The Economics of: TRUMP vs. Passive Investing
Following up on my Wealthsimple post I wanted to illustrate the power of passive investing. Passive investing is putting your money into a fund that tracks the stock market or an index and basically forgetting about it. I wanted to run a few numbers on this to see exactly how well this concept works and what exactly people should be doing with their money.
TRUMP vs. the S&P 500
Since it's super topical and relevant right now let's see how awesome businessman Donald Trump business returns compare to the power of passive investing. I will use the numbers from the Washington Post article on Trump. In this article, it states that Trump was worth $100 million in 1978 when his father gave him the keys to the business. In the past 37 years, Trump has grown his fortune to the Bloomberg estimate of $2.9 Billion. That's an impressive yearly return of roughly 9.5%. I wanted to see how Trumps returns compare to the S&P 500 the benchmark for passive investors over the same period. Let us get graphing ;)
Trump vs. The S&P 500
Passive investing for the win! Since 1978 the S&P 500 would have turned $100 Million dollars into $6.1 Billion dollars, nearly double would the Brilliant businessman Trump did with his father's fortune. In other words, Trump was about half as good at business then the market!
TRUMP vs. the Real Estate Market
I realize this maybe is not a fair comparison since the S&P 500 index is made up of multiple companies from all sectors and Trump's main focus is Real Estate. So let's compare his returns against the United States Real Estate market. For this value, I used the FTSE NAREIT U.S. Real Estate Index. This index provides a great view of the overall real estate industry which we can compare to Trump's returns in the market he lives in.
Trump vs. US Real Estate
The US Real Estate market made $5.3 billion dollars to Trumps $ 2.9 billion so once again Trump loses in his own industry. In fact, he lost $2.4 billion dollars of his dad's money. Now we are getting a clear picture of just how amazing passive investing can be!
TRUMP vs. the US economy
We have seen above Donald Trump is about half as good as other comparable market averages. Since this is a Presidential candidate that is claiming he will improve the economy I thought we should look at what could have happened if Trump was President over the past 8 years. I'll graph the last 8 years of US GDP, then I will graph half of that growth based on Trump's return track record.
TRUMP vs. US GDP
The actual GDP under Obama grew from $14.55 trillion to $18.44 Trillion that is a growth rate of 26.74% or yearly growth of 3.34%. If Trump continued his half as good as the market trend he would have taken $14.55 Trillion to $16.45 Trillion so a growth rate of 13.05%. That shows that the American economy would be near $2 Trillion less than it is now. If we apply 'Okun's Law' of how GDP affect unemployment a 2% fall in GDP will lead to a 1% increase in Unemployment. Trump's predicted 13% drop in GDP would cause unemployment to increase by 6.5%. In the USA every 1% unemployment is about 1.58 million people. So the potential effects of Trump's economy would lead to an additional 10 million people being unemployed.... totally making American Great again!
Before all you second ammenders get all worked up about these numbers I understand they are estimates and no one can really prove what would have happened if Trump was Presdient for the last 8 years, I just wanted to illustrate a point. Yes, I also understand that Mr. Trump has stated that his net worth is $10 Billion dollars but there is no way to prove this since his income is not Public. To illustrate my point I used the numbers used in the Washington Post article reference at the beginning of this post. The main take away from this post is not about Trump but that passive investing is amazingly powerful, and only a few top investors can beat it. Now, start saving!