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Thursday, October 30, 2008

Ginnie Maes and TIPS

Article by Kirk Lindstrom:  A place to discuss Bob Brinker's favorite ladies plus point out they are not cheap if inflation returns in the future.
For a more recent article, see Saturday, April 11, 2009
Bob Brinker on Ginnie Mae Funds: Vanguard vs. Fidelity
Contrary to what you might have heard on the radio, when interest rates were much higher, the net asset value (NAV) of Brinker's favorite GNMA fund was much lower as the chart shows. To expect to buy VFIIX and have the NAV stay between $9.50 and $10.50 would be naive.


If we get massive inflation from the trillions of fiscal stimulus to keep the economy from crashing, then we could see high interest rates down the road which will be bad for Ginnie Maes and Ginnie Mae Mutual funds like VFIIX.

Chart courtesy of www.Martincapital.com

One reason to listen to Brinker's show is to hear what callers are talking about. Brinker usually likes to let folks on who have had good results with his past recommendations. You should look at this like a contrarian and take profits in that to buy what he is not talking about, which would be equities here with the S&P500 in the 900s after Brinker was bragging about being fully invested in equities at the top (1565) just a year ago.

Personally, I like "triple diversification" for my fixed income side of my portfolio with perhaps something like 35:30:35 in TIPS, Cash and Bonds such as Vanguard's total bond fund and/or Vanguard's GNMA fund, VFIIX. Rebalance once a year to take advantage of potential inflationary and deflationary cycles I think lie ahead.

I believe digesting what the FED and US Treasury department are doing to prevent a depression will be like snake swallowing a large animal... loads of undulations in the rate of inflation and thus the NAV of bond funds.

Needless to say, I just bought some of this TIP fund since inflation expectations are low now and it is on sale.

More Fixed Income Charts for:
  • Vanguard GNMA VFIIX mutual fund
  • Vanguard TIPS VIPSX mutual fund
The graphs on this article should update automatically but if you want another graph added, please suggest it in the comments section.

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