00:00 Speaker A

Experts recommend saving roughly 15% of your annual income in your 401k or IRA each year in order to save enough for retirement. But according to a recent LendEDU study, 53% of Americans are living paycheck to paycheck, leaving limited funds for retirement savings. Basic Capital wants to fill that gap with financing. The company, backed by Bill Ackman, is offering a 401k that matches each dollar contributed by a plan holder with $4 in financing. I'm joined in studio now by Abdul Al-Assad who is the Basic Capital co-founder and CEO. Great to have you here with us in studio.

01:05 Abdul Al-Assad

Thanks for having me.

01:07 Speaker A

So just break down how Basic Capital and the 401k plan works.

01:12 Abdul Al-Assad

Of course. Our ethos at Basic Capital is that it takes money to make money, and in order to build wealth, you need to own financial assets. The problem that most Americans find themselves at is that they do not have the capital to buy the assets. So they're stuck in this chicken and egg problem. I had that problem myself when I started Basic Capital and I wanted to build Basic Capital first and foremost for myself. When you have a cold start problem where you want to acquire something, but you don't have the capital for it, we have built a solution for that as a society, and that solution is financing. When you want to buy a house, you finance the house with a mortgage. When you want to buy a car so you can drive to work, you finance the car with a car loan. When you are 18 years old and you want to go to college, but do not have income yet, you take a student loan. And credit can be a really, really powerful tool, and our ethos at Basic Capital is to bring credit to financial assets, which are diversified and compound and grow over time.

02:56 Speaker A

So you've compared this model to a mortgage essentially. Why do you see this as similar to that?

03:04 Abdul Al-Assad

Yeah. The mortgage unlocked home ownership for Americans. If you really look at the history of ownership in America, in many ways, it's extremely intertwined into the history of debt. If not for the mortgages, there would be no middle-class wealth. 60% of middle-class wealth is basically real estate, and if people could not mortgage their homes, they would never be able to buy it. But we believe that financial assets, stocks and bonds are the new thing to own. Back in the days, you wanted to own land because we were an agrarian society. You wanted to own homes because we were getting urbanized and people were moving into cities. But now with AI taking over the world and automating so many jobs, that productivity gain is going to accrue to capital owners and shareholders. And the problem is that there is no real way for Americans to become capital owners and to become shareholders of our nation's wealth. And our radical proposal is you can finance it. Credit can be a really powerful tool. You should use credit to invest and to become an owner rather than to consume and spend.

04:52 Speaker A

So break down the fee structure for us. What does that look like?

05:00 Abdul Al-Assad

Yeah, of course. So if you are a customer of Basic Capital, Basic Capital is a 401k platform, you make recurring contributions. Every time you contribute to your 401k, you can choose to allocate into standard investment options or Basic Capital, the product. For every $1 you contribute to Basic Capital, we give you $4 of financing. This financing has a cost. The cost right now is 200 basis points over SOFR. In layman language, that's six and a quarter percent. That's much cheaper than mortgage rates. Mortgage rates this morning are at 7%. So you are able to access five to one financing, the same way with the mortgage, 20% down, 80% financing, at a much lower cost of capital. The underlying assets are a diversified portfolio of stocks and bonds, and as they compound and grow in value, you build wealth with a larger base of capital.

06:43 Speaker A

And so that also brings into question the time horizon because you'd have to hold that for an extended period of time to believe that, I mean, because not everything is just straight line up all the time. There are pullbacks and so that means that there are some risks as well. What are some of those risks?

07:15 Abdul Al-Assad

Yes. Yes. Yeah. Of course. I get called in every day or somebody every day sends me an article about a recession looming or something bad happening, and my hypothesis in this, I'm very, very much a Warren Buffett here. Nobody knows what the stock market is going to do. Nobody knows when is a recession coming. If anybody knew, they would not be talking about it on TV. The truth is, if you have a short time horizon, you want to stay away from investing. You want to go into high yield savings account and stay away from investing. But if you are investing, you should have a really long time horizon, and you should dollar cost average your contributions. That's just a really fancy way to say you should make equal contributions over your lifetime. What's the stock market going to do in a year or two? I do not know. I don't have the answer. But our proposal is over the next 10, 20 years, if the stock market and financial assets behave like they did over the past 10 or 20 years, you're going to have a lot of value from having invested more money in the system. So, in order for this product to work, you really need to have a long time horizon, and that's why we chose the 401k as an appropriate wrapper to deliver our financing to customers.

09:03 Speaker A

This is a unique model to save for retirement. It might not be for everyone. Who would this product work best for? And it really does come back to, I think, what you were mentioning with time horizon.

09:17 Abdul Al-Assad

Yeah. Time horizon. This product works best for people who have long time horizon, 10 year plus. Now, that doesn't necessarily mean it only works for young people because if you're, you know, life expectancy in the US right now is, you know, 85 years old. So even if you are 60 years old and you have a million dollar in retirement savings, that may not be enough to outlast you, right? That may not be enough. So you still have 25 years horizon even though you're 60. So we see adoption rates all the way from people fresh out of college and 22 years old to people who are already approaching retirement, but the way they think of Basic Capital as, "This is my money for when I'm 70. This is my money when I'm 80 because the miracles of modern health is making us live longer, which is great, but it's also a real problem if you're not financially independent."

10:32 Speaker A

Abdul, thanks so much for taking the time here with us.

10:34 Abdul Al-Assad

Thanks for having me. This was great.

10:36 Speaker A

Absolutely. Appreciate it.