Thursday, May 19, 2011

Invest Like the President

This week, President Obama posted his 2010 disclosure form on the White House web site.  This form provides some insight into how he and his wife manage their money.  So how is the President doing?  From what I can tell, he seems to be doing okay.  For the most part, he seems to be pretty good in handling his financial affairs (better than most).  However, there are a couple of areas where he has room for improvement.

1. Obama maintains a healthy emergency fund:

According to his disclosure form, he has a checking account with between $250,000 and $500,000 in it (he only has to disclose ranges - not exact amounts).  Considering that the President earns $400,000 a year, his rainy day fund represents 7.5 to 15 months salary.  That is more than the three to six months that most financial planners recommend.  Considering that he may be unemployed come January 2013, it is probably wise to have a little bit more tucked away.

2. Obama is an index fund investor:

Obama has around $250,000 of his retirement money in the Vanguard 500 Index Fund.  He benefits from the diversity that the fund offers through its investment in the 500 biggest U.S. Corporations.  In addition, he pays very little in the way of expenses because he is investing in a passive index fund.  However, since that fund is weighted towards large U.S. companies, he probably could stand to add a small company index fund and an international fund to the mix.  Of course, it may not be politically feasible to invest in foreign corporations, even through a mutual fund, so that may explain his lack of non-U.S. exposure.  I can just picture Bill O'Reilly ranting about how Obama is a traitor because he has money in an emerging markets fund.

3. Obama is a big bond investor:

Bonds make up the bulk of his investment portfolio.  He has several million dollars in various U.S. Treasury Bills and Notes.  I suppose it is good to know that the national debt is being financed in small part by the President himself.  However, should interest rates rise in the future, having so much money in bonds could hurt him.  The saving grace is that Treasury Bills are relatively short in duration (less than one year) so once they mature, he can always roll the money over into higher interest T-Bills.  Notes, on the other hand, can be up to 10 years in length, which means he has locked in his interest rate for a lot longer. 

4. Obama is saving for his kids' college:

Obama has $100,000 to $250,000 in each of his kids' 529 Savings Accounts.  It appears as if the money is invested in a target date fund that is linked to his childrens' ages.  As the children get older, the money shifts from risky investments to less risky ones.  Target date funds provide a good way to construct a set-it-and-forget-it portfolio, so this is a pretty good move as well.

5. Obama is quite an entrepeneur:

By far Obama's biggest source of income is in the form of book royalities.  He gets several million dollars in royalty payments combines from his various books.  Obama is one of the lucky ones in that he actually makes quite a bit from writing.  Bloggers like me earn nowhere near that amount.  I guess the lesson here is that writing is profitable if you have an existing brand; if not, better stick to something else.

6. Obama is debt-free:

Under liabilities, Obama lists absolutely nothing:  no underwater mortgage, no student loans, no credit card debt.  Of course, it helps that you can live in a quarter of a billion dollar home at the taxpayer's expense.  Still, if you can forgo debt, you are way ahead of the game.

Overall, Obama seems to be doing pretty well with how he handles his money.  Hopefully he can be as wise with the taxpayers' money as he is with his own.

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