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Investment Research Since 1978

Sell in May and Go Away? Not Vanguard GNMA

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Work hard and play hard. My dad used to tell me that a lot. He still does.

One year he and I drove down south to look at colleges and we stopped in Myrtle Beach to play golf. As we were eating breakfast I noticed his hair looked a little too shiny. One of the shampoo bottles in his travel kit had the sunscreen.

Work and play in investing terms is called counterbalancing.

Looking at the average annual return for the last ten-years it’s easy to overlook the years that can decimate a portfolio. Vanguard GNMA was up 4.36% and the S&P 500 was up 7.51% per year.

But, did you know that Vanguard GNMA was up 7.33% in 2008 while the S&P 500 was down 37%—a difference of 44.33%?

Imagine retiring in 2007 and only owning the S&P 500.

A lot of great things can happen in your life in ten-years.

You want to be able to enjoy these precious years. Remember work and play, bonds and stocks, shampoo and sunscreen, all have a place in your life.

Don’t mix them up.

Below you can see how important bonds can be to an investment portfolio in hard times. The red columns represent every year the S&P 500 has taken a loss since 1950. The green columns represent the corresponding year’s return for intermediate term government bonds. In every year the S&P 500 fell but one, bonds generated a positive return.

counterbalance chart

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E.J. Smith

Editor-in-Chief
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com.