In 1999, Peter Thiel contributed $1,700 into a Roth IRA, using that money to purchase 1.7 million shares of a start-up at one-tenth of a penny per share.
That start-up's name? PayPal. When it was sold to online auction giant eBay for $1.5 billion in 2002, Thiel raked in a windfall of $28.5 million. In the years to follow, the Silicon Valley venture capitalist would reinvest his Roth IRA's millions into several high-flying start-ups, including Palantir and Meta Platforms.
By 2008, Thiel's Roth IRA would be worth $800 million. And by 2019, it would be worth $5 billion -- making it the largest IRA known to exist.
Unfortunately, the maneuver used by Thiel -- using Roth funds to purchase stock in privately held start-ups -- isn't available to most investors. So, who else can investors sticking to standard investments like public equities and ETFs learn from?
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Ted Weschler's $264 million Roth IRA
Today, Ted Weschler works for Warren Buffett at Berkshire Hathaway. He met Buffett by paying a combined $5 million at a charity auction to have lunch with him in both 2010 and 2011.
However, Weschler's IRA dates back further -- to 1984, to be exact. Fresh out of Wharton as an undergrad, he went to work for chemical company W.R. Grace as a financial analyst.
At the time, the annual IRA contribution limit was $2,000. Weschler made the maximum contribution every year, and his employer also matched a portion of his savings. By the time he left W.R. Grace to start his private equity firm in 1989, he had just over $70,000 invested in the account.
Over the next three decades, Weschler would generate a compound annual growth rate (CAGR) in excess of 30%. As a result, his IRA was worth $131 million by 2012. That same year, he paid $28 million in federal taxes to convert his traditional IRA to a Roth IRA, leaving him with about $111 million in post-tax funds.
By 2018, the year ProPublica got wind of the existence of his Roth, Weschler had amassed $264 million in his account. Remarkably, he revealed in a public letter that he "invested the account in only publicly traded securities" -- meaning that, unlike Thiel, Weschler invested in assets the average investor also had access to.
To be fair, Weschler's investment performance was, in his own words, "certainly not an expected result." For this reason, it would not be prudent for any investor today looking to invest for retirement to underwrite a 30% CAGR over several consecutive decades. Nonetheless, there are a couple of things the rest of us can learn from how Weschler invested in his Roth -- even if we look beyond the returns.
1. Building significant wealth takes a long time
The size of Weschler's Roth IRA isn't the only thing that stands out about the account. What's also clear is that he's had his retirement account around for quite some time -- nearly 40 years, in fact.
This is no accident. When Weschler left W.R. Grace in 1989, just five years after starting his Roth IRA, he had just $70,385 in the account. Adjusted for inflation, that's about $168,000 -- little more than the average IRA balance of $134,900 in 2020.
While that number is nothing to scoff at, it's still a far cry from the hundreds of millions he has today. To illustrate just how rare his account balance is, the Congressional Joint Committee on Taxation estimates that as of 2019, there are only 497 taxpayers with IRA balances above $25 million. Of these "mega IRAs," a mere 156 are Roth accounts.
Had Weschler not continued to patiently save and invest for three decades after leaving his first employer, he would have a much more modest IRA balance -- and certainly nothing resembling the wealth he has today.
2. Starting early is a superpower
Weschler had the three-plus decades he needed to save and invest his wealth because he started early. When he opened his IRA, he was just 22. Today, he is 60 -- young enough to have all of his retirement years ahead of him.
If he can live until Buffett's age today, he'll have another three decades to invest. If he continues to compound at 30%, he'll have roughly $1 trillion by the time he's 90! Even if he grows his money at a more realistic CAGR of 10%, he'll have over $4.6 billion -- nearly edging out Thiel's Roth IRA at its current size.
For investors who are still young, this is welcome news. Simply live below your means and invest the difference for the long run, aiming to get rich slowly. As Weschler put it himself, he envisions his Roth IRA as an "aspirational example of the power of deferred consumption," one that is "available to all taxpayers with an appropriately long investment runway."
But this is also good news for older investors who are just getting started. While you may not live to see your investments balloon into the seven figures or beyond, you'll provide your descendants and heirs with the head start they need to realize exceptional results. In other words, it's never too late and always a good time to start investing.
