How to invest like Mitt Romney

He may have lost the election, but he could teach the commander-in-chief a thing or two about money.

By StreetAuthority Jun 7, 2013 8:47AM

Republican presidential candidate and former Massachusetts Governor Mitt Romney speaks during a campaign stop in Youngstown Brian Snyder/Reuters By Joseph Hogue

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 very little risk and that cash flow is king.

But what about a superrich 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.

Much of Romney's benefit came from the ceiling on capital 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 than investing in master limited partnerships (MLPs). These are stocks of companies owning energy assets that pay out most of their income as dividends. Because of a special tax break, most of the dividend isn't taxed until you sell the shares, 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 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.

The bonds serve two purposes. First, they are backed by countries that are as likely to default as the United States, so Romney is essentially getting a risk-free guarantee 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 world devalue 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 Treasury Fund (BWX), 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 the fixed-income complex, but it has still outperformed funds holding only Treasurys.

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 (IEV), iShares S&P Latin America 40 (ILF), SPDR S&P Emerging Europe (GUR) and the Goldman Sachs Small Cap Value Fund (GSSMX).

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).

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 (FMS) 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, the market 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 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.

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

More from StreetAuthority

Jun 7, 2013 1:57PM

I don't know about you America.


I voted for THIS obviously more intelligent man.


Keep watching people, as this lame duck president falls further and further into the obscurity of history as the worst ever.


His social agendas to benefit few are killing the rest. 

Jun 7, 2013 3:48PM
For all you Romney [capitalist] haters, why don't you stop complaining and LEARN from someone successful.  What Mitt has done and is currently doing is NOT ILLEGAL.  It is smart.  Nowhere does it say someone should pay more in taxes than they are required to pay.  He, and anyone else who takes full advantage of the currently tax laws (all passed by congress), has a well rounded financial education.  If you don't then why don't you get off your lazy, union paying @$$ and learn something.  Try starting a business or providing a service.  Try investing for your future instead of demanding that your gov't take care of you.  Oh wait, the US Gov't, who PRINTS money is in a better position to know what is right or wrong than a successful business person that uses ALL of the rules to his/her advantage.  Stop complaining and learn to expand your financial knowledge.  If you don't want to, that is your right.  Just like it is my right to avoid paying as much in taxes as I LEGALLY can.  Way to Mitt!
Jun 7, 2013 2:37PM
My Mitt Tips. 1. Have wealthy and well connected father. 2. recruit fathers rich friends to invest in your new private equity firm. 3. buy distressed companies load them with debt and take out huge fees for yourself. 4 Lobby congress to make sure your fees are not ordinary income but "carried interest" which have much better tax treatment. 
Jun 7, 2013 2:28PM
Mitt Tip #1. Have your wife buy a horse. Classify horse as asset. Deduct upkeep of asset from income greater then the average american families yearly income. Have horse compete in horse ballet
Jun 7, 2013 2:49PM
i'm waiting for Mitt's book on how to build yourself a 100 MILLION DOLLAR IRA.
Jun 7, 2013 2:25PM
Smartest move he did. Have you company spend millions to lobby congress to create special tax treatment for "carried interest" then proceed to classify your earning as such.
Jun 7, 2013 4:54PM

Mitt is a smart man who would have helped America get back on track and would have created more jobs

Obama has only created more welfare recipients.

Jun 7, 2013 2:39PM

"As with Obama and his portfolio, Romney's investing profile and needs are dramatically different from yours or mine."



What now? So ordinary folk don't seek to maximize returns, diversify investments, and minimize risk? No wonder..

