When times are tough, Vanguard GNMA (VFIIX) is a friend you’d never dream of living without. Check out the action for GNMA for just the first few weeks of this year compared to that of the more speculative NASDAQ Composite Index (both rebased to 100 at 12/31/2015). I don’t need any more than this to prove the importance of counterbalancing, in other words diversifying your portfolio with less risky assets like Vanguard GNMA. Remember, one of the keys to your success as an investor is to be an i-n-v-e-s-t-o-r.
If you’re sitting on the sidelines you’re missing the boat on some wonderful income from GNMA that can be used to buy stocks. Are stocks cheap? I don’t know, nor do I spend much of my time worrying about what I can’t control. Cheap is a relative term. It depends on who you’re talking to really.
One of my favorite investing stories comes from a client of mine whose grandfather gifted him shares of Vanguard Wellesley (VWINX) a long time ago. I’m sure it didn’t feel cheap to the grandfather when he bought the shares, and I guarantee you cheap is the last word that comes to mind when my client thinks about his grandfather’s generosity.
Make sure you get some perspective in volatile markets. Markets go up and markets go down. It’s not the end of the world, especially if you planned ahead with some smart moves like owning Vanguard GNMA.