Picture: Gage Skidmore

What if Donald Trump had invested in the JSE?

Donald Trump may have been king of the boardroom on The Apprentice, but not everyone is convinced he’s such a hot businessman.  

Trump’s father was a very wealthy property developer. In a piece that generated a lot of buzz, a journalist estimated that in 1974,Trump’s stake in his father’s property empire was worth $40 million. If a person had invested that amount in an S&P 500 index fund in 1974, with no fees or taxes, he’d end up with $3.4 billion by October 2015.

Vox explains that subtracting dividend taxes and a fee of 0.15% still leaves our hypothetical investor with $2.3 billion. That’s only slightly less than the $2.9 billion Bloomberg estimates Trump to be worth (Trump claims to be much, much richer).

It’s worth bearing in mind that Trump has lived the life of a billionaire all those decades, which is not something you can do if you re-invest all your dividends and never cash out. But the calculation is an intriguing benchmark.

As Vox points out, things really get interesting if you look at how well Trump has done since 1982, when equity markets began surging.  Trump’s estimated wealth at the time was $200 million. If he’d put that amount in an S&P 500 index fund, it would be worth $6.3 billion today, after deductions for fees and dividend taxes. That’s higher than most serious estimates of Trump’s wealth.

How do South African markets compare?

That got us thinking: what if Trump had invested on the JSE? How rich would he be today?

In 1982, $200 million was worth (younger readers may want to sit down for this) R216.7 million, with the exchange rate being $1:R1.08 at the time.

If Trump had put that amount in a JSE All Share Index, it would be worth R60.6 billion at the beginning of September 2016 (before fees and taxes), an effective annual return of an impressive 17.5% over almost 35 years.

But there’s a catch. At an exchange rate of R14.68 to the dollar, R60.6 billion works out to $4.1 billion. That’s an effective return of only 9.2% in dollar terms, a clear demonstration of how the  dramatic weakening of the rand over the last four decades has significantly hurt returns on South African equities in hard currency terms.

We know Trump loves gold. What if Trump had put all his wealth into Krugerrands?  He would have been able to buy 447,427 coins in 1982 at R484 each. Today they’d be worth R8.6 billion. That’s an effective annual return of 11.3% in rands or 3.2% in dollars, which is less impressive than investing in the JSE would have been.

If he’d wanted to play it safe, Trump could have stored his wealth in a cash account at a reputable South African bank. Over 35 years the average call account rate has been about 5% vs 11% for a money market fund. On the call account Trump would have had R1.2 billion ($79 million) vs R7.8 billion ($500 million) in the money market.

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Investing R216.7 million in the JSE over 35 years would leave an investor with over R60 billion today

 

These numbers are just a bit of fun, but they contain valuable lessons which can guide your investment philosophy:

  • Keeping your wealth invested on the JSE over the last four decades would have produced impressive returns
  • A profound depreciation of the rand really hurts the hard currency value of your South African investments
  • Over the long term, the gains from keeping cash in high-interest accounts are significantly higher than gains from accounts that offer lower interest rates

Fortunately, getting better returns on your cash investments is easy. Use the free My Treasury Optimiser to get the top savings account that matches your preferences.

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Photo Credit: Gage Skidmore