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Do you have $25,000 to plop down on GNMAs? Can you get GNMAs with a higher yield than top yields on CDs? Even if you can, do you want to lock in a low yield for a long time? I suspect new issue GNMAs will not have a lot of refinancing, because rates are so low. Refinancing is a problem for GNMAs when rates were relatively high when issued.

If you are in certain tax situations, you may find investment grade munis that pay higher than CDs of the same maturity, but definitely at higher risk. Remember, the idea isn't to have all kinds of different fixed-income/bond assets, but the get the best available return at any given time you have money to invest, adjusted for the level of risk you need to take to reach your financial goals. We may be in a very low interest rate environment, even relative to inflation, but the basic principle still holds.

First, my thanks to Wendy for her answer.

Then... yes I have $25,000+ to plop down on GNMAs. But I was thinking in terms of Vanguard's GNMA fund -- not the purchase of an individual GNMA bond. By investing in the fund I get the advantage of smarter heads than my own when it comes to bonds and I can leave the fund at any time it seems advantageous to me. My question was really how good GNMAs would be (right now) at replacing an investment in CDs (which have ceased to pay anything respectable) -- in my IRA.

For my taxable account, I'm considering municipal bonds. I already have a taxable bond fund in my taxable account (probably a mistake on my part - but that can be corrected if it seems the wise thing to do).

The big question (I guess for all of us who are seeking fairly safe income) is what are the best choices for the highest return balanced against the safest investment.

Vanguard's GNMA fund has a wonderful history of returns but I was not sure if it would be the best choice for replacement of the CDs that are beginning to dribble in (come due) in my portfolio. I don't want to purchase more CDs (tying up my money) at these ridiculously low rates.

So I'm thinking GNMA fund for my IRA
Municipal bonds for my taxable account.

Does anyone have better suggestions? If so, I would certainly like to hear them.

Thanks so much to you, too, Lokicious, for your reply. Much appreciated.

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