Financial advisors have long championed the principle that extended time in the stock market significantly boosts potential returns. The journey of one investment professional vividly demonstrates this enduring wisdom, illustrating how patience, focus, and straightforward rules can transform modest contributions into a substantial retirement fund.
The Master of Retirement Accumulation
The subject is Ted Weschler, the chosen leader of investment strategy at Warren Buffett's Berkshire Hathaway. His individual retirement account (IRA) now holds an impressive $269 million. Buffett's monumental success with Berkshire did not occur in isolation; it was supported by dedicated managers like Weschler. However, it was not merely his position at Berkshire that enabled Weschler to build a retirement nest egg worth hundreds of millions of dollars.
Starting at age 22 in 1984 with a first job paying only $22,000 annually, Weschler began contributing small amounts to his 401(k) retirement account, benefiting from employer matching contributions. Tracey Ryniec, senior equity strategist at Zacks Investment Research, recently profiled Weschler on her value investing podcast. This coincided with ongoing headlines about Berkshire's management challenges following Buffett's eventual retirement. Ryniec stated, 'I thought we would revisit some of Weschler's advice ... and he's now the only remaining investment manager at Berkshire.'
Early Decisions and Strategic Moves
After five years as a corporate executive, Weschler had accumulated a 401(k) balance of $70,000, primarily by maximizing his contributions and fully utilizing employer matching. At this juncture, he made a pivotal decision that set his funds on a path to exponential growth: he rolled over the money into an IRA that granted him broad freedom to select individual stocks. In contrast, 401(k) accounts typically restrict investments to a limited selection of broad market index funds, such as the Vanguard 500 Index Fund, which mirrors the S&P 500's performance.
Ryniec notes that even if Weschler had simply placed that $70,000 into an S&P 500 index fund, it would have grown to $2.4 million by 2026—a perfectly adequate retirement sum. This highlights that stock-picking genius is not a prerequisite for becoming a retirement millionaire. However, for Weschler, buying and holding individual stocks became the primary vehicle for generating extraordinary gains.
The Value Investing Approach
Weschler employed a strategy that also underpins Buffett's success: value investing. This involves identifying low-priced stocks that the market has overlooked but possess significant potential for long-term growth. Buffett and Weschler use this method to find discounted, durable companies and hold them until their true value is recognized. While the specific stocks Weschler traded over the decades remain unknown, Ryniec highlights several top performers from 1990 to 2020 to demonstrate how selecting the right names can yield massive returns.
- Monster Beverage (MNST): Averaged a 37% annualized return; a $10,000 investment in 1990 would have grown to $30 million by 2020.
- Amazon (AMZN): Saw a 38.4% annualized return; turning $10,000 into $22 million.
- Best Buy (BBY): Delivered a 26% annualized return; a $10,000 investment became $10.5 million by 2020.
However, not everyone should search for such lottery-ticket stocks. As mentioned, simply investing in a low-cost index fund tracking a major stock market can provide solid returns for a comfortable retirement. By 2012, Ryniec reports that Weschler's IRA balance had reached $131 million. He then converted the account to a Roth IRA, paying approximately $28 million in taxes, but thereby making all future gains tax-free.
Lessons for the Average Investor
Weschler remains an extraordinary investor, and replicating his gains would be nearly impossible for most people. Nevertheless, valuable lessons can be drawn from his remarkable journey. Ryniec recommends that retirement investors follow these tips to build their own million-dollar IRA:
- Start as early as possible: The power of compounding is your long-term superpower. Begin saving young, even small amounts, to allow time for exponential growth.
- Maximize your employer’s match: If your employer matches 401(k) contributions, save enough to capture the full match—it is like an immediate 100% return on your investment.
- Stay in stocks: While traditional advice suggests a mix of bonds and stocks, if you start young, you can remain fully invested in stocks, which historically offer the best long-term performance.
- Ignore market noise: Stick to a long-term strategy and avoid reacting to news, world events, or short-term market fluctuations. This discipline helps you stay the course during declines.
The extraordinary growth of Weschler's retirement investments came to light in 2021 through an investigative report by ProPublica, which examined how wealthy Americans exploit the tax code. The non-profit organization analyzed federal tax data, uncovering the astronomical growth of very large IRAs. Based on IRS data, ProPublica identified cases where IRAs, originally designed to aid working Americans, had transformed into massive wealth machines. At the time, Weschler expressed a preference for keeping his IRA information private but decided to use the revelation as an opportunity to educate Americans about the importance of early retirement planning.
