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Risk of putting it all in VG GNMA fund?
12-30-2007, 10:33 AM
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#1
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Recycles dryer sheets
Join Date: Oct 2007
Posts: 332
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Risk of putting it all in VG GNMA fund?
I am thinking of putting my entire fixed income portion of my portfolio into the VG GNMA fund. Currently yielding a little over 5% and the NAV hasn't varied much over the last decade at least. What would be the risk in doing this, other than the old saw about putting all eggs in one basket?
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12-30-2007, 10:36 AM
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#2
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Give me a museum and I'll fill it. (Picasso)
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Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
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The big risk would be in running out of money after xx years because you're barely keeping pace with inflation.
You'd be better off buying 100% tips. At least they'd protect you in the event of a surge in the CPI.
You'd still probably find yourself losing buying power after a decade or two.
Try target retirement income, lifestrategy income or wellesley. At least the stock component of those will give you enough long term appreciation to keep the buying power up.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
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12-30-2007, 10:41 AM
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#3
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Give me a museum and I'll fill it. (Picasso)
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Join Date: Jun 2005
Posts: 10,252
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Taxable or tax-advantaged account? Have you looked at VFSUX? It has a yield of 4.95% which is not much lower than 5.16%. And Vanguard has CDs that pay 4.9% nowadays. I'm sure you can find some other places with CDs around 5%.
In other words, there are other games in town that are unrelated to securities associated with mortgages.
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12-30-2007, 10:42 AM
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#4
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Recycles dryer sheets
Join Date: Oct 2007
Posts: 332
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Thanks. The fixed income portion of my portfolio is 40% with the balance in diversified equity holdings. So, this would be a switch in the FI portion from other short term bond funds and cd's to the VG GNMA fund. Maybe I should have made that point.
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12-30-2007, 10:42 AM
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#5
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Give me a museum and I'll fill it. (Picasso)
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Join Date: Mar 2005
Location: Chicago
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OP said "fixed income portion."
I have a chunk of my fixed allocation in VFIIX. Historically stable NAV, reasonable yield, government guarantee, Morningstar five star rating. What's not to like?
I also include some short term and inflation protected funds. What has you interested in the 100% GNMA allocation?
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"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
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12-30-2007, 10:45 AM
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#6
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Give me a museum and I'll fill it. (Picasso)
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Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
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I think I'd avoid any investments with "SUX" in the ticker symbol. 
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
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12-30-2007, 10:48 AM
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#7
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Recycles dryer sheets
Join Date: Oct 2007
Posts: 332
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Yes, VFSUX I considered but the underlying securities in the GNMA fund are guaranteed by the federal government whereas the SUX fund are corporate. Does that not make GNMA less risky with a slightly higher return. If I do the Wellesley, etc. it throws off my existing equity weighting.
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12-30-2007, 10:50 AM
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#8
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Recycles dryer sheets
Join Date: Oct 2007
Posts: 332
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I like simple and I cannot think of any risks I am not already taking in the FI portion of my port.
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