Wednesday, August 29, 2012

The Real Issue with the Romney IRA

Chopping some chicken bones for stock this afternoon, I listened to Terri Gross talk to the two guys from the Boston Globe who wrote a book about Mitt Romney--and in particular, about that "magic IRA" that may have yielded (so far) no less than $20 million.  Others have dealt with the technical issues here; but let me play around with some bogus numbers for a moment and try to make a point that seems to have slipped through the cracks.

For starters, suppose you can contribute as much as $50,000 a year to an IRA (I'm making this up).  Suppose do contribute $50k for each of 20 years.  Traded in flat, that's a million dollars, but your  money manager is so great you wind up with $20 mill.  What kind of return is that?  Per my spreadsheet, the answer is a tad under 26 percent every year for the entire 20.  Not even the Asian tigers ever did that?

So how did Romney get so lucky favored of fortune?  If I understand these guys right, the answer is "oh, we made side deals on Bain investments and went along for the ride." 

Well.  Okay.  But wait. Did Bain make 20 percent a year on its entire package.  Hah, I'll bet that question answers itself.  Which means that the Bain IRA planner picked and chose, buying into the best projects and skipping the more doubtful.

So who is hurt by this?  Are you with me here?  The answer would be the Bain investors, not so?  You're th manager, your job is to invest the boss's money. You invest the boss's  money in projects #1 through #10.  You put your own money into ##3 and #6 and #7, you skip the rest.  And you never tell the boss?

If I were a Bain investor, I'd be ticked.

1 comment:

Anonymous said...

Couldn't there be an "unrelated business income" Sec. 513 problem w Romney's IRA? I've been waiting for someone to address this(I'm too lazy to do it myself).