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Author: OCADA One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 92  
Subject: These rates stink, still invest in CDs? Date: 5/4/2008 6:09 PM
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Hello everyone,

So I have two CDs maturing this month, which were yielding 5.31% return, what a nice rate. Unfortunately the rates now are in the mid-high 3% range, which isn't that much more than inflation. I understand credit is tight right now but this seems pretty low to me as a young investor. Was my 5.31% simply a very good rate?

If I do decide to reup with the CDs, should I lock in the rate for a shorter term 6m-1year and hope rates go back up?

As a broader question, this money is for a down payment on a home that I'd like to buy within 5 years. Are CDs the best bet for this time frame considering I don't want to take on much risk.
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Author: desertdaveataol Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 72 of 92
Subject: Re: These rates stink, still invest in CDs? Date: 5/5/2008 1:47 AM
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As a broader question, this money is for a down payment on a home that I'd like to buy within 5 years. Are CDs the best bet for this time frame considering I don't want to take on much risk.

Why not put the bucks in Vanguard's GNMA fund? (Yielding 4.83% right now.) It's got Fed backing and you can have a check book (min check $250) so as to have instant access to your money if you need it.
https://personal.vanguard.com/us/funds/snapshot?FundId=0036&FundIntExt=INT

Or, if you have enough money you can get 4.93%:
https://personal.vanguard.com/us/funds/snapshot?FundId=0536&FundIntExt=INT

The Government National Mortgage Association (GNMA, also known as Ginnie Mae) is a U.S. government-owned corporation within the Department of Housing and Urban Development (HUD).

Ginnie Mae provides guarantees on mortgage-backed securities (MBS) backed by federally insured or guaranteed loans, mainly loans issued by the Federal Housing Administration, Department of Veterans Affairs, Rural Housing Service, and Office of Public and Indian Housing. Ginnie Mae securities are the only MBS that are guaranteed by the United States government.
http://en.wikipedia.org/wiki/GNMA

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Author: OCADA One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 73 of 92
Subject: Re: These rates stink, still invest in CDs? Date: 5/5/2008 11:57 AM
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Thanks for the response Dave!

I'm kind of confused as to how much risk comes with this fund since it seems to have a share price, meaning it could lose money as well as making money. It seems like its a fund that invests in government backed securities, so while the share value isn't guaranteed the stuff its betting on is guaranteed so it entails little risk?

I also noticed that they list:

Who Should Not Invest

* Investors unwilling to accept significant fluctuations in share price.
* Investors seeking long-term growth of capital.

I'm not sure if I fit into this category if this is down payment money, but maybe I'm missing something as far as the risk level goes.

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Author: desertdaveataol Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74 of 92
Subject: Re: These rates stink, still invest in CDs? Date: 5/5/2008 2:19 PM
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I'm kind of confused as to how much risk comes with this fund since it seems to have a share price, meaning it could lose money as well as making money.

First,Ginnie Mae is the ONLY Mortgage Backed Security (MBS) backed by the Federal Government.

Period.

Neither Fannie Mae nor Freddie Mac have that backing.

Second the Vanguard Ginnie Mae vacillates between about $9.50 and about $10.50 and has done so for years. The only way that the fund's value could take a big hit would be for large numbers of mortgage holders to suddenly pay off their mortgages early, in which case you'd get your money back. How many people do you know who can/want to pay off their mortgage early right now? This is why Bob Brinker has recommended the Vanguard Ginnie Mae fund for years. He says if you're worried about changes in share prices you should go with FDIC insured CD's.

We've got the largest part of our retirement investments in Vanguard's Vanguard GNMA Fund Admiral Shares (VFIJX)
https://personal.vanguard.com/us/funds/snapshot?FundId=0536&FundIntExt=INT
because it's safe and I don't expect interest rates to go much lower.

Since you are not seeking "long term growth" it seemed to me that this would be a good safe way for you to get more than the currently proffered CD rates.

BOTTOMLINE:
Your GNMA money, both principle and interest, are guaranteed safe by the US Government. The Vanguard share price can go up and down but do you expect interest rates to go down any more?

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Author: OCADA One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 75 of 92
Subject: Re: These rates stink, still invest in CDs? Date: 5/5/2008 3:05 PM
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Thanks for the info and clearing up my questions. I'm new to all of this so I really appreciate your advice.

After looking it over it looks like a perfect substitute for a CD. I like the performance it has had, namely steady and solid returns(as far as low risk stuff seems to go). Thanks again for the help.

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Author: DoLoop Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 76 of 92
Subject: Re: These rates stink, still invest in CDs? Date: 5/5/2008 3:54 PM
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DesertDave - Am I correct to assume that the money you have in this fund is actually resident in an account at Vanguard?

I don't have a Vanguard account but, I see where I can buy shares of VFIIX directly in my brokerage account. Do you know if this VFIIX is equivalent to VFIJX? I'm thinking that I might like to move some cash from recently expired CD's in to this fund.

Any thoughts?

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Author: desertdaveataol Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 77 of 92
Subject: Re: These rates stink, still invest in CDs? Date: 5/5/2008 6:00 PM
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DesertDave - Am I correct to assume that the money you have in this fund is actually resident in an account at Vanguard?

