I think you have to have some serious stones to buy equities in a big way right now ... so what does that leave?
How about various GNMA funds? You can get a decent yield and decent security. Fidelity (FGMNX) and Vanguard (VFIIX) both have solid offerings here.
Corporate bonds are pretty interesting too, but you've got to strap in for some serious pain. Corps have gotten crushed already ... and yet, the defaults aren't that bad yet. Sure, people will say "oh, the prices are already discounting the defaults that are to come", but are they really?
I don't think so ... I think there's another leg down coming when those defaults start popping up. So, I agree that corps are cheap now ... but you've got to have a real threshold for pain to buy now.
At least with Ginnies, what's the downside? If the government backing behind Ginnies goes south, let's be honest -- NONE of us will be worrying about our porfolios. A lot of the short-term Treasuries are yielding bupkis, so what else is there?
Maybe some international govt bonds? UK and Japan and the like ...
Something worth pondering.
(and I'm also interested in commodity-related income-producing assets like MLPs, but that's for another time).
4 comments:
I've been looking at the Vanguard offering. Very enticing yield (4.73%). Where is the risk? Yield dropping due to refinancings?
Interesting article about fraud in FHA loans (below). Of course, there s/b no risk to investors given these are backed by the gov't.
http://www.nytimes.com/2008/12/10/business/10fha.html?_r=1&ref=business
Yeah, the two biggest risks would be prepayment risk and reinvestment risk.
Still... with the possible exception of SOME munis, this might be the best deal around.
Happy New Year! Just revisiting GNMAs. Is there a reason why someone would not want to use a GNMA fund (Vanguard or Fidelity) as a money market substitute? The yield is about 200 bps better. Of course, you do have capital loss potential if interest rates rise. Seems unlikely for the foreseeable future, though.
Possible reasons NOT to:
-- potential of capital loss
-- some fund families might restrict frequent withdrawals
A third, more theoretical, issue is one of duration matching. Typically you want to buy bonds/bond funds that have durations similar to your intended/desired holding period.
If your intended holding period is brief, you have a duration mismatch with Ginnies.
Those are my initial thoughts...
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