Want To Invest Like Mitt Romney? Here's Your Playbook
I was surprised by many of the investments, or lack thereof, when I came across President Barack Obama's most recent financial disclosure.
The president has been extremely passive and risk-averse with his money over the past year, leaving most of it in Treasurys or cash. The lessons the first family's portfolio holds for ordinary investors are to take a little risk and that cash flow is king.
But what about a super-rich private 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 a net worth upward of $250 million.
As you would expect of a private equity guru and someone with strong ties to Wall Street, Romney appears to be doing more things right than wrong with his investments.
What Romney Is Doing Right
Smart Move #1: Don't Give Uncle Sam More than His Due |
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 elite insider compared to the Obamas and their 20.5% rate. Until Congress simplifies the tax code, there will be ways of minimizing your tax burden -- and you should take advantage of them. |
Smart Move #2: Invest In Foreign Assets |
Among the few investments Romney holds in his personally managed accounts is up to $2 million in bonds issued by foreign governments. These bonds, with coupon rates ranging from 3.5% to 6.75%, are issued by some of the most financially sound countries, including Australia, Canada, Sweden and Norway. |
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. |
Romney's "Mistakes"
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.
Mistake #1: Letting A Quick Decision Change A Good Long-Term Strategy |
Ahead of the public scrutiny of a political campaign, Romney's assets in a trust managed by Thornburg Asset 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 (AAPL). |
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 from emerging markets. Don't let your personal or professional ambitions get in the way of a well-constructed portfolio designed to reach your long-term goals.
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