How did Mitt Romney make his IRA grow to 100 million USD?

With contributions capped at somewhere between $5,000 and $6,000 a year, it is impressive to say the least that Mitt Romney made his IRA account grow to a whopping $100 million.

How he did it? Well a big part of his comfortable retirement account can be accredited to Romney being a co-founder of the highly profitable investment company Bain Capital. But another part of the formula is making use of all the tax benefits an IRA can offer. University of Chicago law professor David Weisbach has some ideas:
"One possibility for its size is that he put his Bain partnership interests into the IRA and valued them at a very low number".

Romney as co-founder of Bain, but other employees as well, often got the chance to buy shares in companies that Bain was backing. Those companies are mostly private and undervalued when the employees buy in. Subsequently Bain takes over, increases the size, profitability or efficiency and either sells the company or goes for a public offering.

The type of shares that the employees bought were more risky in nature (less priority) and hence priced lower. When the company did well, these shares skyrocketed.

An example is the acquisition of Physio-Control. Sold in 1994 by Eli Lilly to Bain Capital for $23.3 million, the make of defibrillators saw a big increase in business after getting acquired by Bain. Then in December 1995, less than 18 months after buying Physio-Control, Bain Capital sold 90 percent of the company in an initial public offering for $172 million. But under the dual-share structure, the rewards were heavily skewed toward the A-shares. Between 1995 and 1998 the value of an A-share multiplied 445 times. An Bain employee investing $10,000 would have turned his stake into $4.45 million. The type of returns we nowadays only see in cryptocurrencies.

What does Romney invest in?

Now, not all of us have the opportunity to put heavily undervalued assets into our IRA. But it might be interesting to have a look at what Romney believes is a good allocation of his wealth. And surprise, surprise: Mitt Romney believes gold is a good investment.
In 2011 he owned somewhere between a quarter and a half million USD worth of gold (see full financial disclosure of Mitt Romney's assets). Note that the account is labeled 'gold' and not by a specific ETF like the other entries. So it is likely that Mitt Romney owns physical gold and not 'paper gold'. It is also the only commodity that Romney owns according to his reporting.


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