Feb 22, 2019

Donald Trump Should Have Invested in Index Funds

Written By: Nate Williams

Since the inception of Practice Financial Group nine years ago, the overarching financial and personal philosophies for our dental and medical clients have not waivered:

  1. Become clinically exceptional at what you do. The more you love it, the better you’ll be.
  2. Learn to make money from your clinical skills with a servant’s mentality: having the focus of giving more value to your patients than you take from them.
  3. Do this in one location and become as profitable as you can.
  4. Maintain a balance of work and life; take care of yourself physically, emotionally, spiritually, etc.
  5. Employ the “one house, one spouse” rule, particularly the one spouse part. Divorce is the highest tax bracket. Nurture your marriage, make it great.
  6. With the help of a trusted advisor, develop a tax-efficient system to pay off debt and invest your money using low-cost, passive mutual funds.

This straightforward path to wealth and happiness will not only take you the furthest financially, but it will also give you the highest probability for overall success. For you golfers out there, it’s like getting the distance of a driver with the probability of a putter. The plan makes sense and is simple – in theory. But as we’ve learned from experience, simple is not always easy; in fact, it’s much easier to complicate our financial lives than to simplify. Hence, for those wise enough to seek it, an advisor’s help can make a simple plan a reality.

Despite the soundness of this advice, and for a multitude of reasons, when many doctors who achieve a profitable practice reach the point of being comfortable, they feel the need or desire to “up the ante” and take matters into their own, clinically-skilled hands with regard to their investments (for more on this topic, read: How To Become a Decamillionaire Doctor Part II).  

For those of you who feel like you want/need to take your hard-earned profits and invest them in other ventures that you control (e.g. multiple practices, real estate, etc.), I’d like to turn your attention to our billionaire president, Mr. Donald Trump. Trump boasts of being an exceptional, wealthy businessman. For example, in one speech he said simply, “I’m really rich…that’s the kind of thinking you need for this country.”

But the two articles down below—a well-written piece by Andrew Hallam of Asset Builder and a much-talked-about Forbes piece—take a deep dive into his claims to prove that Trump would be much, much richer if he would have gotten out of his own way, followed the counsel of a financial advisor, and simply invested in an S&P 500 index fund.

Here is a summary of the article written by Mr. Hallam in 2015, titled: The Truth About Donald Trump and Index Funds:

  • In 1982, Forbes magazine published Trump’s net worth at $200M. By 2014, Forbes said his wealth had grown to $4.1B (9.9% annual return).
  • Trump says Forbes is wrong, estimating his own net worth to be $500M in 1982 and $8.7B in 2014 – although Forbes says, “no matter how hard we try, we just can’t prove it.”
  • If Trump would have taken his $500M in 1982 and invested it in the S&P, his $500M would have grown to $17.11B ($8.41B more than Trump says he has) in 2015.
  • Even if Trump would have spent $10M per year from this portfolio, indexed for inflation at 2.95% (that’s $28,480,567 per year in 2018), he would have $9.4B in 2015.
  • An article directly from Forbes (Would Donald Trump Be Better Off Investing In Stocks?) states that if he would have invested his wealth in 1988 in the S&P, he would have as much as $13B.

Regardless of the exact numbers, the point is this: if you’ve achieved the monumental feat of becoming an excellent doctor, but are also striving to make a name for yourself as a business savant blessed with a Midas touch, you should consider the massive business/investment underperformance of our President, Mr. Donald Trump.

My advice? Keep it simple. Continue living out your personal and financial philosophies, and let your financial advisors – and the global markets – do the work for you. We call this the “scratch golfer” investment plan; you’ll not only outperform yourself, but have the time and peace of mind to work on improving your golf game.

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