How to avoid Obama's investing mistakes

A look at the first family's portfolio shows that even the leader of the free world could benefit from some basic investment advice.

By StreetAuthority May 30, 2013 8:48AM
U.S. President Barack Obama holds a news conference from the White House /Larry Downing/Reuters By Joseph Hogue

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 are 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 show investors what not to do, while some do.

Obama's mistakes
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 $600,000, or about 10% of the Obamas' money, is invested in an S&P 500 ($INX) 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 (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 (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 (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: Not saving 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: Starting 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: Having 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 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.

Joseph Hogue does not personally hold positions in any securities mentioned in this article. 

More from StreetAuthority
May 30, 2013 11:21AM

This is the most worthless article I have read to date. 


Obama will get a Government check of $200,000 a year plus millions for speeches, books and corporate boards.  Yet he never looks at cutting his pension, but cut my future Social Security is top on his list. 

May 30, 2013 9:25AM
I remember back in 1989, when the MSM was outraged that Reagan was getting $75k per speech. 
May 30, 2013 11:46AM

When are we going to get a president (not republican or democrat) that understands or at least can sympathize with the average American.

May 30, 2013 12:40PM

"By refinancing his mortgage at the current 3.58%, he could save up to $16,700 annually in interest."


Or he could sell some of his Treasury securities, which are only earning 2%, and pay off his mortgage, saving more than $50k in interest per year.

It’s called deleveraging. Banks and the financial industry hate it and don’t like to talk about it, because, it conflicts with their business model and erodes their profits. That’s why it’s good for you.  

May 30, 2013 12:37PM

He and the people that voted for him could benefit from an education ! ! ! !



May 30, 2013 12:21PM

Anyone else note the conflict between "...guaranteed an annual pension of just under $200,000 for the rest of your life" and "51-year-old with solid income and 14 years to retirement."?  He is going to "retire" in 2 years, with his pension guaranteed.  So no reason to worry too much about equities.


Also, since the President and I are the same age, I know his nominal retirement age is 67, not 65, as the second quote indicates.


But, not refinancing to take advantage of lower mortgate interest rates is just stupid.  The author is correct there.  I doubt the President is sub-prime ;-)

May 30, 2013 2:29PM
How to Avoid the Obama Family's Blunders - (1) Don't have the racist and anti-american Reverend Wright as your pastor and spiritual leader; (2) Don't tell lies, half truths, and unfulfilled promises [close Guantanamo Bay facility right away; End war in Afghanistan right away; Benghazi was not an act of terrorism but a reaction to a movie; No we didn't give guns to Mexico in the Fast and Furious debacle; I will not raise taxes (just get rid of tax loopholes and broaden the base); if you like your healthcare plan you will be able to keep it] (3) If something doesn't turn out well, tell them it is George Bush's fault.
May 30, 2013 3:32PM
If you think he makes bad investments with his portfolio .............. take a close look at how he throws our tax money around!
May 30, 2013 3:07PM
MSN:  What is the point of this article?  We all know what the president currently makes and we all know that all presidents are indeed financially set for life.  We also know that most Americans do not have that type of financial security.  As for the $ things you think the first family are doing wrong, and right, you could have made the same points without using as an example any family involved in politics. So....instead of just noting those things, you use the President in order to foment some controversy.  You know you'll get some ridiculous blogging.  Who do you think you are, FOX news?  Maybe they are right about MSN.  Maybe there is no legitimate journalism here.  How about doing an article on how our sneaky Congress repealed the vote (during the Boston Marathon crisis) which had attempted to make transparent the "insider information" trades that they all benefit from?  Or how about a real piece of journalism that would bring some pressure to bear on the Feds with regard to making transparent their stimulus exit strategy, so that we don't have all the turmoil.  I don't think I am alone, but I am sick of  shallow "journalism" that does nothing more than riles people, takes the focus off of real issues, and makes us more divided.  Many of us are just sick of politics.  Come on, just give us the facts and some real reporting.
May 30, 2013 3:08PM

In any civilization past, present or future, under any form of government, pharaoh, king, dictator, socialism, parliament or congress, there is only one person responsible and we can meet that person when we look in the mirror to comb our hair, shave our face or but on our makeup. When we abrogate our responsibility to any form of government that government will eventually make us their pons and slaves, this is where America is today. In the last 7000 years of history many civilizations have had the same problems we have today, poor leadership, corruption, high debt, high inflation, high taxes and a people who expect government to solve their problems. None of these civilizations recovered from these problems. If America does, we will be the first civilization to accomplice this and we will have done it by consciously striving to accomplish this feet. The big question is do we have the intelligence, the courage and the moral structure?

May 30, 2013 2:25PM
Article Lists (under "no skin in the game)   "[only] ...about 10% of the Obamas' money, is invested in an S&P 500 .  Clue =Urkel knows how the stock market is being manipulated.
May 30, 2013 1:39PM
Just think what that amount of money when he gets home to Kenya
May 30, 2013 3:48PM

Obummer the clown didn't take business classes. What did you expect from a community organizer who got into college due to his race?

May 30, 2013 2:17PM
maybe he knows something that the author doesn't????
May 30, 2013 2:56PM

we all know 80 billion a month you retard will definatly change the outcome of the market take that away aand the market crashes booooom boooom!!!!!

May 30, 2013 2:59PM
You gotta feel sorry for him (how about sarcasm).
May 30, 2013 4:42PM
how many billions is Obama making from stock manipulation with federal reserve money using his middleman like soros ,goldman sacks and ichan.stocks with best performance are from political colaborators and not exxon or bp
May 30, 2013 3:12PM

I cannot make the same investing mistakes as Barry O.


The simple reason is I am not an Idiot like him.

May 30, 2013 4:58PM

The bad news is that you'll think you will have learned from other people's bone-headed investing mistakes but will still make the same stupid mistakes because you imagine you are somehow smarter than the average investor.


The good news is that you will definitely learn from your bone-headed mistakes once you have made them. That's why everyone should start investing when they're young...

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