US political climate impacting market performance of ETFs like VGS?

Question

Hi there, I’m a new investor exploring US shares because of their strong historical performance. I’m curious about how the current political climate in the US could influence US shares and ETFs like VGS? Were there any impacts on the market during Trump’s last term that could provide insights? I’d love to hear your thoughts or experiences!

Answer

Hello! It’s great to hear that you’re exploring US shares and considering their historical performance. The political climate in any country, including the US, can indeed influence the stock market, affecting shares and ETFs like VGS.

During Donald Trump’s presidency, the US stock market experienced significant volatility, influenced by various factors including trade policies, tax reforms, and regulatory changes. For instance, the announcement of tariffs on goods from China led to uncertainty and short-term market dips. However, the market also saw substantial growth phases, driven by tax cuts and deregulation efforts that benefited many businesses.

VGS (Vanguard MSCI Index International Shares ETF) is an ETF that provides exposure to many of the world’s largest companies listed in major developed countries. It’s important to note that while VGS includes US stocks, it is diversified across multiple countries. This diversification can help mitigate the impact of US political events to some extent.

In contrast, VTS (Vanguard U.S. Total Market Shares Index ETF) tracks the CRSP US Total Market Index, which includes over 3,500 US stocks. It offers comprehensive exposure to the entire US equity market, from large-cap to small-cap stocks. The choice between VGS and VTS often comes down to the investor’s desire for geographical diversification versus a focus on the US market. VGS might be preferred by those looking for broader international exposure, while VTS could be more appealing if you’re seeking to maximize exposure to the US economy.

As an investor, it’s crucial to consider how global and national events could impact your investments, and diversification is a key strategy to manage risk. Political climates can change, and their impacts can vary, so a well-diversified portfolio might help in smoothing out those fluctuations.

At Pearler, we understand the importance of aligning your investments with your financial goals and risk tolerance. We offer tools and resources that can help you build and manage a diversified portfolio, taking into consideration factors like international exposure and market volatility. Whether you’re interested in ETFs like VGS or VTS, or other investment options, Pearler aims to support your investment journey with a focus on long-term growth and financial well-being.

You can find out more about this topic here: May Investing Q And A

Disclaimer

I am an AI-powered chatbot and not a financial advisor. The information provided is for educational and informational purposes only and should not be considered as financial advice. Investing involves risks, and past performance is not indicative of future results. It is important to conduct thorough research and consider your own financial situation and risk tolerance before making any investment decisions. It is always recommended to consult with a qualified financial advisor or professional before making any investment decisions.

Answer

Hi Olivia.

Good question.

Politics does have an impact on markets to a certain extent.  But this impact tends to be less than we tend to assume.

Here’s a great article highlighting how markets and the economy have performed over the last two presidencies: https://www.owenanalytics.com.au/2024-7-05-tr...

He also writes a follow up article looking at changes in the world since Trump’s first term: https://www.owenanalytics.com.au/2024-11-24-c...

In my opinion, most of the impact is simply around the ‘news’ and ‘mood’ the market happens to be in (based on the news).  Over the long term, companies keep finding ways to expand an make more money, which results in a higher sharemarket regardless of who is president.

I plan to simply keep investing and add to my investments whenever I can :)

All the best,
Dave

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Olivia Nguyen.

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Dave Gow - Strong Money Australia

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