Investing in the USA
Investing in the USA

America

Why is it still the top investment destination for many people

The country is home to the largest economy, owner of the world's only reserve currency and home to some of the most successful industrial, technology and financial companies in the world including Boeing, Apple, Google, Facebook, Goldman Sachs, Exxon, BlackRock and many more - taking a look back over the last 70 years provides some insight into what has helped these companies to become the giants they are today.

Following the end of the Second World War, the US economy expanded, military spending increased and America was happy to export many of its ideas across the world. As the Cold War unfolded during the two decades after cessation of hostilities, exceptional levels of growth were record in the US consolidating its position as the world's richest country.

The growth can be traced to many different sources with the automobile industry being the main contributor - the number of cars produced annually quadrupled between 1946 and 1960. A housing boom stimulated in part by easily affordable mortgages for returning service personnel also fuelled the expansion. This phenomenal growth driven by a unique set of circumstances did not go unnoticed. Investors, seeking better returns from their investments were attracted and the US very soon became the main destination for overseas investors.

The 1970's and beyond

This period was markedly different with much of the developed world, including the US, experiencing stagnation marking an end of post war economic growth and which was not helped by the oil crisis.

In the early 1980s, the election of Ronald Regan was a clear sign of the dissatisfaction of the electorate with the US government and the economic policies that had been pursued during the previous decade. Regan was a great believer in private sector over government involvement in the economy, cutting marginal tax rates and social welfare programs to encourage people to work harder and longer. Following the deep recession throughout 1982, the economy rebounded in 1983 entering one of the longest periods of sustained economic growth which continued in to the early 1990s. The economic boom fuelled job growth and, along with a slight increase in taxes, helped turn the budget deficit to a surplus.

The first decade of this century has been called the 'lost decade' for investors. We have had the 'technology bubble', the events of September 11 2001 and the financial crisis of 2007/8, all of which affected the returns from world stock markets. The 9th March 2018 was the ninth anniversary since markets hit rock bottom as a result of the 'credit crunch'. The turn-around and the returns for investors in both equities and bonds since then have been impressive.

What does the future hold?

Before the recent tax legislation, the main known issues which could affect stock markets including the US were likely to be the continued reduction of Quantitative Easing (QE) and interest rates and how quickly the latter would increase. Market volatility towards the end of 2018 has tempered the view of the Federal Reserve and it is cautious on future interest rate rises - there will be some but the question is how many and by how much. 

The full effects of the "Tax Cuts and Jobs Act" passed into law on the 1st January 2018 have yet to be felt although it did provide a boost to equity markets. The legislation wa intended to act as a stimulus and encourage American companies to invest in their own country again. In addition profits made abroad can now be "repatriated" back to the US at huge discounts - this amounts to trillions of dollars and could be a major boost to the economy.

The tax cuts may further stimulate an already strong economy which could lead to the Federal Reserve increasing interest rates more quickly in an effort to keep inflation under control - this could prove negative for equities. 

So what are investors buying into when they invest in the US?

  • the world's largest market with a GDP of $18 trillion
  • leadership in innovation and Research & Development (R&D)
  • excellent universities with seven out of the top ten in the world
  • ease of doing business, a talented workforce and a strong regulatory environment
  • access to capital - most developed and efficient in the world

One of the most popular ways of accessing the US stock market is to use what are termed as 'passive' or 'tracker' funds. These funds have no investment restriction placed on them other than the stocks they invest into have to be listed on the various US stockmarket indices such as the Dow Jones Index. 

If you would like more information on how to invest in passive/tracker funds, please call us or send a request via the 'Contact us' section of the website.

The is article was originally published in February 2018 and updated in January 2019. All information was accurate as at the date of publication.