What McCain's investing strategy reveals about his character.

Commentary about business and finance.
April 25 2008 12:27 PM

McCain and His Money

What the candidate's investing strategy reveals about his character.

John McCain. Click image to expand.
John McCain 

"The issue of economics is not something I've understood as well as I should," John McCain famously said in December. The senator's lack of focus doesn't seem to be limited to macroeconomics; it also extends to his personal finances. It's fair to say that the Republican nominee has as little hands-on experience with household finance as anyone ever elected president. McCain's financial inexperience may explain why his attempts to discuss economics—such as his rapid flip-flop on the need for bailing out homeowners, his pandering suggestion to suspend the gasoline tax, or his happy talk on balancing the budget—sound so tin-eared.

As with Sens. Clinton and Obama, McCain's personal wealth is dwarfed by that of his spouse. Cindy McCain has assets worth an estimated $40 million, based on information McCain has provided annually in Senate financial-disclosure reports. Compared with his wife, McCain is decidedly middle-class. Based on his tax return, he collects his Senate salary ($161,708), a Navy pension ($58,358), and some Social Security income ($23,157). The money he's earned over the years writing books ($176,508 in 2007 and about $1.8 million since 1998), he gives to charity.

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And that's pretty much it. Aside from a Wachovia checking account, in which he keeps between $15,000 and $50,000 (wouldn't some of that money earn more interest in a certificate of deposit?), all of the couple's assets are in Cindy's name. John McCain's tax return is so anemic, so marginal to the couple's actual financial situation, that he doesn't even take a deduction for interest on his home mortgage. Presumably Cindy does, since disclosure forms indicate that she has several mortgages.

We don't know for certain whether she does, because the campaign has declined to release Cindy McCain's tax returns. This data gap sets McCain apart from his Democratic opponents, who have released jointly filed tax records going back a minimum of seven years. Thanks to McCain's lack of genuine opposition in recent months, there has been very little clamor to release Cindy McCain's returns, even from those Republicans who loudly insisted that Hillary and Bill Clinton were hiding something in theirs. The campaign cites privacy, but the omission smacks of McCain being defensive and of a willingness to let others take responsibility for crucial areas of his life.

There are other political issues embedded in McCain's relationship to money. Conservatives have long charged that McCain does not fully support a family-values agenda, and to some extent that still informs his finances. A full 27 years after his divorce from Carol McCain, the senator continues to shell out alimony to her to the tune of nearly $18,000 a year. Over the course of his lifetime, then, the senator's divorce will cost him more than a half a million dollars, which could be considered fiscally irresponsible.

Of course, McCain's financial inexperience can have its advantages. The senator's risk-averse investment strategy has certainly saved him from being burned by markets. He and his wife appear to have avoided the late-'90s mania for buying and selling individual stocks. Indeed, judging from the disclosure forms, it is entirely possible that John McCain has never bought a share of stock in his life. Yes, Cindy McCain's company buys and sells stocks as part of its profit-sharing plan, and she continues to own between $50,000 and $100,000 of stock in Anheuser-Busch; and their kids, about the same. But given that her family wealth comes from distributing Anheuser-Busch beer, the stock was probably either inherited from her late father or received as job compensation—not something that has been actively traded. And given flat beer sales worldwide in recent years, it's not something the McCains have gotten rich off. The dividend yield—currently 2.7 percent—is measly, and the stock is worth no more today than it was in 2003.

Mutual funds are another story. Cindy McCain—or someone advising her—is trying to make a lot of money through active mutual-fund trading. She has between $600,000 and $1.25 million invested in three mutual funds run by the American Funds Group, which is anything but conservative. They are investing for high growth and paying high loads (sales charges) to do it—an expensive strategy that seems to have won the couple some money in the past but does not look promising so far this year.

Where the McCains seem most susceptible to investing fads is in real estate. Unfortunately, the Senate disclosure forms are so vague that it's hard to know exactly how many properties the McCains own or their precise worth. Still, a recent Associated Press story noted that "[a]ssets held by Cindy McCain alone or with her children [include] two condominiums along the California coast worth a total of at least $3 million and Arizona investments in rental medical offices and a parking lot."

But the picture is more complicated than that; she appears to have sold her interest in the Princess Medical Center in Scottsdale, Ariz., as well as in one of the California condos. And she has properties on 15 acres in Sedona, Ariz.—where McCain took reporters for a barbecue in March. Also, the AP reported that "the couple may also jointly own a condo in Arlington, Va., assessed at $847,800," which would be odd, as it does not show up in any obvious way on his Senate disclosure forms.

Overall, the McCains are a stellar portrait of Republican wealth: They've inherited money and managed it well while generating commissions for stock brokers and real-estate agents. But if financial acuity is a prized presidential skill, maybe Cindy should be on the ticket.

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