The Last Time A Country Did This, It Lost 35 Years (The US Just Started)

President Trump's investment of American tax dollars into the stock market, and its potential acceleration in 2026, raises three critical questions for investors: Will this make the average person poorer and investors richer? Will it be beneficial for the stock market? Or will it be detrimental? To answer these, we look to history, acknowledging that while it doesn't repeat, it often rhymes. Although unprecedented in peacetime U.S. history, other countries have undertaken similar strategies with varied outcomes. In 2025, President Trump allocated billions in tax dollars to invest in companies like Intel, MP Materials, and Lithium Americas, which subsequently saw their stock prices soar. Three key reasons make this relevant in 2026. First, President Trump advocates for a sovereign wealth fund, an investment account managed by the U.S. government and funded by tax dollars. Second, a new Federal Reserve Bank chairman, Kevin Worsh, appointed by President Trump, takes office on May 15th, potentially leading to increased money printing to finance these investments. Third, the long-term implications of government involvement in the stock market are unknown, prompting a look at historical precedents. Historically, when governments invest in their own country's stock market, two paths emerge. Singapore exemplifies a successful path. Its government's strategic investments transformed it from a third-world nation into a wealthy one. Their approach focused on investing in companies that could scale, growing both the economy and the country. This strategy led to a significant increase in GDP per capita, from approximately $5,510 in 1980 to $67,760 in 2024, a twelve-fold increase. Wages also grew substantially, by about 14 times, or three times when adjusted for inflation. The stock market similarly tripled. This demonstrates a positive outcome where government investment in specific growth-oriented companies fostered economic and national development. In contrast, Japan's experience offers a cautionary tale. The Japanese government's strategy was to boost the stock market by investing in broad indexes, essentially injecting government money to prop up the market. The impact on the Japanese economy was negative. GDP per capita declined from approximately $44,000 in 1995 to $37,000 in 2024, a 16% fall. Wages also decreased by about 11% between 1995 and 2025, making Japan one of the few countries to experience a real wage decline over three decades. Furthermore, the Japanese stock market took 35 years to recover, only breaking its 1989 record high in 2024. While other factors were at play, the government's intention to prop up the market through broad index investments had detrimental long-term effects. The U.S. currently exhibits a mixed strategy, aiming to both build industries and potentially prop up others. Investments in companies like MP Materials and Intel suggest a desire to build domestic industries. However, concerns exist about the government potentially bailing out companies, as seen in discussions around Spirit Airlines. This uncertainty regarding the government's primary intention—building or propping up—is crucial. The proposed sovereign wealth fund also presents a dual risk: it could enhance national wealth if investments are successful, but diminish it if they are poor. Rumors of government investment in defense companies, possibly due to geopolitical conflicts, further complicate the picture. A pending bill in Congress could codify government equity stakes in companies, making it common practice. Changes at the Federal Reserve, with Kevin Worsh's appointment, could lead to interest rate cuts and increased money printing to fund investments. The critical question is whether these investments will spur economic growth or merely provide short-term market support, potentially causing long-term pain. Given these scenarios, investors might consider several opportunities. If the U.S. follows Japan's path, value stocks, particularly dividend-paying companies, might be attractive. These companies offer consistent profits distributed as cash dividends. ETFs like SCHD focus on such companies with a history of growing dividends and profits. If the U.S. aligns with Singapore's model of building industries, the defense sector could be promising, given rumors of government investment in defense companies due to geopolitical conflicts. ETFs like ITA offer exposure to these defense companies. For diversification, international investments are an option. ETFs like VA provide exposure to developed international countries, while VWO focuses on emerging markets. Investors can also target specific countries. Alternatively, for those confident in the American economy's continued strength, investing in the broader U.S. market through an ETF like SPY, which tracks the S&P 500, remains a simple and historically successful approach. The direction the U.S. takes—Japanese or Singaporean—remains to be seen, but understanding these historical precedents can help investors navigate potential opportunities.