July 29, 2008 -- "Good afternoon, Mr. Bernanke. Have a seat, and thanks for coming in today.
"I thought it was time we sit down together to review your portfolio. I'm worried it's grown a little out of balance and needs a bit more diversification than what I've been reading about in the newspapers.
"Can I get you something to drink before we start?"
The above scenario is strictly fantasy. Federal Reserve Chairman Ben Bernanke has never been, nor will he ever be, a client of mine. That much in life I'm sure about.
But if the Fed chairman ever did call upon me for financial planning help, I'd tell him he needs a more broadly diversified portfolio that respects his conservative tendencies but also provides him greater exposure to other asset classes.
It appears the Fed chairman's personal portfolio is dominated by large-cap stocks and fixed-income investments. From what I can tell, Bernanke needs larger slices of mid- and small-caps, international stocks and maybe some real estate.
With his income-earning potential, this is a man who can afford to take on a little more risk.
This assessment is based on news stories written when the Federal Reserve last week released the chairman's financial disclosure form that outlines in broad terms his personal finances. The annual disclosure is mandated by law with the Federal Reserve board members reporting their assets and income within broad ranges rather than by exact figures.
News reports on release of the disclosure form highlighted Bernanke's holdings in Canadian treasury bonds. What caught my eye, however, is the fact that the bulk of his portfolio is tied up in just two funds: a large cap stock fund and a fixed-rate annuity.
The CREF Stock Large Cap Blend fund and TIAA Traditional Bernanke holds are valued each at somewhere between $500,001 and $1 million, the Associated Press reported.
Bernanke, Fed chairman since February 2006, reported total assets ranging between $1.2 million and $2.5 million. That means the CREF stock fund and the TIAA annuity together could account for up to about 80 percent of his overall portfolio, depending upon where the exact asset figures fall within the broad ranges given.
To me, this is a portfolio screaming for reallocation. Where are the small caps and the international large caps, the emerging markets and the real estate? Why not some more global bonds to go alongside those Canadian treasuries?
The CREF Stock Large Cap Blend variable annuity fund and TIAA Traditional annuity are held within a 403(b) plan that most likely stems from Bernanke's days as a Princeton University economics professor. TIAA-CREF has long been the dominant retirement plan provider on college campuses and enjoys a reputation of providing quality funds at a low cost to investors.
Investment options offered by TIAA-CREF tend to be broad in nature rather than the narrow slivers offered by some fund families, but they do offer funds focused on the international, mid cap and small cap segments plus a real estate fund that invests directly in commercial properties.
There also are bond funds that will lower a portfolio's risk level and maybe appeal to Bernanke's conservative investment nature.
In addition to the CREF large cap fund and TIAA Traditional, which pays a guaranteed rate of return, Bernanke's other holdings include U.S. Treasuries, the Canadian treasury bonds and some unnamed mutual funds, according to the Associated Press report.
From what I could tell, it's a fairly staid portfolio, nothing that's going to distract him from the fight against inflation and efforts to revive the economy. I even admire the portfolio for its simplicity and understand the need to avoid conflicts of interest.
But it needs to be mixed up a bit to be sure he capitalizes on market segments that are doing well and gives him a boost when the large cap stocks he apparently favors don't do so well.
A copy of Bernanke's 2007 disclosure report I located on the Web site of the Financial Markets Center, a nonprofit organization that monitors Fed activities, listed balances in at least a dozen other mutual funds. These funds covered a range of asset classes, from high-yield bonds to global small caps, but these balances were small compared to the TIAA-CREF holdings.
My suggestion to the Fed chairman is that, in between trying to prevent meltdowns in the financial markets, he devotes some time to a portfolio review.
Even government bankers need an asset allocation plan.
This work is the opinion of the columnist, and in no way reflects the opinion of ABC News.
David McPherson is founder and principal of Four Ponds Financial Planning (www.fourpondsfinancial.com) in Falmouth, Mass. He previously worked as a financial writer and editor for The Providence Journal in Rhode Island. He is a member of the Garrett Planning Network, whose members provide financial advice to clients on an hourly, as-needed basis. Contact McPherson at firstname.lastname@example.org