You always need to study your downside protection and do what’s difficult to do.
Recently, I added half of my 2017 SEP-IRA contribution to Vanguard GNMA—a sizable addition to my overall GNMA position. I didn’t do it because I feel like I can predict where interest rates are headed. Who can? It’s all fine and good when the talking heads spout off about three or four rate increases this year and more to come next year, but in reality their advice doesn’t cost them a penny. If they’re wrong and the market crashes, like it did twice already this century, will they be there for you, or me for that matter, to help clean up the mess? Hardly.
Predicting the direction of interest rates is a fruitless endeavor.
The reason I own GNMA is because I want my money working for me at all times, and I remember how well it did for investors when the markets crashed. If it was a good idea then—in 2000 and 2008—why wouldn’t it be a good idea now? Trust me. It’s a good idea.
So what if GNMA is down? I’m lowering my overall cost basis and improving my yield—collecting close to 3% in interest payments—and I never plan on selling it. N-E-V-E-R. Yes, it’s a contrary move on my part, and possibly yours, but rest assured I’m a comfortable investor and I hope you are too.
E.J. Smith - Your Survival Guy
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