GNMA

[confused101]

Hi guys,
Has anyone invested/ or investing in GNMA funds- is it worth the endeavor if you have some funds available or it is better of investing in other taxable funds? My dad has 6 years to retire and has about 10K available? He already has shares in VYM, VOO but not much in bonds
Thanks as always

[MustacheAndaHalf]

Before you invest in mortgage bonds, you should be aware they have some annoying characteristics.

When you own a bond and interest rates rise, you're missing out.  The bond loses value until it's interest payments and principal make it look like a bond of the new interest rate.  So you lose money.

When interest rates drop, and you expect to do well... that's when people pay off their old mortgage (and refinance).  Your bond turns into cash and you have to find a new bond to buy - at new, lower interest rates.  You can verify this on Vanguard's description of their GNMA index fund: "When mortgage refinance activity is high, the yield on the fund is likely to decrease."

[confused101]

That the best explanation about Bonds- thanks!
So if you have maxed out 401k, Roth IRA, what Vangard funds would you recommend, if you have 10k?

[MustacheAndaHalf]

One approach is to use ETFs.  I'm assuming you'll want 20% international:
80% VTI = Vanguard Total Stock Market ETF
20% VXUS = Vanguard Total International ETF

You could also go with admiral class shares, which have a new minimum of $3,000 (down from $10,000 minimum):
70% VTSAX = Vanguard Total Stock Market, admiral shares
30% VTIAX = Vanguard Total International, admiral shares ($3,000 meets the minimum)

If you prefer mutual funds but want less than 30%, I think Vanguard has closed the investor class versions of their international funds.  So I'm not sure what fund you'd select in that case.

[confused101]

Thanks once again!