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From: ekrell@ucla-cs.UUCP
Newsgroups: net.invest
Subject: Re: GinnieMae funds
Message-ID: <9395@ucla-cs.ARPA>
Date: Tue, 25-Feb-86 15:16:34 EST
Article-I.D.: ucla-cs.9395
Posted: Tue Feb 25 15:16:34 1986
Date-Received: Fri, 28-Feb-86 22:44:10 EST
References: <2437@sdcc6.UUCP> <9282@ucla-cs.ARPA> <660@sfmin.UUCP>
Reply-To: ekrell@ucla-cs.UUCP (Eduardo Krell)
Distribution: net
Organization: UCLA Computer Science Department
Lines: 32

In article <660@sfmin.UUCP> tg@sfmin.UUCP (T.Glinos) writes:
>
>Are there any general disadvantages to buying GNMA's?
>Are there any penaltys involved in selling your shares
>after a year?

There is a risk involved with GNMAs as well as all other forms of bonds
(corporate, municipal, etc). The price of the bonds fluctuate with interest
rates. When interest rate go up, prices go down and viceversa. Therefore,
it is not intended to be a short term investement.

(People think GNMAs are an alternative to bank CDs, especially when they hear
that they are guaranteed by the US Government. If you can't afford any risks
in your principal then GNMAs are not for you.)

The fluctuation in the price of the bond depends heavily on its quality
and term (long term bonds and poor quality bonds are more volatile than
short term bonds and good quality ones).
GNMAs are good quality bonds but are considered mid to long term bonds.
For example, the average certificate maturity in Vanguard's GNMA fund is
12.5 years.

Some funds have upfront sale charges and some have redemption charges
(when you sell your shares). Some don't have either (No-load funds).

I would recommend investing in a No-load or Low-load mutual fund familiy
so you can switch from a GNMA fund to stock or money market funds
(as market conditions fluctuate) without paying penalties and by just
calling them on the phone.
--
    Eduardo Krell               UCLA Computer Science Department
    ekrell@ucla-locus.arpa      ..!{sdcrdcf,ihnp4,trwspp,ucbvax}!ucla-cs!ekrell