Private Property issue #134 - The impact of Trump and the NZ property market

How will Donald Trump’s election win impact your money and investments?

Brace yourself. We’re about to look at the headlines –

“Economists: A Trump win would tank the markets,” writes Politico.

“A Trump win would sink stocks,” CNN Business claimed.

The Washington Post warns:

“President Trump Could Destroy the World Economy.”

STOP!

All these predictions were made in the months leading up to the … 2016 US Election campaign.

So, what actually happened?

Property and share prices rose. The world economy? It’s still standing.

Here’s how New Zealand property prices have gone under different US presidents.

There are ups and downs. But the trend is similar to what happens with NZ political parties.

Property prices tend to go up over the long term. It doesn’t matter who’s sitting in the White House or the Beehive.

Here’s the wrong way to read this graph ☝️. Don’t zoom in really close and say, “When do property prices go up faster?”

“Do the Democrats or the Republicans have a slight edge? Maybe I’ll buy/sell now to try and time the market.”

Here’s why that’s the wrong way to look at it.

Let’s say you invested $100,000 in the NZ property in 1970.

If you only invested during Democratic presidencies, your money would be worth $334.3k by 2024.

But if you’d only invested under Republican presidents, you’d have $2.7 million.

That’s almost eight times more!

Yet what if you invested that money and didn’t care who was in the White House? What if you just invested the entire time?

You’d have … $9.2 million!

It's not that property prices do soooo much better under Republicans. It’s that they were in office 58% of the time in the period we're looking at. And that time was weighted at the start.

The message is to invest no matter which party is in power.

Even after reading this, you might still ask: “Ok, Andrew. But what about Trump’s policies? How might they impact our part of the world?”

Now, let’s look at two sides of the argument.

Let’s look at how Trump could be good for your back pocket. Then, let’s look at the arguments for why Trump could be bad for your money.

Arguments for Trump being good for your money

Stock prices rose slightly after yesterday’s election victory. Why? Trump says he wants to lower corporate tax rates.

That means businesses keep more of their money, boosting post-tax profits. That makes companies more valuable.

Trump also wants an America First trade policy. Where goods coming into the States are taxed.

That protects some American companies from offshore competition, which could improve their profits.

You probably are invested in these companies through your KiwiSaver. So that could improve your finances.

Arguments for Trump being bad for your money

On the other hand, we are a small exporting nation. We sell stuff to the rest of the world.

If America starts taxing imports (and other countries follow), it could hurt our exporters. That could have a flow-on effect to the NZ economy if those exporters don’t do well.

Trump also wants to curb illegal immigration into the States. That includes deporting some people who currently work in America.

Fewer workers should push up American wages. That’s a good thing for US workers. But it could make American goods more expensive. That could slightly raise our inflation rate.

If that happened, it could slow the pace of further interest rate cuts. Not stopping them but slowing them down.

What’s really going to happen

See how easy it is to construct two very different narratives?

You could easily argue that Trump will be good for your money.

You can also easily argue that Trump will be and for your money.

Ultimately, you can’t control who’s in the White House. What you can control is when you invest and how long you stay in the market.

As we’ve seen, people who invest – no matter what is going on in the world – tend to do better over the long term.