Ode to Ginnie Mae

Funds that invest in GNMA securities add safety to your portfolio.

My tribute to the immortal country ballad that has Billy Joe McAllister jumping off the Tallahatchie Bridge won't end in tragedy. Ginnie Maes -- or, more specifically, funds that invest in GNMA securities -- are well suited to grace any income portfolio. This is hands-down my favorite category of government bonds in today's low-interest-rate environment and ought to be yours, too. You should be able to get a yield of about 2.5% from a fund that simply owns pools of U.S.-guaranteed home mortgages. There's no chance that you'll lose anything from defaults and foreclosures. And because the average duration of these funds is relatively short, you expose your principal to much less interest-rate risk than you would if you invested in regular Treasury bonds.

Before I explain how an investment can work so effortlessly, some background. Ginnie Mae is short for Government National Mortgage Association, a federal agency whose mission since 1970 has been to guarantee the timely payment of principal and interest on mortgage securities insured by the Federal Housing Administration, the Veterans Administration and other U.S. government agencies.

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Jeffrey R. Kosnett
Senior Editor, Kiplinger's Personal Finance
Kosnett is the editor of Kiplinger's Investing for Income and writes the "Cash in Hand" column for Kiplinger's Personal Finance. He is an income-investing expert who covers bonds, real estate investment trusts, oil and gas income deals, dividend stocks and anything else that pays interest and dividends. He joined Kiplinger in 1981 after six years in newspapers, including the Baltimore Sun. He is a 1976 journalism graduate from the Medill School at Northwestern University and completed an executive program at the Carnegie-Mellon University business school in 1978.