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where else for safety
Old 03-07-2009, 09:29 AM   #1
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where else for safety

Need to put 100 to 150K (IRA) in a safe location, hopefully paying descent interest. At the 250K limit with Pen Fed, bank CDs are not very attractive now, how safe are GNMAE funds.
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Old 03-07-2009, 09:50 AM   #2
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Ginnie Maes are perfectly safe in terms of credit risk -- they are guaranteed by the full faith and credit of the U.S. government.

GNMAs are not immune to interest rate risk, though. In a stable interest rate environment they are a good, high-yielding "safe" investment (about 5% now, I think). But when rates fall, the yield on GNMAs tend to fall because higher-rate mortgages are refinanced into lower-rate mortgages. And when rates rise, the NAV oof a GNMA fund will fall because you're locked into what is becoming below-market yields.

Personally -- and this is just my gut and I'm not a professional -- is that GNMAs will be a good parking place for a year or two. I eventually expect all the government's actions to be inflationary which could lead to higher interest rates and hurt the performance of Ginnie Maes -- but for the next year or two I imagine we'll see a flat to slightly lower interest rate scenario, which are pretty benign for GNMAs and increase their stability.

No guarantees, of course, as far as the interest rate risk, which does allow the possibility of losses.
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Old 03-07-2009, 09:59 AM   #3
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Need to put 100 to 150K (IRA) in a safe location, hopefully paying descent interest. At the 250K limit with Pen Fed, bank CDs are not very attractive now, how safe are GNMAE funds.

What Ziggy29 said. If you absolutely cannot afford to lose any principal, stick with CD's or MM. What is your time frame for the money?
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Old 03-07-2009, 01:01 PM   #4
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The money is part of my retirement stash, in a stable value type of fund.
It seems to be too much in one place with the current economy. Were it will go in the long term is undecided. Now I would like safety and ideally 4% or more.
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Old 03-07-2009, 01:09 PM   #5
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The money is part of my retirement stash, in a stable value type of fund.
It seems to be too much in one place with the current economy. Were it will go in the long term is undecided. Now I would like safety and ideally 4% or more.
If by "safety" you mean that you couldn't take a 5-10% drop in net asset value if interest rates rose, then a GNMA fund is likely not right for you.

There's safety and there's SAFETY. GNMA funds might be appropriate for "safety" but not for "SAFETY", if you know what I mean.
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Old 03-07-2009, 01:12 PM   #6
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Why not split it up at two FDIC Banks/Credit Unions? You can get 4% or better at PFCU or NFCU albeit for the long term CD's (4-7 years).
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Old 03-07-2009, 02:30 PM   #7
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I have the limit (FDIC equav.) at Pen Fed, don't qualify for the NFCU
Could add more to a bank but the rates are pretty dismal right now.

Looking at a few GNMAE funds it appears rare that they would go below 0. If I see the interest rates moving up I would move the stash somewhere else.

Any other good places.
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Old 03-07-2009, 02:31 PM   #8
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Have you checked local Credit Unions where you may qualify for membership?
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Old 03-07-2009, 03:38 PM   #9
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I'd put it in a bank and take whatever I could get for a rate. No way would I put money that has to stay safe any other place.
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Old 03-07-2009, 10:10 PM   #10
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Yeah, I heard Indymac is a good bank.
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