SAN JOSE, CALIFORNIA – MARCH 18: Nvidia CEO Jensen Huang delivers a keynote address during the … More
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Nvidia’s valuation reached the $4 trillion mark this week, while co-founder Jensen Huang’s shares are now worth something like $143 billion. Present and future retirees should rejoice the rapidly increasing wealth inequality that Nvidia and Huang represent.
That’s because inequality is the greatest gift to retirement of all. To see why, contemplate the “Magnificent Seven” stocks known to be the biggest drivers of the bull market of the present. Doing so requires a brief look backwards.
If you purchased Apple, Amazon, Alphabet, Meta, Microsoft, Tesla and Nvidia early, you’re presently not worried about having enough money for retirement. Huang was of course at Nvidia in the beginning, and his enormous wealth exists as evidence of what can happen when early investors or employees stay the proverbial course amid immense share-price volatility.
Twice in Nvidia’s public life its shares have dropped 90 percent on their way to gains greater than 300,000% to the present. That has been the norm among corporations that make up the Magnificent 7. Lots of ups and downs that the typical retail investor saving for retirement can’t endure. Which is the point.
Thanks to index funds and ETFs that track the S&P 500, Nasdaq 100, or for that matter global stock market indices, retirement savers don’t have to be early to transformative business concepts. Much more importantly, they don’t have to pick the shares that will eventually soar.
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Instead, they merely need to be invested. From there the stock market will not only do their worrying for them, their investment in broad indices ensures that they’ll have growing exposure to the very few corporations that unexpectedly emerge as the bluest of blue chips.
That’s why present and future retirees should cheer rising inequality. Exactly because index funds and ETFs are frequently market-cap weighted, ownership of stock indexes evolves to reflect the most highly valued stocks most prominently.
That’s where wealth inequality comes in. It’s an effect of entrepreneurs discovering a future of commerce that most never imagined. Since entrepreneurs are much earlier to world-changing and improving ideas than the markets themselves, they capture the majority of market gains from their discovery of what was only obvious after the fact.
Still, would-be retirees once again don’t need to be early. They just need to be positioned for exposure to the high-flyers of today and tomorrow through broad market exposure. If so, as in if and when the next commercial visionary happens on a new idea that investors gradually fall in love with, the typical retirement investor stands to prosper substantially thanks to the genius of compounding.
The good news is that the potential to compound one’s wealth grows by the day as the world shrinks by the day through commercial advances that reach greater and greater numbers of people. This is wealth inequality, and it’s transforming the quality of retirement for the much better.