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“E.J., What’s Going on with Vanguard GNMA?”

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“E.J., what’s going on with Vanguard GNMA?” my mother asked me the other day. “Hi mom” I said. “Hang in there.”

Hard to believe but Vanguard GNMA is yielding just over three percent today. Yes, its price is down but you only lose when you sell. And I’m not selling. I’m buying more at lower prices and taking the three percent. Because it’s a three percent world. I’m just living in it.

“How about bank CDs?” you might ask. I see the teaser rates out there. But you can feel like a mouse on a wheel chasing rates and locking in FDIC protection. You can put a lot of money in Vanguard GNMA and avoid the hassle.

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With GNMAs you have peace of mind because they’re backed by the full faith and credit of the U.S. government (and typically offer a higher yield than U.S. Treasuries). And when corporations went belly up in 2008, Vanguard GNMA made over seven percent for investors.

GNMA is not all roses. You can’t be a glutton and take every bite out of a rising interest rate apple. It’s called extension risk—the average holding period is extending (meaning fewer refis) making it more difficult to take advantage of higher rates. But how much are you really missing out on?

It’s important to remember that the Federal Reserve is a political beast where members are anointed, I mean, appointed. It’s an attractive post for someone who knows how to get along well with others. In other words, tanking the real estate market with higher mortgage rates will not be good for one’s job security.

I’ll continue to take my risk-free three percent and be happy it’s not less—a memory I’m all too familiar with. And if you’re wondering what’s going on with Vanguard GNMA, believe me, you’re not alone.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.

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