Greetings,I'm here for the first time and I'm looking for advise regarding the safest Index investment between Total Bond and a Ginnie Mae Fund. Also, if one is looking for total safety is the Treasury Money Market Fund the safest of all?
I'm here for the first time and I'm looking for advise regarding the safest Index investment between Total Bond and a Ginnie Mae Fund. Also, if one is looking for total safety is the Treasury Money Market Fund the safest of all?Money market funds are the safest, in that your principal is practically guaranteed. Money markets investing solely in treasury issues are even more iron-clad, as the assets are backed by the US Government.All bond funds give the risk of loss of principal, especially should you need to sell them at an inopportune time. GNMA funds are somewhat safer than most other bond funds, for two reasons:1) GNMAs are backed by the US Government. Other general bond funds may have holdings in corporate bonds, giving some default risk.2) GNMA funds tend to have shorter duration than most intermediate bond funds. A shorter duration means that the asset value will decline less, should interest rates rise. Also, it means that the fund will be quicker to recover from such losses.
What do you recommend in the immediate aftermath of this post 9/11/01 era? in the long-term aftermath?
What do you recommend in the immediate aftermath of this post 9/11/01 era? in the long-term aftermath?Depends a lot on your time horizon, your portfolio composition, and your personal preferences. If you have some degree of investment saavy or even wannabe saavy, plus a decently large portfolio, it would be a good idea to learn how to buy individual bonds, even if it's just government bonds through Treasury Direct. There's a lot to be said for cutting out the middleman and saving the mutual fund expenses, when you do your own shopping. Otherwise, for longer term holdings, an intermediate term bond index might be right, while short term holdings should probably prefer a GNMA.If your portfolio is already heavy on stocks, it might make more sense to go with the GNMA anyways, regardless of time horizon, to take advantage of the lesser volatility as a balance against the stocks.
If 'safest' is your criterion, then short term individual Treasuries bonds (not Treasury Money Markets or Treasury funds) would be at the top of the list. Not that the latter are not extremely safe, there is just an additional risk (however small) that the fund could go sideways through some mismanagement, miscalculation, or extreme combination of events.Right now the bond market in general seems particularly aware of risk, and this is closely reflected by returns. You will just have to decide for yourself how much weight to give any ideas that the world may not continue as it has in the past. Some people will scoop up GNMA's in a heartbeat for a point or so more interest. Others see ongoing refi's, plus a looming credit bubble, and stay away. Some fun huh?
We are long-term holders of what is now American Century Ginnie Mae Fund. I consider it a good buy at below $10.20/sh and a raging good buy below $10.00/sh. It is currently at $10.80/sh, some we haven't seen since the early 1990s. The monthly dividends go all over the place which is somewhat discouraging so you have to be able to survive the low payments and save some of the high payments if you use it for monthly income. I think the Vanguard GNMA Fund is probably better (At least you get a somewhat better total return), and we have a small amount of that.You might also consider a Tax Free bond fund. We live in Virginia and Rushmore, T.R. Price, and USAA all have double tax free bond funds with the USAA fund seemingly the best if you qualify. But once again you will be buying near an all-time high in the bond market.Bonds may go up a little more with expected lowering of the Federal Funds rate some more, but we must be near the end of this.If you buy a bond fund now, it is likely to be a long time before you can sell and break even, but, if you want income, it may be all right. Of course if you reinvest dividends (and rare capital gains), your average price will lower some over the years.brucedoe
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