No. of Recommendations: 4

Here's a long term chart for Vanguard's GNMA Fund. If you look at the most recent interest rate cycles (i.e., not back as far as the mid-'80s when we got our 11% mortgage—gee, I wonder why we paid off early?—there's about a 10% swing in the fund NAV. Figuring out durations on this fund is complicated, but my sense is they are something less than an intermediate bond fund, and this swing in NAV would be consistent with mortgage rate swings in the 200-300 basis point range. If interest rates are up about 200 basis points in 5 years, I think your effective return over that period would be around 3-3.5%.
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