When you're the leader of the free world, you can make a few investment mistakes and still do pretty well.
You are guaranteed an annual pension of just under $200,000 for the rest of your life and can make millions more giving speeches. Former President Bill Clinton made $13.4 million for the 54 speeches he gave in 2011, almost a quarter of a million each on average.
In addition to the lecture circuit are the book deals, board seats and any number of other perks that come from those four (or eight) years of leadership.
With this kind of potential income, who cares if you make a few extra percent on your portfolio?
Then There's The Rest Of Us...
Unless you are one of the lucky few who have this kind of potential income, you are going to need to manage your nest egg and seek higher returns. But with bonds yielding next to nothing, gold and commodities out of favor, and many sectors of the stock market looking near-term expensive, earning those higher returns is a constant challenge.
Always on the lookout for market-beating ideas, I came across the joint financial disclosure report from President Barack Obama and his wife, Michelle. I was surprised at what I saw.
Every year, the first family reports its investments to the U.S. Office of Government Ethics. The disclosure report allows for the line-item estimation of net worth and income over a wide variety of investments, providing an interesting look into what the most powerful family in the world does with its money.
The Obamas don't hold any stocks in their portfolio, but if they did, they'd be obligated to put them in a blind trust to eliminate potential conflicts of interest. Almost all of the president's assets are passively managed; there were no transactions during the reporting period.
The disclosure is illuminating, but perhaps not in the way you might think. I found that many parts of the president's investments report shows investors what not to do, while some do.
The joint filing shows that the Obamas have a net worth between $1.9 million and $6.9 million -- the wide range is due to how asset values are reported. The filing also shows that while the president might not be afraid to mix it up with Republicans on Capitol Hill, he is less than aggressive with his investments.
|Mistake #1: Not Enough Skin In The Game|
|Between $250,000 to about $600,000, or about 10% of the Obamas' money, is invested in an S&P 500 index fund that tracks the performance of the general stock market. You'd be hard-pressed to find that low a percentage invested in equities in your grandma's portfolio, much less a 51-year-old with solid income and 14 years to retirement.
Having only 10% in equities seems dramatically low and won't provide most people with the return they need to fund their retirement. Even the most risk-averse investor may want to have at least 20% of their assets in an equity fund like the SPDR S&P500 (NYSE: SPY) for growth and inflation protection.
|Mistake #2: Falling In Love With Treasurys|
|Treasury notes make up more than half of the president's net worth, yielding just over 2%. Perhaps Obama is making a statement about his faith in the U.S.-backed notes. For the rest of us, Treasurys are a losing bet, with a negative real return.
Although bond funds may still feel the pain when rates start to rise, they may still outperform Treasurys and provide a return above inflation. The iShares Core Total US Bond Market ETF (NYSE: AGG) is composed of investment-grade debt and pays a dividend yield half a percentage point above Treasurys.
Better yet, the SPDR Barclays High Yield Bond ETF (NYSE: JNK) pays a dividend yield more than three times higher than Treasurys and could perform relatively well when rates rise. That's because as a stronger economy pushes rates up, the financial position of these companies will improve, and credit upgrades could offset some of the weakness in bond prices that comes with rising rates.
|Mistake #3: Save Thousands By Locking In Low Rates|
|The responsible use of debt can be a good thing for consumers as well as businesses. Obama refinanced his Illinois residence in 2005 at a rate of 5.25%. By refinancing his mortgage at the current 3.58%, he could save up to $16,700 annually in interest.
What The President Is Doing Right
Not everything on Obama's annual disclosure was a lesson in what not to do. Here are some of the financial moves the president is getting right.
|Smart Move #1: Start A College Fund|
|The first family has about $200,000 in college funds for daughters Malia and Sasha. While the amount may be a little low if the president wants his daughters to attend Harvard University, his alma mater, 529 plans have some of the best tax breaks you can get.
|Smart Move #2: Have A 'Rainy Day' Fund|
|The family also has between $250,000 and half a million in checking accounts, with between 4% and 7% of its net wealth in cash. Everyone should have at least a few months' expenses in an emergency stash and a little more to take advantage of investing opportunities. Some may even suggest up to 10% of assets in cash or money-market funds.
|Smart Move #3: Cash Flow Is King|
|Obama made between $250,000 and just over $2 million on royalties from his three books. This one the president is definitely getting right: Own assets with current cash flow. High-flying growth stocks are great, but as StreetAuthority's Amy Calistri has reminded us time and time again, there's nothing like the dependability of earning a steady dividend paycheck for as long as you want.
Risks to Consider: Being overly conservative or aggressive with your investments is rarely a good idea for anyone. Every investor -- even the commander in chief -- needs to review his or her portfolio regularly for risks and missed opportunities.
Action to Take --> Again, all of this probably isn't as important for someone with Obama's post-presidency prospects, but most of us everyday investors need to take an active part in building our nest egg.
Investors looking for reasonable returns to meet their investment goals don't have the luxury of book deals and lecture circuits. Instead, it might be time to re-evaluate your portfolio. With the market scoring record highs on a nearly daily basis, this might mean taking profits in some positions while finding value elsewhere.