I was surprised by many of theinvestments , or lack thereof,
when I came across President Barack Obama's most recent financial
The president has been extremely passive and risk-averse with
hismoney over the pastyear , leaving most of it in Treasurys
orcash . The lessons the first family's portfolio holds for
ordinary investors are to take a little risk and thatcash flow is
But what about a super-richprivate equity founder? Although Mitt
Romney could have made much more money if he had stayed in
private equity instead of launching a career in politics, he
still has anet worth upward of $250 million.
As you would expect of a private equity guru and someone with
strong ties toWall Street , Romney appears to be doing more
things right than wrong with his investments.
What Romney Is Doing Right
Smart Move #1: Don't GiveUncle Sam More than His
|A media frenzy was created when Romney released his tax
documents showing an effective rate of 14.1%. Democrats
seized on the number to depict Romney as an eliteinsider
compared to the Obamas and their 20.5% rate. Until Congress
simplifies the tax code, therewill be ways of minimizing
your tax burden -- and you should take advantage of them.
Much of Romney's benefit came from the ceiling oncapital
gains taxes and tax-deferred accounts like IRAs and trusts.
You might not have a millionaire's need for trusts, but
there are still ways to lower your taxes, and few are
better thaninvesting in masterlimited partnerships (MLPs).
These arestocks of companies owning energy assets that pay
out most of theirincome as dividends. Because of a
specialtax break , most of thedividend isn't taxed until
you sell theshares , so you receive cash now without the
hit on April 15.
Smart Move #2: Invest In Foreign Assets
|Among the few investments Romney holds in his
personally managed accounts is up to $2 million inbonds
issued by foreign governments. These bonds, withcoupon
rates ranging from 3.5% to 6.75%, are issued by some of the
most financially sound countries, including Australia,
Canada, Sweden and Norway.
The bonds serve two purposes. First, they are backed by
countries that are as likely todefault as the United
States, so Romney is essentially getting a
risk-freeguarantee that pays up to three times what U.S.
Treasurys pay. Second, the currencies issued by these
countries are only getting stronger as the U.S. and the
rest of the developed worlddevalue their own through
quantitative easing measures. Not only is Romney getting a
great return for his money, but that return becomes more
valuable when converted back into dollars!
Investors can replicate this strategy with the
SPDR Barclays International TreasuryFund (
, which holds bonds issued by 17 countries and has a
2.24%dividend yield . The fund has come under pressure over
the past month along with the rest of thefixed-income
complex, but it has still outperformedfunds holding only
Smart Move #3: Be Diversified To The Max
|While the president's portfolio held only shares of a
passively managed S&P 500 fund, Romney is stacking his
portfolio with funds that target a mix of strategies.
Up to $8 million is invested in four funds:
iShares S&P Europe 350 (
Shares S&P Latin America 40 (
SPDR S&P Emerging Europe (
Goldman Sachs Small Cap Value Fund (Nasdaq:
In a look through Romney's financial disclosure, only a few minor
mistakes -- like parking too much in cash and some short-term
bonds yielding less than 2% during his presidential run -- stand
out. One mistake stands out above the rest, however, and it's
something that many investors have done.
Letting A Quick Decision Change A Good Long-Term
|Ahead of the public scrutiny of a political campaign,
Romney's assets in a trust managed by ThornburgAsset
Management were sold off completely. The trust held almost
$2 million in names ranging from obscure small-cap
companies to large tech bellwethers like
Apple (Nasdaq: AAPL)
Even though Romney did not manage the account, the fear was
that some holdings would conflict with his stated values.
For example, the fact that
Fresenius Medical Care (
is a German biotech company involved in stem cell research
might alienate members of the Republican party.
While the opportunity to be the leader of the free world
might be a tempting reason to sell out of your long-term
investing strategy, themarket has soared 30% since the end
of 2011, when Romney probably sold the assets. Like Romney,
many investors have abandoned their long-term financial
well-being to reach for that high-risk, high-reward payoff.
There's nothing wrong with shooting for the stars, but you
need to step back and analyze the risk.
Risks to Consider:
As with Obama and his portfolio, Romney's investing profile
and needs are dramatically different from yours or mine. While
their portfolios might provide clues about what or what not to
do, it would inappropriate to use either man's portfolio as a
roadmap for your own.
Action to Take
Just as Romney has, make sure your investments are well
diversified and include assets that will benefit fromemerging
markets . Don't let your personal or professional ambitions get
in the way of a well-constructed portfolio designed to reach your
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