Mutual Funds

Benefits And Risks Of GNMA Mutual Funds

Most people during their working life start to give some thought to building a retirement nest egg, and some will be considering the possibility of GNMA mutual funds as a component of their portfolio. These funds have both advantages and disadvantages, so they may not be right for everyone. Whether or not you decide on this type of investment, the best way to fund your retirement is to open your own IRA or Individual Retirement Account, rather than depending on Social Security or an employer-sponsored fund. In order to do this successfully, you have to know how to choose the best IRA companies.

GNMA mutual funds are funds that invest primarily in mortgage-backed securities owned by the Government National Mortgage Association, nicknamed Ginnie Mae. They are popular with many investors, because they pay higher returns than other types of bond, such as Treasury bonds. In addition they are secure, as the government guarantees both the principal, and the timely payment of interest. However, the actual rate is not guaranteed.

The fact that the rate is not guaranteed is what can make these funds quite volatile, since they are affected by fluctuations in the market. When rates fall, home owners often refinance, and the principal returned to the GNMA fund will be reinvested at a lower rate. When rates rise, owners hold on to their lower rate mortgages, preventing reinvestment at a higher rate, and the value of fund investments will fall.

Whether or not you decide to invest in a Ginnie Mae fund as one of your IRA choices, it is still essential to look for the best IRA companies in which to open your retirement account. Your first decision needs to be whether to choose a Roth or a traditional IRA. You should choose a Roth if you expect your tax rate to be higher when you retire, as your contributions have already been taxed and your withdrawals at retirement are tax free.

When picking a provider, the first factor you need to consider is the financial reputation of the company. In addition, you should look at the fees charged – a good company helps you minimize commissions, and avoid trading and set-up fees. The other factor is investment options – check that the company provides all the options permitted by the IRS.

Looking at the providers that fulfill all the criteria, and are recommended by top analysts as the best IRA companies, it turns out that many of them are in fact companies that operate GNMA mutual funds. This seems to indicate that this type of fund is a safe place for at least a portion of your retirement investments. However, you should always ensure that you have a fully diversified portfolio, and take financial advice if you are in any doubt.

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