Caller: This caller asked Bob what she should do with her GNMA fund given that rates have gone down and if she sells, what should she go into? Bob said the second part of the question was the hard part and a problem. Bob said he likes to invest for income in the context of an overall portfolio. If you follow Bob’s lead, you are either going to go with his Income Only portfolio or a Balanced Portfolio which has 50% in fixed income. Bob said he has GNMA component in both of those portfolios and continues to hold them. Bob said he would rather that be a given percentage of a portfolio, but not the entire portfolio. Bob said in his Income Portfolio, GNMA is one of five holdings and in the Balanced Portfolio there are other holdings as well.
Caller: This caller heard some talk shows over the weekend and he heard a lot of concern over the GNMA Fund because of inflation fears. Bob said the people who are voicing that concern probably never recommended them in the first place. GNMA has been one of the best performing fixed income securities for a long time, even through a difficult time. Bob said the Vanguard GNMA Fund is trading within 1-2% of its all time high. At the same time, you will have fluctuation in net asset value and so if you are unwilling to accept that fluctuation you can set a mental stop, but then you might sell and have cash and not have many places to put it in this low interest rate environment.
EC: Here is a link to an article entitled, “What to do about low interest rates” that includes a reference to holding a GNMA Fund: http://tinyurl.com/84n86yw
Kirk Here: These are some related charts and quotes: