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How to Get Rich Like the Candidates: Presidential Investing Tips from Both Sides of the Aisle

Oct. 22, 2012
Investing, Investments
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As the election approaches, the candidates’ personal information – finances included – is increasingly in the media spotlight.  Everyone talks about how rich Mitt Romney is, but it turns out that both candidates are actually worth millions – and the veeps aren’t doing too badly either.  Paul Ryan and Joe Biden, too, have made their fair share of solid investments over the years.

Talking about their respective pensions during the last debate, Barack said to Mitt, “You know, I don’t look at my pension.  Mine’s not as big as yours, so it doesn’t take as long.”  Obama didn’t get rich from the likes of Bain Capital like Romney did but he’s doing pretty well for himself; Obama’s fortune comes largely from royalties on his two autobiographies – more on that in a bit.  These days any president can get millions for his memoirs written after his term and from speaking engagements, but short of becoming the next U.S. president, what hope do everyday Americans have of emulating their success?

What can we learn about investing from this year’s presidential candidates?  Between the Obama-Biden and Romney-Ryan campaigns, there’s a lot to be learned from the candidates’ investing successes over time.  We break it down for you.

How to Get Rich Like Mitt Romney: Conquer Wall Street With Private Equity

Mitt Romney made his millions from private equity, mostly from his tenure at Bain Capital. According to his mandatory financial disclosure documents, the Governor has a personal net worth of as much as $260 million.

Now, understand what a private equity company does: They will identify established companies going through some trouble or that need assistance to become further developed, and invest millions, with the intention of assisting the company in becoming profitable and selling their shares for a greater amount later.   In order to assist the company, besides supplying money, the private equity firm will often take an advisory role on the company’s board. Experience in a certain industry is incredibly valuable to small, struggling companies. It is very helpful if the private equity firm can provide professional knowledge, operations know-how, supply chain management expertise, marketing mojo, and knowledge of sales management. A private equity firm will go in with a bench of capable executives to provide the company with whatever it needs to turn things around and generate return on investment for the private equity firm.

It may make sense for a small investor to get some exposure to the asset class just as a matter of diversification.  Even if you aren’t an accredited investor, you can get a piece of the private equity pie in several ways:

  • The simplest way is to participate in your pension. Chances are good your university, state or large corporate pension fund already has exposure to private equity through an investment in one or more private equity funds.
  • You can buy a mutual fund that itself concentrates on private equity firms that are publicly traded, such as the ALPS Red Rocks Listed Private Equity Fund.
  • Or you can get an ETF that does the same thing, though without active management at the fund level, by investing in an ETF that focuses on private equity firms, such as the PowerShares Global Listed Private Equity ETF (PSP).  Expenses are significant in the ETF, at 2.32 percent of assets.
  • You can, of course, skip the add-on expenses by buying shares in publicly traded private equity firms themselves.  Prominent candidates include the Blackstone Group (BX), Onex Corp. (OCX CN), Conversus Capital (CCAP NA), and KKR (KKR).

How to Get Rich Like President Obama: Write a Book Then Get Famous

Barack Obama does not have anywhere near Romney’s wealth – and he wasn’t born into it by a long shot. His mother was a bank vice president in Hawaii.  That’s doing well, but it isn’t Daddy Warbucks, most of the time. The bulk of Obama’s money came from writing two strong-selling books. The first, Dreams From My Father, published in 1995, and then the Audacity of Hope, the 2006 book that launched his candidacy.

Once Obama became a prominent face in the national Democratic Party – thanks to his speech at the 2004 Democratic Convention, book sales took off. According to his tax returns, the Obamas posted income of $207,647 in 2004, $1,665,106 in 2005 and $983,826 in 2006. The two books still continue to generate $1 million to $2 million per year in royalties.

It also didn’t hurt that he married well: Michelle Obama was hired as a hospital community relations director for a salary of $316,000 or so per year (it didn’t hurt her job prospects that her husband was a Senator, either!). Michelle also took in another $45,000 per year as a member of the Board of Directors of TreeHouse Foods.