Jun 7, 2013 7:34PM
As a young boy Mitt was taught how to manage money and he learned well. Good for him !  I just wish more folks would, or could, teach their kids about money.  In 1966 high school we had to take a class in personal economics, and it was a good start on money management considering the time. Now, no such class seems to be offered. So, the rich teach the rich to be rich, and the poor buy a six pack and party !
Jun 7, 2013 1:55PM
So Romney is doing pretty well under Obama's socialist government.  Interesting.  I wonder how the rest of the super-rich are doing?
Jun 7, 2013 6:04PM
avatar in be born into a rich family.  Rare to find self-made men anymore.  Kills me how guys like Mitt assume we all should have it easy like him or we're not trying hard enough.
Jun 7, 2013 5:53PM
Well you start with a bunch of offshore money and a tasty inheritance..........
But don't use your own money in a losing political campaign.
Jun 7, 2013 7:29PM
Sick of it in NH

what are you whining about now.  Is your 401K under performing or did you place your vote on a loser.   You can stuff it in the back or front  that may help.
Jun 7, 2013 2:18PM

How to invest like Mitt Romney?

1. Buy a struggling U.S.-based company, using huge sums of debt that you borrowed at ridiculously high rates. (The lenders don't care about the prospects of the company you bought; they'll securitize those loans and sell them off piece by piece to any suckers they can find.)

2. Start transferring production overseas, closing U.S.-based plants and laying off workers. Use this as further leverage to negotiate wage and benefit concessions with the unions.  Tell them the firm's very survival is threatened.

3. As long as the company you bought survives, try to sell it to another private equity firm, which will know what to do with it, or to a greater fool who actually wants to run it. Meanwhile, collect all the subsidies you can to keep it going.

4. If the company you bought goes under, declare bankruptcy and use it as an opportunity to renege on all the pension and other promises made to the company's workers and to bleed their pension fund.

5. To emerge from bankruptcy, borrow even more money at even higher rates and negotiate more concessions from the unions and more subsidies from state governments. Meanwhile use a sub to charge ridiculous consulting fees for rescuing the business you're driving into the ground.

6. Repeat steps 3-5, as many times as you can.  It's all gravy.


Yep, that's what "private equity firms" do: adding value -- funneling it, really, into a few hands from the many. It sounds prettier than "leveraged buy-out firm," but it's the same thing.

Jun 7, 2013 5:09PM
Mitt would have been a better choice, our current {president} keeps letting the government  print  and print and print more money.    Ever since we went of the gold value to what every you want to call it now we are reenacting the Titanic and this country is heading for an iceberg.      If this government does not stop printing money like there's no tomorrow  , tomorrow is going to come faster and harder than the depression.
Jun 7, 2013 6:14PM
All I have to say about this story is, the author leaves out some very important details about Mitt Romney's life, in comparison to the Obama's, especially the President. Just like Donald Trump and a whole host of other examples on the right and left, Romney was the beneficiary of having wealthy parents who were well connected. I find it very funny how people that were born on 3rd base act as if they were at bat with a full count and hit a walk-off home-run to get to where they are today.
Jun 7, 2013 7:15PM

"How to invest like Mitt Romney"


1). Sell your soul to the devil

2). Have no concern for the welfare of others

3). Possess no conscience

4). Be willing to destroy lives, raid pensions, pillage assets, and destroy the company you told everyone you were going to "save"

5). Use other peoples' money (OPM)

6). Privatize gains; Socialize losses

7). Get plenty of sleep because this is "hard" work

Jun 7, 2013 6:53PM
MR FAT CAT...somethings wrong.  I dont think either of us received our invitations
to the Bilderberg Brunch this weekend.   DA Horrors !!!

Jun 7, 2013 4:49PM
Mindless drivel...

Obama has intentionally stayed out of the stock market to avoid conflicts of interest, to dissociate himself from Wall Street in the eyes of the public, etc. What if he owned shares of AIG, and then AIG got big bailout money? Oh, just imagine the conspiracy theories!

The president was better off investing lightly in a domestic index fund. He's got money in treasuries, right? Well, that seems like a patriotic thing to do, doesn't it? This is all well thought out, though the author was too dumb to figure it out. Or maybe he just played us all to get our flaming conversations started. 

As soon as Obama finishes his second term he will start giving million dollar speeches and he will reallocate his portfolio. Bank on it.
Jun 7, 2013 2:00PM
Mitch who?  Teach me how to invest like Gore. 
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