The Trump Effect
What can we say about Donald Trump? Well, to be honest, there’s probably a lot we could say… but love him or loathe him, we can likely all agree that he has been a one-man wrecking ball these past few weeks!
Many assume that Mr Trump in charge of the US is good for business and therefore good for financial markets. But as the headlines are screaming out, the markets are not happy.
And when you don’t know what you don’t know, it can be very easy to start feeling overwhelmed or unsure about what’s going on and how it might affect you. And you know what, that might just be how the stock markets are feeling too.
So, what’s happened to get us here? Over the past twelve months or thereabouts, many stock markets around the world, including the Australian market, the US (including the NASDAQ [their tech stock exchange]) have been steadily climbing, getting higher and higher, with some reaching all-time highs. When a stock market reaches new highs, it gets nervous, it starts to look for any reason to take a step backwards i.e., sell some stock. This almost always happens, where it’s not a matter of if but when.
Enter Mr Trump, with his crazy tweets, tariffs, sackings, and much, much more. He has created many headaches, but most of all, he has created a high degree of uncertainty, and markets hate uncertainty – especially when markets are at or near all-time highs!
As a result, we have seen a broad sell-off of many global financial markets. The media of course have run with this hard, trying their best to create fear as they always do.
But like always, it’s important to gain some perspective. If we look at the NASDAQ, it’s likely had the largest sell-off of all financial markets in recent weeks. Had you invested $1,000 in the NASDAQ index twelve months ago, you would have achieved a return (as of today) of around 12% to 13%. Prior to Mr Trump bringing out the wrecking ball, your $1,000 might have grown to as much as $1,250 (a 25% return on paper), but now it’s back to around $1,120. That’s still a double-digit return for the twelve months, and by the way, it’s not even about the return, it’s about perspective. And the facts and numbers paint a different picture than the headlines.
Our message is the same as it always is. What’s happening now in financial markets is normal. Yes, financial markets are volatile, they have retracted the past few weeks thanks mostly to Mr Trump causing uncertainty, but they have done so having recently reached record high levels.
If we were to take a short-term view, most super accounts likely have less money than they did a few weeks ago, but if we take a little longer-term view, super funds have done very well the past year, as they have the past decade (even accounting for COVID!). If we take an even longer-term view, say twenty years, the returns of growth investments have been amazing… just like they always have been over any LONG-TERM period.
When it comes to super and investing, there is one strategy that almost always goes wrong, and that’s focusing on the short-term. Yes, we know it can be hard to ignore everything you hear around you, but try and take a step back and think about what is the purpose of the information being delivered to you? Is it to shock and scare you or is it to help you make good financial decisions? We’d like to think you know by now that our focus is on the latter.
You don’t need to be the winner of the wealth building race. You do however need to finish the race and do so in time to one day replace your employment income when you finish up work.
If you have questions, we hope to have answers! Shoot us an email and we’re happy to help.
Cheers,
Dan and Dave
