.00 2.50%
    $500,000.00 – $999,999.00 2.00%
    $1,000,000.00 – $4,999,999.00 0.00%

    Not sure if this fund is for everyone..

    • Keith says:

      Hello Steve.

      That’s a great point and I’m thrilled you went right for the meat and potatoes so to speak. The fees are definitely higher on this fund but, as we have talked about many time, you get what you pay for.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  2. randy a says:

    Nothing guarantees future performance!

    • Keith says:

      Well said, Randy!

      That’s why we’ve got to take everything with a grain of salt and a really big one at that.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  3. Mark says:

    You need the company match, however you can borrow against your 401k to invest in a Roth. I would not do it at this point in time. My 401K is 80% in cash just because I can’t afford to lose that All new money goes into stocks. I borrowed against my 401K to start investing. It’s been long paid back. Wourld economy is slowing, only borrow from your 401k after a crash, you can do better than any small choice given to you in your 401K choices. Get the match 50% before you dabble in the markets for real. Also buy your wife some flowers every few weeks. There is more to life than how many dollars you have. Make sure you are able to trade options, Look far ahead LEAPS (long options) seem to work well. Very slow motion money. Don’t knee jerk sell them, however A time might come when you need to., you got time on your side, with leverage. Keith a new news letter? On LEAPS. I’m 6 years out from retirement so I don’t want to be totally invested right now. Dry powder on the side, or some weird saying that you guys say, I believe there will be another good time to get back in 100%, but not today, I’ll just sit this one out. With cash on the side. There is no way to predict the market, however protect what you got right now. Things look grim.

    • Keith says:

      Hello Mark and thank you very much for such a thoughtful response – It’s still like this that makes Total Wealth such a great place to be and our members such a fabulous bunch of people.

      Speaking of which, I love your observation that there’s more to life than money and to buy your wife flowers now and then because I couldn’t agree more. My bride and I are fortunate to be sharing 20 years together this May and it’s the little things that make every day together so special.

      With best regards and thanks for being part of the Total Wealth Family, Keith 🙂

      • me4 says:

        Hiya Kei+, i second the query posed by Mark. I would love to hear your caution as it pertains to LEAPing some of the core longterm holdings to add some portion of option leverage to calendar-stop holdings for example…especially important is if there is a chunk of value we can assume being priced into the ‘whole-cost/price’ of long-dated options [leap] w h e n the volatility index vix drops [and we “averaging into” our “volatility-expense”]…the pointy end of this question is IF present on the spot VIX level is attached Or Rather, how attached is the present vix to LEAPS…or which sectors’ LEAPS wholeVixCosts are most and Least attached to present VIX ‘pricing’…..for example, precious metal stocks options seem to be more expensive in relation to their volatile moves… so finally: is LEAP vix-aspect-pricing a function of how subject anything is to Total trading being done to it, like certain sectors who are big-picture like GOLD-to-Bonds/1-to-10Ratio… being subjected to constant repricing in monthly Futures; vs other less overall monthly portfolio-rebalancing and or hedge-correlated sectors. Thankyou so much for any mini deep dive you may provide to give us the biggest cautionary warning you could give in many of us ASSUMING any tantalizing opportunistic drop in the VIX pricing applies to all LEAPS.? [aside from the absolute adherance to position sizing and asset exposure, and ‘of course’ including not being all options]
        God Bless and continued Success

  4. Harold Hansen says:

    Keith, This social security thing is cutting it close. The Fed talks like they have plenty of money and are going to take care of us. I don’t feel as
    Though I have much security, although you think they’ll give us the
    Gift of the Social Security? I want to move out of the country so I can live
    Cheaper. Will they still honor an increase if I take it out of the country?
    Thanks Keith, I’d like to ask more questions periodically.

  5. Robin says:

    That’s a great point and I’m thrilled you went right for the meat and potatoes so to speak. The fees are definitely higher on this fund but, as we have talked about many times, you get what you pay for.

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