Skip to main content

Andrew Hallam is the index investor for Strategy Lab. Globe Unlimited subscribers can view his model portfolio here and read more in the series online here.

Donald Trump's mouth has no censor. We get that. During his campaign for the U.S. Republican party leadership, he has insulted almost everybody who might get in his way. His popularity, however, hasn't suffered.

One reason, perhaps, could be the way the real estate mogul and former boss of the television series The Apprentice handles money and business deals. He's a shrewd investor. At least, that's what millions of Americans think. Many hope he might apply that great money mind to the U.S. government. With the Donald at the helm, the United States' financial worries will wither.

There's just one problem. Mr. Trump might not be a good investor. In fact, if you're investing with index funds, you are probably better.

Life isn't a financial marathon. But if it were, Donald Trump's father wouldn't have placed his son on the starting line with the rest of us. Instead, he would have tossed him on the subway, which Donald rode to the 25th mile.

It's unclear how much money he inherited from his father. Reports range between $40-million and $200-million (U.S.). Mr. Trump had a great head start. But along the way, he has tripped and stumbled. While doing so, he has mocked the speedsters who started 25 miles behind him.

In 1982, the first year Forbes published its list of the wealthiest Americans, the magazine calculated Mr. Trump's net worth at $200-million. By 2014, Forbes said his wealth had jumped to $4.1-billion. That sounds like a big gain. But it's a compounding annual return of 9.9 per cent. If Mr. Trump had invested that initial $200-million in Vanguard's S&P 500 index fund, he would be 48 per cent richer. That same $200-million would have averaged 11.3 per cent. It would have grown to $6.1-billion, instead of $4.1-billion.

Perhaps this comparison isn't fair. After all, Mr. Trump complains that Forbes plays down his wealth. He claims that he's worth about $10-billion, not the $4.1-billion that Forbes reported. In 1999, Forbes said, "We love Donald. He returns our calls. He usually pays for lunch. He even estimates his own net worth. But no matter how hard we try, we just can't prove it."

According to Timothy L. O'Brien's book, TrumpNation: The Art of Being The Donald, Mr. Trump said he was worth $500-million in 1982, not the $200-million reported by Forbes. But Mr. Trump should stick with the data that Forbes reports. Those figures make him look like a better investor. Based on Forbes' data, Mr. Trump averaged 9.9 per cent from 1982 to 2014. Based on the wealth figures that Mr. Trump provided, he turned $500-million into $10-billion. That's an average of 9.82 per cent.

By comparison, the S&P 500 averaged 11.3 per cent over the same time period.

If he had earned such a return, Mr. Trump wouldn't have $10-billion today. He would have $15.4-billion instead.

Trump fans might call foul. After all, the great investor went through two divorces. The first was in 1992. The second was in 1999. Cheap divorces are rare. Mr. Trump also filed for business bankruptcy in 1991. So let's look at his net worth after he was firmly back on his feet. In 2003, Forbes reported his net worth at $2.5-billion.

He should have invested that money in index funds. But he couldn't. That would involve checking his ego at the door. You can't beat the market with an index fund. Mr. Trump once said, "Most people think small because most people are afraid of success, afraid of making decisions, afraid of winning. And that gives people like me a great advantage."

But winning is easier than Mr. Trump might think. According to Forbes, his $2.5-billion in 2003 grew to $4.1-billion by the end of 2014. That's a net worth gain averaging 4.6 per cent a year.

Most indexes thumped him. In U.S. dollars, Vanguard's S&P 500 averaged a compounding annual return of 7.85 per cent. Vanguard's Total International Stock Market Index averaged 6.21 per cent. Vanguard's Emerging Market Index averaged 9.51 per cent. Even Vanguard's Total Bond Market Index nearly beat Trump. It averaged 4.55 per cent between Dec. 31, 2003 and Dec. 31, 2014.

Mr. Trump might keep tossing insults. He might slap detractors with his net worth and business sense. But if you invest with index funds, take a moment to smile. Your investments, after all, have easily trumped the Donald's.