NEW YORK (CNN/Money) - I'm thinking of moving money from a money-market fund to a GNMA (aka Ginnie Mae) fund so I can earn a higher return. Is this a wise decision?

-- Joe Colligan, Breaux Bridge, Louisiana

That depends on what you hope to achieve by making the move. If you're looking for the possibility of earning a higher return, then, yes, moving some of your money to a Ginnie Mae fund could be a decent way of achieving that goal. But you should also realize that when you move to a Ginnie Mae fund, you're getting into a very different type of investment.

With a money-market fund, there's only a tiny, tiny, virtually negligible (I'm talking really small) risk that you would ever lose any of your principal. With only a very few exceptions, money-market funds have been able to maintain a stable $1 price per share for their shareholders.

When the fund pays interest, you have the choice of having the interest paid to you directly, or taking it in the form of additional shares, each worth $1. So, whether you decide to take the interest in cash or re-invest it, the value of the shares remains stable at $1. You're pretty much assured of always getting out at least what you paid in, plus any interest payments, which, granted are pretty meager these days at an average yield of 1.92 percent.

Ginnie Mae funds, on the other hand, behave much differently. Despite their vaguely salacious sounding name (The idea of buying and selling Ginnie Maes sounds like something that would be legal only in Nevada), Ginnie Mae funds are portfolios of mortgages, specifically mortgages that have been bundled into security form by agencies like the Government National Mortgage Association (hence GNMA) or the Federal National Mortgage Association (FNMA or Fannie Mae).

The result is that Ginnie Mae funds -- or for that matter, any fund that holds mortgage-backed securities -- act much like bond funds. They earn interest on the mortgages in their portfolio and pass those interest payments along to the fund's shareholders. But, just as with any other bond fund, the share price of a Ginnie Mae fund will fall if interest rates rise. The reason is that when new mortgages pay higher rates than the one in the fund's portfolio, the value of those older lower-rate mortgages declines, pushing down the fund's share price.

Thus, when interest rates climbed back in 1994, GNMA funds, along with other bond funds, saw their share prices fall. And in most cases that drop in share price was large enough to also wipe out the interest payments, which means investors in most of these funds suffered an overall loss. Granted, it wasn't a staggering loss. Most funds of this type lost in the neighborhood of 1 to 5 percent for the year. But even that kind of setback could be shocking if you were expecting the same kind of stability from a Ginnie Mae fund that money-market funds offer. And, of course, the losses could be greater if interest rates really spike up.

There's one important difference between Ginnie Mae and regular bond funds, however. While regular bond funds get hurt when interest rates rise, they benefit when rates drop. That's because the higher-interest-rate bonds in their portfolio become more valuable relative to the new lower-interest-rate bonds being issued. But GNMAs don't benefit when interest rates drop, or at least not nearly to the extent regular bond funds do.

Why? Well, when interest rates drop, many people rush out to refinance their mortgages. This means that many of the high-rate mortgages in a GNMA fund's portfolio get paid off early when rates fall. So instead of the value of these mortgages rising, they essentially disappear. Instead, the fund manager now gets cash for those mortgages -- the cash comes from the mortgage borrowers who prepay their loans during refinancing -- and is forced to reinvest that cash in new mortgages with lower rates. So there's kind of a "lose-lose" element to Ginnie Maes. You lose if interest rates rise, and you lose if rates fall. Which means that, generally, Ginnie Maes work best in environments where rates are fairly stable.

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To sum up, then, I wouldn't recommend going to Ginnie Maes if you require the same stability of principal as a money fund. And even if I were willing to take on the greater risk for the prospect of a higher return, I still wouldn't make a Ginnie Mae fund the only fixed-income holding in my portfolio. Because of that peculiarity I just explained, I'd also want to have a regular bond fund in my portfolio just so I get rewarded should rates fall just as I get penalized when they rise. If you'd like to learn a little more about Ginnie Maes before you decide what to do, click here. And if you'd like to do some more research on regular bonds, click here.