Caller: This caller heard Bob saying recently that he thought GNMA’s would take a hit and that he was no longer recommending them. The caller said she still owns a large position in GNMAs and wanted to know what Bob would do.
Bob said his recommendation against owning the GNMA fund is based on a risk/reward decision over a long period of time. Bob said he is recommending shorter duration fixed income securities as part of an overall diversified bond portfolio. Bob said the average duration he is recommending is about 1 year. The GNMA fund duration is typically several years. Bob said he thinks we will eventually see a normalization of interest rates and when that happens you will see the net asset value of the GNMA degrade and given what they are paying it is not worth the risk.
David Korn: The Vanguard GNMA fund (VFIIX) that Bob recommended for so many years is actually up 2.48% year-to-date, not too shabby at all. It has a current yield of 2.80% and its shares closed Friday at $10.62.
See my article:
Monday, July 15, 2013: Bob Brinker Fan Club:
Sell GNMA to Buy Fidelity Floating Rate Income Fund, Good or Bad Advice?
- More about the Vanguard GNMA fund (VFIIX)
- Kirk's Two Investment Letters - Best Retirement Portfolio For You
- Retirement Advisor Performance by Year
David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service. Copyright David Korn, L.L.C. 2012