President Barack Obama joined Twitter Monday and he already has more followers than you, but is he a better investor and saver?
The Obamas' latest financial disclosures, released late last week, provide a peek into the first couple's personal finances last year. It's not an exact accounting—broad ranges are given for Obama's investment portfolio and real estate holdings. (His net worth is between $1.9 million and $6.9 million.) But financial advisors see plenty of room for improvement.
For one, the Obamas are paying a 5.625 rate on a 30-year mortgage with Northern Trust for their Chicago home, worth between $500,000 and $1 million.
"The first thing President Obama should do is refinance his mortgage into a 15-year fixed-rate mortgage with a 3 percent interest rate," said Tom Balcom, a certified financial planner and founder of 1650 Wealth Management near Fort Lauderdale, Florida.
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Mortgage rates are still near record lows. Even a 30-year refinanced loan, which has an average rate of 3.92 percent according to Bankrate, could save the Obamas thousands of dollars a year in interest.
When it comes to college savings, their daughters Sasha and Malia have a huge head start. Obama has between $200,000 and $400,000 stashed away in four 529 college savings plans. That's at least nine times more than the average 529 plan balance of $20,474, which won't even cover the average tuition for an out-of-state student at a public four-year college.
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These college savings plans allow balances to grow tax-free like an IRA. Investors can avoid taxes completely if they use the 529 money to pay for qualified higher education expenses, which include tuition, fees, books, room and board.
The Obamas also likely received state tax breaks for their 529 plan investments. They are invested in Illinois' Bright Directions 529 plan. Contributions to one of the state's 529 plans of up to $10,000 per year by an individual, and up to $20,000 per year by a married couple filing jointly, are deductible from Illinois taxable income.
Obama dumped the Pimco Total Return Fund—as many other investors have—in two of the 529 plans, after the firm's star manager Bill Gross left for Janus last fall. He replaced it with the MainStay Total Return Bond Fund.
Obama's assets
| Assets | Value as Dec. 31, 2014 |
|---|---|
| U.S. Treasury notes | $1,000,000 to $5,000,000 |
| U.S. Treasury bills | $250,000 to $500,000 |
| Vanguard institutional index funds | $200,000 to $500,000 |
| Bright Directions 529 savings plans | $200,000 to $400,000 |
| Vanguard 500 index fund | $100,000 to $250,000 |
Source: Source: White House
Despite the large 529 balances, some financial planners questioned Obama's investment choices.
"It's ironic that he's in the Bright Directions Illinois 529, which is sold through brokers, rather than the lower-fee, direct-sold Bright Start Illinois 529," said Dylan Ross, director of financial planning at the Garrett Planning Network, a nationwide group of fee-only financial planners.
Obama has shunned active money managers though. He has $100,000 to $250,000 in a Vanguard index fund that tracks the Standard & Poor's 500 index and $200,000 to $500,000 in two other low-cost Vanguard index funds.
"President Obama is following what academics have taught investors for years: that low-cost index funds have historically offered higher returns and greater tax efficiency than the average actively managed mutual fund," said Randall T. Bruns, a certified financial planner in Downers Grove, Illinois.
"It's quite possible that Mr. Obama's Vanguard mutual funds have expense ratios as low as 0.05 percent, compared to an industry average mutual fund expense of approximately 1 percent. Politics aside, both liberals and conservatives should agree the president understands mutual fund investing."
Some advisors think Obama should spread his equity holdings beyond the largest U.S. stocks. "I would recommend they diversify into other areas and get larger concentrations in mid- and small-company U.S. stocks, including international equities," said Andy Tilp, a certified financial planner and president of Trillium Valley Financial Planning near Portland, Oregon. A more diversified portfolio can reduce risk and increase returns.
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Regardless of how liberal you think his policies are, there's no question Obama is conservative when it comes to investing. The bulk of his portfolio, at least $1.5 million, is invested in U.S. Treasurys.
"Even if rates don't go up, [the Obamas] are unlikely to ever make much return from that, which means that these funds are just not working for them," said Chris Chen, a certified financial planner in Waltham, Massachusetts. "This was probably meant as a conservative placeholder."
To be sure, Obama has more to think about than maximizing his investment return while in office. "On the investing side, [the Obamas] are pretty much forced to stay vanilla," said Stuart Brogan, a certified financial planner in Santa Monica, California. "Index funds and Treasurys will keep their investments away from public scrutiny."
But as a young, soon-to-be-former president, Obama's top earning years may be ahead of him. "Those earnings will likely be independent of any one employer," said John Eckel, a certified financial planner in Simsbury, Connecticut. "As a result, his current investment allocation is small in comparison to his potential and not as important to achieving his financial goals."