Buying and holding shares trumps US election winner, says Barefoot Investor

In terms of your portfolio, it doesn’t matter who wins the US election, says Barefoot Investor. What does matter is that you buy and hold shares and weather the political storms.

Scott Pape is the Barefoot Investor. Picture: Jason Edwards

Let’s talk about what effect Donald Trump winning the election could have on your finances.

However – consider this a warning – what you’re about to read could make you feel like Stormy Daniels walking into that hotel room.

This is stormy stuff:

“Wall Street is set up for a major crash if Donald Trump shocks the world on Election Day and wins the White House,” writes Politico.

“A trade war between the world’s two largest economies … a global financial meltdown. US financial markets could drop by more than 12 percent,” predicts one of Australia’s top economists.

And finally, the Washington Post warns:

“President Trump Could Destroy the World Economy.”

STOP!

All of these predictions were made in the final week of the … 2016 US Election campaign.

So, what actually happened?

Well, in Trump’s first year in office the US stock market returned 21%. That’s roughly double the long-term historical average.

Yet hold your horndogs!

After Trump lost to Biden in 2021, he predicted: (a) the election was “stolen” (it wasn’t), and (b) “the stock market would crash” (it didn’t).

In Biden’s first year, the US stock market actually trumped Trump, gaining a scorching 27%.

So, let me tell you what really matters:

Trump’s first year in office the US stock market returned 21%. Picture: Patrick T. Fallon / AFP)

Let’s say you invested $US10,000 in the US stock market in 1948.

If you’d only invested during Republican presidencies, your money would be worth $312,000 by 2023, according to data from Schwab Investors.

But if you’d only invested under Democrat presidents, you’d have $1.2 million.

That’s almost four times more!

Yet what if you just invested the $US10,000, and you didn’t give a toss about who was in the White House, and just kept holding the entire time?

You’d have … $37.8 million!

(Oh, and these long-term numbers are similar for Australia, too.)

Look, the US political system is bonkers, and to understand why you just need to follow the money:

In this election it’s estimated a staggering $US16 billion will be spent on political advertising.

If you’re an American you can’t escape it. Politics permeates everything. The ads are aggressive and fearful and divisive, and they go on and on and on for months. So it’s not surprising that people get caught up in a political panic – it’s designed that way.

Yet just remember, at least in terms of your portfolio, the facts show that it doesn’t matter really who is in power. What does matter is that you buy and hold, and weather the political … storms.

Tread your own path!

The $60,000 Sausage Dog Comes Back to Bite Me

Uh-oh

It feels like every week someone’s upset and demanding an “official response.” This week, I received an open letter from Melissa King, the CEO of the Australian Veterinary Association, responding to a question I answered recently about the high cost of pet surgery.

It was a long letter, but here is her main point:

“Conversations between vets and pet owners are getting more complicated due to the rising cost of living, escalating costs of veterinary care, lack of government support, and often high emotions of clients.”

Woof! I couldn’t agree more.

For the record, I wasn’t having a go at vets.

After I wrote that column, many vets reached out to me, highlighting the massive mental health challenges in their profession. And I totally get it. For many people, pets are the new kids, and it would be incredibly stressful to deal with broke people who’ll spend $60,000 on an ageing sausage dog!

So here’s to all the hard working vets out there!

Should We Drop Our Health Insurance?

Hi Scott,

I’m wondering if health insurance is necessary in Australia, where we have good public health care. We’re paying $9300 a year for a family of four, and I wonder if it’d be better to invest that money in my Vanguard account instead?

Fiona

Most people don’t get much value from extras cover, says Scott Pape.

Hi Fiona,

You’re giving me a heart attack (rush me to a public hospital!).

The fact that you’re paying $9300 a year tells me a few things:

First, you must be a higher-income earner, so you don’t get any rebate.

Second, private health insurance is an absolute disgrace. It’s incredibly complicated, and increasingly unaffordable, which is why people are opting out of the system in droves. But not you. You’re not going anywhere Fiona. As a higher income earner the government has a gun pointed at your head. If you don’t hold private health insurance they’ll hit you with a penalty tax called the ‘Medicare Levy Surcharge’, which will cost more than shutting up and just buying private health insurance.

Third, you’re paying way too much.

So, here’s what I want you to do:

First, go to privatehealth.gov.au (it’s so much better than the slick sales sites like comparethemarket or iSelect).

Click “Compare policies” and type in your existing policy ID (it’s on your statement).

Consider selecting ‘hospital-only’ cover. Most people don’t get much value from extras cover. If you’re unsure, ask your fund for a claims benefit statement. And if you’re done having kids, you could downgrade from Gold to Silver or Bronze and save thousands – just check the exclusions.

Finally, compare what the website spits out with your current policy.

These are the exact steps I take every year when my premium is due. It only takes a few minutes but it can save you thousands!

Pass Me a Bucket, Barefoot

G’day Scott,

Last week you answered a question about Buckets. I thought regular bills came out of Daily Expenses. Splurge is for restaurants, Smile is for big splurges like holidays, Mojo is for interruptions to the income stream (like being out of work for some reason), and Fire Extinguisher is for emergencies like the fridge blows up or some other kind of repair is required (including medical repairs like having to pay for an MRI or something). I even budget in the daily expenses for things like car services, tyres, etc. Do I have this all wrong?

Angus

Scott Pape says the Fire Extinguisher is the most misunderstood of the Barefoot Buckets.

Hey Angus,

You’re pretty much spot on, except for the Fire Extinguisher (which is the most misunderstood of the buckets in my book!).

Like I said last week, the Fire Extinguisher is to help you move through the Barefoot Steps … first by directing it to paying off any personal debts (other than HECS-HELP), then saving a house deposit, then building up three months’ Mojo, then paying off your home loan, and then nailing your retirement number – in that order.

That being said, as a family of six, we now have a separate “Big Bills” bucket for things like council rates, rego, insurance, and school fees. I add them all up and allocate a set amount each fortnight, but I still consider it part of Daily Expenses.

The percentages can be tough, especially if you’re not making a lot, but they’re a great guide to getting you to Barefoot Step 9: Leave a Legacy.

It Takes a Village

Dear Scott,

I just wanted to share a beautiful story from our charity. Tori, aged 7, donated $61 from her Give Jar last week. She was gorgeous as you can see and also donated several bags of her pre-loved clothes. This was the first time she has given so she was very excited and proud! Her funds and pre-loved clothes will go to support vulnerable babies and children in Victoria - thank you and well done Tori!

Olivia

Tori, aged 7, donated $61 from her Give Jar last week.

Hi Olivia,

Thank you for the work you do.

Tori, if you’re reading this, I’m so proud of you.

Sometimes the world seems too big, and it feels like there are too many problems. But you did something amazing. You helped babies stay warm and comfy because of your kindness.

Here’s a secret: most people think the Splurge jar makes them happiest, but the Give jar is the one that truly warms your heart.

You got this!

DISCLAIMER: Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions.