Conference nyoss1::market_investing

    Vanguard is a good fund family, and specializes in having low costs.
    Call 1-800-555-1212 for 800 number information and ask for the
    Vanguard 800 number.
    
    GNMA is a good fund if it fits your needs.  It's suited to someone
    who wants a monthly income from his/her investment, but is willing
    to have the income vary a bit if the average will be a bit higher.
    It's not really a good long-term builder of capital unless the income
    is tax-advantaged (i.e. in an IRA), and it would have a lower expected
    total return than stocks over long (20-year) periods.  Since there's
    some government backing, the fund's return will be lower than that of
    a package of un-backed mortgages or other higher-risk loans.
    
    Think of it as the kind of thing a retired person might put some of
    their money in: low-worry income.
    
    The underlying security is a package of residential mortgages.  While
    the US government (sort of--see below) will insure interest and 
    principal, it doesn't prevent re-financing by home-owners of the 
    underlying mortgages--so low interest rates in the mortgage market
    will feed through.  In other words, while the Feds promise to pay 
    interest if the homeowner doesn't, they don't promise the interest
    will always be X percent.  It's the mortgage equivalent of a call 
    on a bond.
    
    Less likely to be a problem is that Ginnie Maes are not backed by the
    "full faith and credit" of the US, unlike Treasuries.  While there's
    a strong expectation in the markets that the Feds stand behind it all,
    the Ginnie Mae organization is legally separate from the Federal 
    government, and could fail.  That risk, combined with the re-finance
    risk mentioned above, accounts for the difference in yields between
    Treasuries and Ginnie Maes.
    
    		-John Bishop

    I for one think GNMAs are terrible investments.
    
    Scenario 1:  interest rates rise.  Suddenly 8% or 9% or 10% doesn't
    look so attrractive as prices rise over 10% each year.  You are stuck
    with either a low return or selling out at a loss.
    
    Scenario 2:  interest rates drop.  The return is good but as owners
    refinance their mortgages the securities are retired early.  You don't
    get the benefit of good returns for long periods.
    
    SO:  if the yield is poor, you're stuck with it.  If the yield is
    great, it won't last.  This is a good deal?
    
    Scenario 3:  interest rates stay substantially the same.  In which case
    GNMAs do indeed provide a modicum of extra return.  IMHO the reward is
    not worth the risk.  Anybody who thinks interest rates are going to stay
    steady over the next few years deserves what they get.
    
      John
    
    p.s. wish I had a nickel for every time someone recommended calling
    1-800-555-1212 for information...

    
    	Re: .2
    
    	I agree with John.  I once looked at Ginnie Maes and came to the
    same conclusion -- no matter which way interest rates move, something
    else is better than a Ginnie Mae.  If rates look like they are going
    to go up, I'd rather have my bond money in short-term things (6 months
    max, lets say) and if rates look to be dropping, I'd rather go for
    long-term bonds that have low prospects for being called early.  Ginnie
    Maes have the exact opposite characteristics -- when interest rates rise,
    their average maturity length increases with people holding their cheaper
    low-interest mortgages and when rates are dropping, the average maturity
    shortens due to refinancings (and it also lowers the average interest
    rate).
    
    							-craig

Vanguard

1-800-662-7447

Ask for the "Fixed Income Securities Fund" package
which includes a prospectus for all Vanguard 
Fixed Income Funds (ST Treas, ST Fed, ST Corp, 
Int-Term Treas, GNMA, LT Treas, Invest Grade Corp 
and High Yield Corp).  Also includes the brochure
"How to Select a Bond Fund" which should answer many 
questions.

Tom

re .2:

>    p.s. wish I had a nickel for every time someone recommended calling
>    1-800-555-1212 for information...

You should invest in AT&T.

    re .2, .3
    
    Yes, Ginnie Maes have that behaviour.  But everyone knows about this,
    and so the market adjusts the price, and thus the yield to reflect the
    fact that mortgages in general are essentially callable long-term bonds,
    and Ginnie Maes in particular are packages of callable long-term bonds
    with insurance of interest and principal repayment from a highly-trusted
    insurance agency.
    
    There's no reason to think that callable long-term bonds are always
    a bad investment--it depends on your risk tolerance, your desire to
    trade actively or not, your need for predictable income and so on.
    
    That's why I suggested that they might be _part_ of a retiree's
    portfolio.
    			-John Bishop

Bond mutual funds in general:

Buying bonds through mutual funds for the "buy-and-hold" investor is
often critized by consultants. A bond is a debt obligation - a legal
contract. A bond holder has certain legal rights over the bond issuer
to recover principal. Owning bond mutual fund shares is a lot more like
owning shares of stock. The fund management is *not* under contract
to return your principal. Given this risk - bond funds are not
generally recommended for the passive long term investor.

But bond funds can be a good tool for the intermediate term investor.
In this case let's define him or her as an investor looking at risks
and rewards over a 4-12 month horizon. Interest rates rise and fall,
but it is not unusual for interests rates to stay within a relatively
tight range over - say - 6 months. That brings us to GNMA.

Re: GNMA:

I own Vanguard GNMA shares. At the time I bought these shares I was
guessing that ...

* 7-10 year interests rate would hold or drop sligthly through 1992
  (most mortgages are not kept to maturity)
* most of this year's mortgage refinancing had already taken place
  (I was wrong)

The 30 day yield on August 28, 1992 for Vanguard GNMA was 7.77%.
But Vanguard's "Investment Grade Corporate Portfolio" returned
7.31% without the "pre-payment" risk described in the REPLYs.
With yet another a round of mortgage refinancing coming in I will
probably sell these GNMA shares on Monday and switch them to
Investment Grade Corporate Bonds.

Strong caveat: 

* Ginnie Maes are among the riskest fixed income investments and I agree
  with the REPLYs that so indicated. GNMA is *not* for "buy-and-hold".
  They are not recommended for the casual investor.

Vanguard fixed income funds:

In a large fund family like Vanguard you can move in and out of bond
funds by calling a toll free number. There is no charge for this, but
you do pay a yearly management fee. For Vanguard bond funds this has
been a little over 1/2 of one percent of your principal. In 1991
Vanguard's GMNA fund returned 13% and the "Investment grade Grade
Corporate" fund returned 17.1%.  Vanguard Fixed Income Funds are
among the best. The fees are low, and Vanguard's fixed income fund
managers are highly regarded. 

Scenario 2 described by .2 indeed take place:

>     Scenario 2:  interest rates drop.  The return is good but as owners
>     refinance their mortgages the securities are retired early.  You don't
>     get the benefit of good returns for long periods.
>     
>     SO:  if the yield is poor, you're stuck with it.  If the yield is
>     great, it won't last.  This is a good deal?

There's an excellent article in todays (2/24/93) WSJ page C1 on the risks
of mortgage backed securities.

	     			YTD gain

Vanguard GNMA   	         +2.0%
Vanguard Intermed Term Treas	  5.8%