Add up the market valuation of Apple Inc. AAPL, all the cryptos in the world and entrepreneur Jeff Bezos’s fortune, and you get to over $3 trillion.
But one 80-year-old man has created something bigger than all three of these combined.
These days, he shuns the spotlight and lives on a modest farm in rural Pennsylvania. You would never guess the farm’s owner set in motion a $5 trillion force that grows each fortnight.
It’s a comfortable enough retirement, but Ted Benna has some regrets.
“I created a monster,” he said in 2016.
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The Tax Loophole Transforming 50 Million Retirements
In the fall of 1980, Benna was a workplace benefits consultant who noticed a loophole in the U.S. tax code.
As it was originally written, section 401(k) limited executives’ use of cash-deferred plans. But Benna saw that the section could be interpreted to let employers deduct a portion of their employees’ salary from paychecks pretax and direct it to their retirement fund.
“I had only one thought at the time,” Benna recalled. “How could I make this sucker fly?”
The concept of the 401(k) had some hurdles to overcome. The Internal Revenue Service still had to bless Benna’s interpretation of the tax code. And many big consulting firms dismissed the idea as a scam.
But the idea caught on. By the mid-1980s, half of all firms either offered or were considering offering 401(k) plans to their workers. By 1990, 401(k) plans had $384 billion in assets and 19 million active participants.
Today, 50 million Americans have 401(k)s.
And for stock markets around the world, this is an enormous deal.
Most workers are paid every two weeks — so every fortnight, hundreds or thousands of dollars from 50 million Americans’ paychecks are diverted to the stock market.
When tens of billions of dollars hit markets at once, they rise as a result of this buying pressure.
Today, the Dow Jones Industrial Average is above 34,000 — a more than 3,500% return since the birth of the 401(k).
But there’s a danger to this massive run. Many funds are required by law to invest in S&P 500 companies like Apple that are already behemoths — inflating their valuations and making them worse deals for investors.
This rule, which makes blue chip stocks more expensive for everyone, is something to think about the next time you think about buying shares of a stock like Apple, Tesla Inc. TSLA or McDonald’s Corp. MCD.
See Next: A good way to get around this problem — to dodge the $5 trillion monster that Benna regrets creating — is to have a presence in the world of startup companies. ARKHAUS is a startup using a legal loophole to get some of the most sought after real estate on the market, at a fraction of the cost. ARKHAUS is building floating lifestyle clubs using luxury yachts to build real estate on the water.
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