marks@yogi.DEC (10/15/85)
I would appreciate it if any of you investment geniuses out there would comment on the advisability of investing in Ginny Maes. I have a relative who has about $50,000 to invest. This money is now in regular savings accounts. The relative is elderly, and this is her only liquid assets, aside from her pension and Social Security. Specifically, what are the pros and cons? How long is the money tied up? What is the minimum you have to invest? Are there better solutions for a person in her position (widowed and retired)? In advance, thank you for the advice. R.M. from Boston
usenet@ucbvax.ARPA (USENET News Administration) (10/15/85)
>I would appreciate it if any of you investment geniuses out there would >comment on the advisability of investing in Ginny Maes. I have a relative >who has about $50,000 to invest. This money is now in regular savings >accounts. The relative is elderly, and this is her only liquid assets, >aside from her pension and Social Security. > >Specifically, what are the pros and cons? How long is the money tied up? >What is the minimum you have to invest? Are there better solutions for >a person in her position (widowed and retired)? > The advantages are: secure principal and higher than T-bill interest return The disadvantages are: (1) you don't know how long it will be good for as these are loans that can be paid back at any time (2) Until maturity, they trade as if bonds; i.e., their value can be less than (or greater than) what you originally paid for them (3) There is some book keeping involved (4) The normal trading amount is $100,000. However, you can buy smaller hunks (at a premium) From: mazlack@ucbernie.BERKELEY.EDU (Lawrence J. &) Path: ucbernie!mazlack If you do go with them, I would recomment Vanguard's no-load GNMA fund. (I personally use it for my IRA) However, for a widow, I think that she would be better off with a collection of T-bonds with different maturities. T-bonds come in $10,000 hunks.
brett@ucla-cs.UUCP (10/16/85)
Excerpted from Money, Aug 85 issue:
Another attractive choice for conservative investors is
Ginnie Maes (Government National Mortgage Association
pass-through certificates). They are available through
all major brokers. Newly issued Ginnie Maes have a $25,000
minimum; older issues may be available in amounts as small as
$10,000. Their interest and principal payments are federally
guaranteed. These securities are backed by pools of mortgages and
pass-through interest and principal to the certificate holders
as the mortgages are paid off. At present, the average effective
annual yield on GNMAs is 11.5%, about three-quarters of a point
more than the yeild on comparable Treasury bonds. The
drawback is that principal repayments on mortgages can't be predicted,
so you don't know what the yield really is over the life
of a particular GNMA issue. Even worse, the repayment schedule
that is used in figuring ostensible GNMA yields often
produces inflated figures.
Comment: So is it worth it over Treasury bonds?
Dexter Sentf, managing director of fixed income research at
First Boston suggests that investors be skeptical of issues that
sound too attractive.
...
...
Another choice is GNMA mutual funds. Among the highest yielding
no-loads are Vanguaged Fixed Income Securities - GNMA, which pays
11.2% (800-662-7447; min invest $3,000) and Lexington GNMA Income
paying 10.7% (800-526-4791, min invest $1,000).
--
Brett Fleisch
University of California Los Angeles
LOCUS Research Group
3804-f Boelter Hall
Los Angeles, CA 90024
Phone: (213) 825-2756, (213) 474-5317
brett@LOCUS.UCLA.EDU
{...sdcrdcf, ihnp4, trwspp, ucbvax}!ucla-cs!brett
-------------------------------------------------------------------------ded@aplvax.UUCP (Don E. Davis) (10/18/85)
As I understand it, the problem with Ginnie Maes is that you get your money back in small globs, so the rate of return is misleading. If you hold onto your globs as cash, then the return is roughly halved (i.e., a 12% instrument has an effective return of 6%). Naturally, you will reinvest the money, but the return on your globs will probably be less than 12%. If you get an 8% return on your globs, your effective return will be around 10%. So the question becomes, how can one get a good return on small amounts? Apparently some of the posters to net.invest have ways of doing this but of the few I've seen discussed, a substantial initial investment was required. Does anyone out there have an easy way to get good low-risk return on small sums of money? -- Don Davis JHU/APL ...decvax!harpo!seismo!umcp-cs!aplvax!ded ...rlgvax!cvl!umcp-cs!aplvax!ded
stern@tilt.FUN (10/21/85)
[]
Getting your money back in "small globs" is not exactly "the problem" with
Ginny Maes. A bit of background:
GNMA certificates are pass-through mortgages. This means that the government
assumes (and therefore guarantees) the mortgage, and then essentially sells it
to you. You get the monthly payments, and then get the principal back when
it matures. The certificates are available at different rates (corresponding
to mortgages issued at different rates) and are priced so that the yield to
maturity is between 10.46% and 13.59% If you look in the Octoboer 21 'Barrons'
on page 127, you can see what various GNMA certificates are yielding to maturity.
The problems referred to are two-fold:
(a) GNMAs are sold for $25,000, with $5,000 increments above that. When you
get $3,234 in payments, where do you put the money? This is the small globs
of money problem -- in order to see the 11% or so compounded, you have to
reinvest that money at 11% or better. Mutual funds here seem to be a win, because
any distributions just buy more shares, no minimum required. (also, you don't
need great wads of cash to open an account with a mutual fund, whereas you need
the cash to buy GNMAs on the market). The yield on mutual fund accounts, though
will be slightly less than GNMA yields because of their management fees and any
sales charges imposed
(b) If interest rates suddenly drop, there is a chance the mortgage you bought
will be paid off early (the person accepting the loan borrows more money at
the lower rate, and pays off the expensive loan). If this happens, your nice
fat return goes away and you have to shop for something comparable.
--Hal Stern
Princeton University
{ihnp4, allegra, seismo}!princeton!flakey!sternfranka@mmintl.UUCP (Frank Adams) (10/23/85)
In article <13000005@tilt.FUN> stern@tilt.FUN writes: >(b) If interest rates suddenly drop, there is a chance the mortgage you bought >will be paid off early (the person accepting the loan borrows more money at >the lower rate, and pays off the expensive loan). If this happens, your nice >fat return goes away and you have to shop for something comparable. A small clarification here -- when you buy into a GNMA, you aren't buy a mortgage, but a small piece of a lot of mortgages. Thus when interest rates drop, there is a near certainty that an increased number of the component mortgages will be paid off; thus you get more principle now and less interest later. This points out one of the other problems with GNMAs -- you don't know how much you will receive each month. If you need a predictable cash flow, look for something else. Frank Adams ihpn4!philabs!pwa-b!mmintl!franka Multimate International 52 Oakland Ave North E. Hartford, CT 06108