Bob Brinker's GNMA Advice

Summary: Bob Brinker March 18, 2012 Moneytalk Radio Show.

For a full show summary, see Moneytalk Summary - March 18, 2012

GNMA
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:

GNMA (VFIIX), Total Bond (VBMFX),  TIPS (VIPSX)
High-Yield/Junk Bond (VWEAX)

For a full show summary, see Moneytalk Summary - March 18, 2012

This above is a subset of the March 18, 2012 issue of "David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service." Together David Korn and I write "The Retirement Advisor" newsletter.

CLICK HERE to download a FREE issue of "The Retirement Advisor."  Website for more information and annual Performance Data

If you would like a free sample of David's complete Newsletter and his "Retirement Advisor" newsletter, then click this link to send an email request and please tell us a bit about yourself too.

Hidden Federal Reserve Tax on Savers Changes Safe Withdrawal Rates

How the hidden Federal Reserve Tax on Savers Changes the Safe Withdrawal Rate for savers who have retired.

Bob Brinker often talks about retiring and moving your investments to a "balanced portfolio" where you could take about 4% a year out as income to live on. I assume he did this math for someone aged 65 who will only live 20 years to the average of 85. You COULD run out of money before then at that rate.

I did the math some times ago where I looked at Monte Carlo analysis for someone who retired early (I semi retired at age 41...) and found if you want to be safe and have the money last 50 years, you should only take 3% a year out. That works out to $30,000 a year per million dollars saved. That was in the days of "normalized interest rates."

Consider saving $1M in cash and $1M in stocks today:

Before the Fed Tax of below market rate interest rates, you could retire early and grow orchids and windsurf while collecting 4% interest on CDs, using the Stock portion to grow and rebalance while paying you another $20K a year in dividend income.

You should get be getting about $40K + $20K a year or $60K a year to pay expenses like a mortgage and property tax.

Well, now the Fed taxes us to give the money to the Government with low rates so prudent SAVERS with a $2M portfolio make less than $10,000 a year on their CD savings and $20,000 on income from their index fund... Half what they need to live and probably only enough to pay mortgage and property taxes!

What is amazing is this "rich person" has to keep working because the Fed and the US Treasury taxed her to death with the hidden tax!

The sorry suckers are those scared out of equities who only get CD income and no gains in equities...

At least I Bonds can keep up with inflation and my older I Bonds pay much more.

• Rates and more info at iBonds
  
• Composite Rates for Older iBonds

These keep up with inflation (....IF you believe the reported numbers) AND defer taxes. Unfortunately, you can ONLY buy $10,000 per year per Social Security number. But if you started a long time ago, like I did... you can get a decent portfolio for your "safe" fixed income in your asset allocation. I also bought TIPS with my tax deferred money (in my newsletter explore portfolio) when base rates were much higher and those have done really well.

Explore Portfolio TIPS Valuation & Return

 Long Term Results that Speak for Themselves
Since 9/30/98 inception, "Kirk's Newsletter Explore Portfolio" is UP 390%
vs. the S&P500 UP only 51% vs. NASDAQ UP only 57% (All through 12/31/11) 
(More Info, Testimonials & Portfolio Returns)
Latest 2012 Update:  Up 10.2% YTD  as of 3/13/12

Subscribe to my service NOW and get the March 2012 Issue for FREE! !