I don't have a Vanguard account but, I see where I can buy shares of VFIIX directly in my brokerage account. Do you know if this VFIIX is equivalent to VFIJX? I'm thinking that I might like to move some cash from recently expired CD's in to this fund.


Yes, our money is at Vanguard. Why have a middleman? How much is your broker going to charge you to buy Vanguard's fund? Vanguard doesn't charge a fee to set up a account and the possible other fees that might apply are dependent upon how much you have (overall) with Vanguard. To get the details call Vanguard's toll free number ( 877-662-7447 M-F 8 a.m. to 10 p.m., Saturday 9 a.m. to 4 p.m., Eastern time) and ask.

VFIIX (0036) is Vanguard's regular GNMA account.

VFIJX (0536) is Vanguard's Admiral GNMA account.

The difference between the two is the Admiral fund requires a larger investment and pays a bit more. Right now the difference is a yield of 4.83 for (0036) vs. 4.93 for (0536) Admiral.

You can check it out at:
https://personal.vanguard.com/us/funds/snapshot?FundId=0036&FundIntExt=INT

Admiral:
https://personal.vanguard.com/us/funds/snapshot?FundId=0536&FundIntExt=INT

The Government National Mortgage Association (GNMA, also known as Ginnie Mae) is a U.S. government-owned corporation within the Department of Housing and Urban Development (HUD).

Ginnie Mae provides guarantees on mortgage-backed securities (MBS) backed by federally insured or guaranteed loans, mainly loans issued by the Federal Housing Administration, Department of Veterans Affairs, Rural Housing Service, and Office of Public and Indian Housing. Ginnie Mae securities are the only MBS that are guaranteed by the United States government.
http://en.wikipedia.org/wiki/GNMA

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Author: DoLoop Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 78 of 92
Subject: Re: These rates stink, still invest in CDs? Date: 5/5/2008 7:04 PM
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Thanks for the info, Dave

I didn't realize that you were referring to the "Admiral" version; only the "regular" version is available through the broker (Scottrade).

I'll probably keep the money with Scottrade. It's in a self-directed IRA account and I don't think it would be worth the hassle of moving it to Vanguard.

Scottrade charges $17 to make a buy or a sell. The amount of money is large enough that the $17 is not significant. This is not a situation where I'll be making periodic additions - it will simply be a one-time buy and, some time later on, a one-time sell.

FWIW, I noticed on another board that WendyBG recently voiced a favorable opinion on the VFIIX fund.

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Author: desertdaveataol Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 79 of 92
Subject: Re: These rates stink, still invest in CDs? Date: 5/5/2008 7:46 PM
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FWIW, I noticed on another board that WendyBG recently voiced a favorable opinion on the VFIIX fund.

Yes,Wendy is a very wise investor.

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Author: PennyPincher12 CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 80 of 92
Subject: Re: These rates stink, still invest in CDs? Date: 5/26/2008 7:44 PM
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Yeah, I got 3 CDs maturing in July and August. The new rate I can get @ ING is 3.30%. I will probably reup half the principle into one new CD. It's a shame that my 4.35% CDs are expiring. Good stuff here, I like the Ginnie Mae information, but wouldn't open a Vanguard account just for that. My only other option is to buy GE Corporate notes directly, or purchase Comcast 7% notes on the secondary market, and a) GE's notes have only been yielding 3.03%, hardly worth it (my savings acct gets 3.00%), and b) Comcast notes can decline in principal value.

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Author: desertdaveataol Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 81 of 92
Subject: Re: These rates stink, still invest in CDs? Date: 5/26/2008 9:21 PM
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Good stuff here, I like the Ginnie Mae information, but wouldn't open a Vanguard account just for that.

Er... why not?

The process is painless and you can do it over the phone or via the Internet although IIRC they do have to mail the final papers to you for signature.

It's got Fed backing and you can have a check book (min check $250) so as to have instant access to your money if you need it. (Now yielding 4.74%)
https://personal.vanguard.com/us/funds/snapshot?FundId=0036&...

Or, if you have enough money (Yielding 4.84%)
https://personal.vanguard.com/us/funds/snapshot?FundId=0536&...

The Government National Mortgage Association (GNMA, also known as Ginnie Mae) is a U.S. government-owned corporation within the Department of Housing and Urban Development (HUD).

Ginnie Mae provides guarantees on mortgage-backed securities (MBS) backed by federally insured or guaranteed loans, mainly loans issued by the Federal Housing Administration, Department of Veterans Affairs, Rural Housing Service, and Office of Public and Indian Housing. Ginnie Mae securities are the only MBS that are guaranteed by the United States government.
http://en.wikipedia.org/wiki/GNMA

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Author: brewer12345 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 82 of 92
Subject: Re: These rates stink, still invest in CDs? Date: 6/4/2008 12:59 PM
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Just an alternative: right now penfed.org is offering mid 4% range on their CDs (they call them "certificates).

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Author: desertdaveataol Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 83 of 92
Subject: Re: These rates stink, still invest in CDs? Date: 6/4/2008 1:12 PM
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As usual PenFed makes it hard to find anything in their site. Here's a link that shoul take you straight there:

https://www.penfed.org/productsAndRates/checkingAndSavings/m...

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Author: brewer12345 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84 of 92
Subject: Re: These rates stink, still invest in CDs? Date: 6/4/2008 5:15 PM
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Funny, I don't generally have a hard time finding things on their site.

In any case, its an option.

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