Monday, April 29, 2013

The Obamas as Clueless Personal Financial Planners

Financial Planning writes:
 The Obamas paid $45,046 in mortgage interest in 2012, which appears from the disclosure statement to be at a 5.625% interest rate with Northern Trust. That suggests an outstanding principal balance of about $800,000.

On the other hand, the bulk of their investments are in Treasury notes. Based on the disclosures, I estimate they hold about $3 million in Treasury notes (also held by Northern Trust), yielding 0.71% if averaging a five-year maturity.

By selling some of those Treasuries and paying off the mortgage, they would effectively be getting five more percentage points on the amount; they would also be about $40,000 better off each year before taxes, not to mention being less exposed to notes that could take a hit from possible rising rates.

The Obamas would pay more in taxes but make much more after taxes -- especially since they aren’t getting the full deduction anyway, due to the AMT.[...] 
A good planner may also want to investigate the $115,516 tax-loss carry-forward in Schedule D. While this could have come from many sources, these typically come when investors buy at the top of the market and then panic and sell after the plunge. But regardless of where it came from, it would take almost 40 years to utilize this loss carry-forward at the annual limit of $3,000 a year.

To increase the value from this loss by creating more taxable capital gains, the Obamas need to reverse their asset location. They currently own Treasuries in their taxable account and Vanguard S&P 500 index funds in their retirement accounts. By switching, they continue to invest in U.S. capitalism, but get a much better chance of gains

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