And Why ‘Boring’ Investments Work Best
TL;DR
Former President Trump inherited $413 million from his father. But his history of bankruptcies and business failures begs the question: Would he have been better off just investing the money? We’ve run the numbers and the answer is resoundingly yes.
Out of the gate, we want to be abundantly clear that this issue is not a political discourse on the Republican party’s 2024 nominee.
This is a personal finance newsletter, and although politics often bleed into financial topics, today we’re simply examining the former president’s inheritance … and why one investment strategy could’ve left him richer today than he currently is.
The Track Record
Trump’s lengthy list of business failures has been widely reported on, from Trump University and Trump Steaks to Trump Air and Trump Vodka.
In total, he has had 15 failed ventures and has filed six bankruptcies, including Trump Taj Mahal (1991), Trump Plaza hotel and Casino (1992), Plaza Hotel (1992), Trump Castle Hotel and Casino (1992), Trump Hotels and Casino Resorts (2004) and Trump Entertainment Resorts (2009).
Nonetheless, he has amassed a fortune of roughly $3.7 billion, half of which is currently tied up in shares of Trump Media & Technology Group (DJT). However, after falling 75% from its post-IPO all-time high of $66.22/share, DJT is currently trading for $16.08/share.
Whether or not Trump Media is the next company to join that notorious list, what we’re exploring today is if Trump — and by extension, those who invested in shares of DJT — would’ve been better off simply putting money into index funds rather than higher-risk investments.
The Inheritance
By the time real estate developer Fred Trump died on June 25, 1999, he had left Donald $413 million.
Claims of being a self-made man aside, Trump received these funds through numerous streams, including transactions tied to Fred Trump’s businesses and several trusts established in his name.
According to research from The New York Times, Trump was a millionaire by the age of 8.
Today, that inheritance has turned the former president into a billionaire through several successful (and unsuccessful) enterprises, including a real estate empire, branded cryptocurrency and merchandise like bibles and sneakers.
Index Fund Investing
People have a hard time beating the market. Most professional traders can’t even pull it off, with 81.8% of actively-managed fund managers failing to do so.
Meanwhile, attempting to time the market is a fool’s errand. Leaving funds on the sidelines means you’re risking missing out on the market’s best days. Morningstar analysis shows that over the past 21 years, buy-and-hold portfolios outperform market-timing portfolios by 10%.
And for investors who missed the market’s 30 best days over the past 30 years, their returns would be 83% lower than those who stayed invested and weathered pullbacks and corrections, according to Hartford Funds.
And while picking and choosing stocks can be fun, funds that provide exposure to large swaths of the market allow you to diversify and protect yourself from any one company’s poor performance.
We’ve discussed this before. It’s the same advice Warren Buffett has given to passive investors for decades. And the proof’s in the pudding: The S&P 500 has posted an average annual return of 10.628% over the past 100 years (assuming dividends are reinvested).
Exchange-traded funds (ETFs) that mirror indices like the S&P 500 replicate those gains. The largest and oldest of them — the SPDR S&P 500 Trust (SPY) — debuted in 1993.
And if Trump took his father’s enormous inheritance and just put it into the SPY, the results would have been astounding.
Here’s the Math on Trump
Trump didn’t inherit that $413 million in one lump sum. Tax documents have shown that 295 transactions between Fred Trump and Donald occurred over five decades preceding the former’s death.
But for today’s purposes, let’s just assume Trump inherited it all in 1999 upon his father’s passing without having 50 years to grow it. Let’s also assume that, rather than pumping that money into more than a dozen failed businesses, Trump simply decided to put it all into the SPY, with its historical 10% annual return, and that he reinvested the fund’s quarterly dividend.
Over the course of 25 years, that original $413 million would be worth a jaw-dropping $4.879 billion today:
In other words, if Trump invested his inheritance into an index fund like the SPY, he would have a net worth that is 31.86% higher than his current $3.7 billion.
And while we suspect that none of our readers are sitting on $413 million inheritances, the returns apply at any income level.
If you find the risk of owning individual stocks off-putting but do want exposure to the broad market’s gains, index funds are your new best friend.
Consider the SPY or the Vanguard S&P 500 ETF (VOO), both of which are up 19% so far this year. If you want exposure to high-growth (and high-volatility) tech, check out the Invesco NASDAQ 100 ETF (QQM), which has gained 17.69% in 2024.
There are dozens of options. But understanding that the market’s historical returns can produce better results than investments like owning real estate or starting your own business is important, because it requires less capital and ultimately can put more money in your pocket.