So the Obama formula for wealth was this:

  1. Write a book.
  2. Become famous (politics worked well for him, it looks like).
  3. Get a wife with a $316,000 per year job.
  4. Make a prime time speech at the Democratic Convention
  5. Write another book.
  6. Run for president.
  7. Win.
  8. Rinse, repeat (or not, as the case may be).

Now, you can still make millions without dong steps three through seven. Just ask author J.K. Rowling.  You’ll just have to write better books.

Biden and Ryan: How to Invest Like The Veeps

The down-ticket disclosures are in many ways more interesting and informative to everyday investors than those for the guys at the top of the ticket. Not everybody can be president, write two bestselling books, or head their own wildly successful private equity company. But the two Vice Presidential candidates are close enough to mere mortals that ordinary people can draw some real, meaningful insights from their portfolios.

How to Get Rich Like Joe Biden: Diversify, Diversify, Diversify

As Senators go, Joe Biden is practically in the poorhouse. He is one of the least affluent members of that body. One reason: He’s spent almost his entire adult life in politics, and hasn’t had that much in outside business interests. He did start out as a public defender, but he didn’t care for the practice of law and has been in politics since his mid-20s, entering the field in 1972.

According to his latest financial disclosure statement, Biden receives a small amount of income from a State of Delaware deferred compensation plan, invested in the Fidelity Freedom 2020 Fund – a mutual fund that has an asset allocation designed for people who plan to retire around 2020 – though Mr. Romney and Mr. Ryan would like to move Biden’s retirement timetable to the left by eight years.  Biden also participated in a tax sheltered annuity, or 403(b) plan, and spread his assets among a global health care fund, an international growth fund, a technology growth fund, a high-yield bond fund, and two Janus portfolios, Janus Aspen Enterprise and Aspen Janus Portfolio. He also owns a mid cap growth and a mid cap value fund from Guggenheim investments, and a small cap value fund, also from Guggenheim.

In terms of other assets, Biden also owns a rental property in Wilmington, Delaware, worth somewhere between $100,001 and $250,000, and he gains income from it between $15,000 and $50,000 per year. That property is one of his biggest income sources other than his salary as Vice President.

At first glance, this seems like a remarkably aggressive portfolio – especially for someone so close to retirement. But Biden also keeps a substantial portion of his assets in cash, and owns several participating whole life insurance policies with Mass Mutual. (Biden tragically lost his first wife and 1-year old daughter in a car accident in 1972.) In this case, his cash value life insurance policies have become important assets, and continue to grow tax free. And they’ll probably remain so, even if tax rates increase. Biden has tapped these insurance policies for loans against their cash value totaling between $15,000 and $50,000. He also carries a line of credit and has co-signed a loan with his son.

How To Get Rich Like Paul Ryan: Marry Rich and Run Small Businesses Galore

Paul Ryan, the GOP vice presidential nominee, actually has a net worth much higher than his Democrat counterpart. His net worth, according to OpenSecrets.org, is somewhere between $1.54 million and $8.1 million.  His biggest asset? His wife’s family trust, worth between $1 million and $5 million dollars.  His wife happens to be an heiress to one of the wealthier families in Oklahoma City.

Ryan also has a background, earlier in his career, as a professional investor. He has held a stake in Ryan-Hutter for nearly 20 years, and owns a limited partnership called Ryan Enterprises, an investment firm that sort of makes him into Mitt Romney’s “Mini-Me.”  Ryan’s stake is somewhere between $250,000 and $500,000, and it kicks out abot $5,000 to $15,000 in income each year.  Ryan also owns a substantial stake in his wife’s family’s business, the Blondie and Brownie Gravel Company, and in a mining and petroleum company called Ava O Ltd.

Beyond the family trust and the closely-held family and extended family businesses though, Ryan also has a diversified set of investments both in mutual funds and individual stocks, including the Fidelity Contrafund, Apple, Edvest Wells Fargo Aggressive and Moderate Portfolios, Home Depot stock, the LLCO Courage/Special Situation Fund, and the T.Rowe Price New Horizons Fund.

Key Takeaways for Average Joe

If we were going to recommend a single course of action you can start immediately to emulate the financial success of each of these candidates, the most important thing you can do is to save and diversify.  And of course, don’t forget to choose the right spouse!