James Altucher’s Terrible Advice

I’m adding James Altucher to my list of really smart, incredibly successful, fools.

I’m adding him because of this video: http://www.businessinsider.com/james-altucher-401k-strategy-investing-money-2015-4

Watch at your own risk because the advice is so wrong it’s sad, sad that someone so successful and so intelligent would give such bad advice. Sad, because he was allowed by Business Insider to give false information. His blanket statement is so simplistic, it’s an insult. If James gets easily verified information wrong then what does that say about his concern about truth?

In the video James Altucher says that you can’t remove money from a 401k without a huge pentalty until you’re 65. WRONG! Once you’re 59 and a half you can take money from any retirement account penalty free. And that huge penalty he talks about is really just a 10% penalty – not good but not huge either.

James also doesn’t seem to think that tax deferral means much to someone in their 20s which indicates that it probably does mean something to someone older, so what’s the cutoff, 30? 40? 50? Here’s what tax deferral has meant for me: over the years that I have invested in my 401k I have saved over $14,000 in capital gains from sales only (dividends aren’t included but are also huge) thanks to the tax deferral of my 401ks. I also don’t sell often  so that savings could have been much larger. Maybe that doesn’t mean much to someone as wealthy as James Altucher but to a regular person who has a job, that’s a big deal.

Another idiotic statement that James makes is that you have no idea what’s happening to your money in a 401k. That’s just ridiculous. You certainly know what’s happening because you can choose the investments (granted from a pre-selected group of funds) and you can buy and sell as you see fit. I suggest index funds. I have invested in a 401k since I started my current job 18 years ago and my return has been huge.

Add up all the money I’ve invested and compare that to the current value of my 401k and you get a 418% return. I understand that’s hard to believe but it’s true. Part of that is the company match which James conveniently left out of his video. How someone ignores the possibility of FREE money is baffling to me. Without giving you my specific numbers let’s break that down. The period we’re talking about is 18 years so if you invested $1,000 over 18 years you would get $4,180. Think about that – all you had to do was invest $56 a year and at the end of 18 years you’d have $4,180. Make those numbers larger and you really see the benefit: invest $5,000 a year for 18 years for a total of $90,000 and the balance would be $376,200 and you’d still have at least 10-20 years of work for that to grow.

Blanket statements might lead to clicks and bring you publicity but they are rarely correct. Blanket statements are an insult to your intelligence. Investing is somewhat complicated but I believe you’re smart enough to understand.

I’m going to give more detail into my investing and why I think a 401k is just one part of a successful investing plan tomorrow. I hope to see you back.

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