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Author: jackcrow Big gold star, 5000 posts Feste Award Nominee! Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Re: Risks w/ municipal bonds? Date: 5/20/2009 1:11 PM
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AM,

By keeping everything at Vanguard I simplify my life -- and, believe me, that is worth something. :)

I do much the same and fully agree it does make life simpler. It also occasionally keeps out of something I would like to get into. Pro and Cons.

It was encouraging that Wendy said she was holding quite a bit in GNMAs.

Wendy got in at a different time for her personal reasons. It may have been a good decision at that time, it may not be a good decision today.

I don't have the luxury of waiting around till some opportune time in the future to buy into these funds at the exact moment of best value. Waiting, I'm losing income. Leaving everything in the money market is ridiculous at less than 1/2 of 1% -- and to plunge into individual stocks is pure insanity with the market in such flux.

Do you have the luxury of missing out on better opportunities down the road? Do you have the luxury of losing a potentially significant portion of your investing capital? I'm not suggesting that we seek precision. Precision in market timing is an accident. I am suggesting that there are bad choices that need to be avoided even though we feel like we are currently in a bind. All bond funds will take a severe beating if interest rates go north with legs to run. This will leave you with less capital to earn with. Preserving capital may be a more important strategy in the short term than we experience during more normal economic and market times.

I disagree with your plunging into individual stocks comment. Now may be a good time to pick off a few fruits hanging on low branches. I prefer to be on the bus before it starts moving. YMMV

Patience and prudence. Rash choices made because we feel pressured to be fully invested can lead to unpleasant consequences. A few years back the market punished Boeing for not inking as many deals as their rival Airbus. The CEO's comment was "We will not chase bad deals just to make deals"; a good piece of advice. Most of us are frustrated by our current fixed income options. MMA/MMF returns stink, Treasuries stink, CD rates stink, corporates take a fair amount of leg work and as a whole their returns are not eye-popping either. IMHO the majority of the debt market is bubble priced. Is that where you want to be when the bubble pops?

To address your specifics. How long would you anticipate using a GNMA fund as a MMA proxy? What would be the anticipated return over that holding period? What risks are you accepting in order to capture that return? Is the risk reward worth it? A few years ago Kodak had a dividend yield in the 10% range. Everyone knew it couldn't last but I know more than one that decided to use Kodak as a yield instrument. That worked just great until Kodak announced a huge cute in the dividend which trashed the stock price. A bunch of people lost a sizable chunk of change chasing that yield.

Weigh your options carefully. Discern need versus want.

jack
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