A Lesson About Wealth From Elon Musk, the World’s Richest Human

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Elon Musk is worth a cool $274 billion. Now, a former auto analyst-turned-market researcher has broken down the number to show how the Tesla CEO amassed such a mind-boggling fortune—and drives home the point that the huge number is really no huge surprise.

Musk stepped off on his path to enormous wealth 20 years ago when

eBay
,
the e-commerce platform, bought the fintech PayPal, which he co-founded with a host of other notables, including financier Peter Thiel.

“In 2002 Elon Musk got $176 million when

PayPal

sold to

eBay
,
” writes Nicholas Colas, co-founder of DataTrek Research. “He reinvested much of that into

Tesla
,
SpaceX, and other startups. Now, he is worth $274 billion.”

The entrepreneur, in 20 years, has quadrupled that chunk of change almost 400 times—a near-unimaginable 1,557 times, which works out to an average annual return of about 42%.

“While obviously better than the

S&P 500’s
compounded return of [about 9%], it is still within the bounds of reason,” added Colas.

Earning 42% a year on his investments, the 50-year-old Musk is about four years from being a trillionaire. Right now, no one wears that crown.

Berkshire Hathaway

CEO Warren Buffett has $127 billion, according to Forbes, and is 91, four decades older than Musk.

The point that Colas makes about compounding returns is a good one for everyday folks to remember: The best way to build wealth through stocks is to hang on to them. Perhaps the best—and safest way—is a low-cost, well-diversified mutual fund.

Now, finding 40% returns like Musk, though, would be extraordinary. The

Nasdaq Composite
has averaged about 12% a year for the past two decades. Still, the 3 percentage-point difference between the Nasdaq and the S&P over 20 years amounts to 70% more wealth for investors picking the Nasdaq. Compound returns really do compound over time.

As for Musk, his $274 billion—or Buffett’s empire or any of the mega-cash piles that others are sitting on—stirs up envy and speculation about taxes and risk-taking.

And, of course, jokes about the uber rich abound. One of Barron’s favorites: “How do you become a millionaire? Start a billionaire and buy and airline.”

When reflecting on his experience with airlines, Buffett wrote in 2007 “if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”

That one always gets us.

Write to Al Root at [email protected]