I asked Matt Palumbo to explain why he thinks Trump’s inheritance would not have made more money had he just invested it and sat on his orange ass his whole life. This is what he said.
Inheritance: $40 million, in the form of equity in his family’s estate.
Given that Trump’s net worth is $3.7 billion today (Forbes) estimate, that means his net worth has increased 9,150% since then.
Now, what would’ve happened if Trump simply did nothing, and invested his inheritance in tracking the S&P 500 index, essentially mirroring market’s average performance.
An investment from January 1974-January 2017 tracking the S&P 500 would’ve returned 6,930% with dividends reinvested. Of course, this is the MAXIMUM possible return one could argue, as you can’t directly track an index without incurring expenses. The expense ratio at the largest S&P 500 index fund (Ticker: SPY) charged annual fees of 0.09%, which, while extremely low, were higher in the past and chip away at overall return over lengthy periods.
Additionally, all dividends are subject to taxation, even if they’re reinvested. From 1954-1985, dividends were taxed at an individuals top marginal tax rate, meaning a maximum tax of 90% could’ve been paid on them during that period. From 1985-2003, following the Reagan tax cuts, that maximum tax rate on dividends was reduced from 50% to 28%. It wasn’t until the Bush tax cuts that dividends became more investor friendly, with a top tax rate of 15%. Ironically, a larger percentage of the market’s total return was in the form of dividends when the tax rate on them was highest.
Lastly, if Trump were to liquidate his $40 million stake in his father’s estate, he would’ve been subject to a capital gains tax on the cash, meaning he wouldn’t even have $40 million in cash to invest in the first place!
It’s really no contest. The MAXIMUM Trump would’ve been able to turn $40 million into would’ve been would’ve been just south of $3 billion. I plugged his $40 million fortune into a calculator that accounts for historical tax rates and estimated historical fees since 1974, and got a value of $2.16 billion for his ending portfolio value, or $1.91 billion after capital gains tax.