How would you diversify your investments using the options below if you planned to retire in 25 years? I’d consider myself somewhat of a risk taker, but not overly. What makes you qualified? I’ll pick best answer.

Choose Your Investment Elections
(Total must equal 100%) Total: 0%
Asset Class Subclass Fund Name Current % Desired %
Blended Investments Large Cap FID STRAT DIV & INC %
Blended Investments Specialty FID ASSET MGR 50% %
Blended Investments Other FID CONVERTIBLE SEC %
Blended Investments — FID ASSET MGR 20% %
Blended Investments — FID ASSET MGR 30% %
Blended Investments — FID ASSET MGR 40% %
Blended Investments — FID ASSET MGR 60% %
Blended Investments — FID ASSET MGR 70% %
Blended Investments — FID ASSET MGR 85% %
Blended Investments — FID BALANCED %
Blended Investments — FID DYNAMIC STRAT %
Blended Investments — FID FREEDOM 2000 %
Blended Investments — FID FREEDOM 2005 %
Blended Investments — FID FREEDOM 2010 %
Blended Investments — FID FREEDOM 2015 %
Blended Investments — FID FREEDOM 2020 %
Blended Investments — FID FREEDOM 2025 %
Blended Investments — FID FREEDOM 2030 %
Blended Investments — FID FREEDOM 2035 %
Blended Investments — FID FREEDOM 2040 %
Blended Investments — FID FREEDOM 2045 %
Blended Investments — FID FREEDOM 2050 %
Blended Investments — FID FREEDOM INCOME %
Blended Investments — FID GLOBAL BALANCED
view restriction(s) %
Blended Investments — FID PURITAN %
Blended Investments — FID STRAT REAL RET
view restriction(s) %
Bond Investments Income FID CAPITAL & INCOME
view restriction(s) 25% %
Bond Investments Income FID FLOAT RT HI INC
view restriction(s) %
Bond Investments Income FID FOCUSED HIGH INC
view restriction(s) %
Bond Investments Income FID GINNIE MAE %
Bond Investments Income FID HIGH INCOME
view restriction(s) %
Bond Investments Income FID INFLAT PROT BOND %
Bond Investments Income FID INST SH INT GOVT %
Bond Investments Income FID INTERMED BOND %
Bond Investments Income FID INTM GOVT INCOME %
Bond Investments Income FID MORTGAGE SEC %
Bond Investments Income FID NEW MARKETS INC
view restriction(s) %
Bond Investments Income FID SHORT TERM BOND %
Bond Investments Income FID STRATEGIC INCOME %
Bond Investments Income FID TOTAL BOND %
Bond Investments Income FID ULTRASHORT BOND
view restriction(s) %
Bond Investments Income FIDELITY GOVT INCOME %
Bond Investments Income FIDELITY INVST GR BD %
Bond Investments Income FIDELITY US BD INDEX %
Bond Investments Income SPTN INT TR INDX INV %
Bond Investments Income SPTN LT TR INDX INV %
Bond Investments Income SPTN ST TR INDX INV %
Short-Term Investments — FID MONEY MARKET %
Short-Term Investments — FID SEL MONEY MARKET %
Short-Term Investments — FID US GOVT MMKT %
Short-Term Investments — FID US TREASURY MM %
Short-Term Investments — FIDELITY CASH RESRVE %
Short-Term Investments — FIDELITY RET GOVT MM %
Short-Term Investments — FIDELITY RETIRE MMKT %
Short-Term Investments — FIDELITY US GOVT RES %
Stock Investments Large Cap ABF LARGE CAP VAL PA %
Stock Investments Large Cap AF GRTH FUND AMER R4 %
Stock Investments Large Cap CALAMOS GROWTH A %
Stock Investments Large Cap FID 130/30 LG CAP %
Stock Investments Large Cap FID BLUE CHIP GROWTH %
Stock Investments Large Cap FID BLUE CHIP VALUE %
Stock Investments Large Cap FID CAP APPRECIATION %
Stock Investments Large Cap FID CONTRAFUND %
Stock Investments Large Cap FID DISCIPLINED EQTY %
Stock Investments Large Cap FID DIVIDEND GROWTH %
Stock Investments Large Cap FID EQUITY INCOME II %
Stock Investments Large Cap FID EQUITY INCOME %
Stock Investments Large Cap FID EXP & MULTINATL
view restriction(s) %
Stock Investments Large Cap FID FIDELITY %
Stock Investments Large Cap FID FIFTY %
Stock Investments Large Cap FID FOCUSED STOCK %
Stock Investments Large Cap FID FOUR IN ONE IDX %
Stock Investments Large Cap FID GROWTH & INCOME %
Stock Investments Large Cap FID GROWTH COMPANY %
Stock Investments Large Cap FID GROWTH DISCOVERY %
Stock Investments Large Cap FID INDEPENDENCE %
Stock Investments Large Cap FID LARGE CAP GROWTH %
Stock Investments Large Cap FID LARGE CAP STOCK %
Stock Investments Large Cap FID LARGE CAP VALUE %
Stock Investments Large Cap FID LC CORE ENH INDX %
Stock Investments Large Cap FID LC GR ENH INDX %
Stock Investments Large Cap FID LC VAL ENH INDX %
Stock Investments Large Cap FID MEGA CAP STOCK %
Stock Investments Large Cap FID NASDAQ COMP INDX
view restriction(s) %
Stock Investments Large Cap FID OTC PORTFOLIO %
Stock Investments Large Cap FID STOCK SELECTOR %
Stock Investments Large Cap FID TREND %
Stock Investments Large Cap FID VALUE DISCOVERY %
Stock Investme

The Fed Bought What?
By John Paul Koning
Posted on 8/13/2007
| Subscribe or Tell Others |

The US Federal Reserve injected billion dollars into the economy via temporary open market operations this Friday. This is the largest number of temporary repurchase agreements (specifically, one business day repos) entered into by the Fed since September 11, 2001. Back in 2001, Fed purchases of treasuries exceeded billion for the four consecutive days after the collapse of the World Trade Towers, total temporary injections into the banking system amounting to a whopping 5 billion.

What is significant about Friday’s repurchase agreements is not so much their size, but the securities that the Fed exchanged for money: mortgage-backed securities (MBS). Indeed, the entire billion dollar injection went to MBS purchases, the largest open market purchase of this asset type ever conducted by the Fed, smashing the previous record of .6 billion set back in September of 2005. See chart, above.[1]

The type of mortgage-backed securities the Fed bought are created when bundles of individual mortgages originated by commercial banks are guaranteed by quasi-governmental agencies such as the Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage Association (Fannie Mae), then split apart and sold to investors. Homeowners pay interest on these mortgages, interest payments flowing through to the final holders of MBS.

For those who have gone through the Economics 101 treatment of the Fed, the sudden appearance of MBS in Fed open market operations might seem odd. Professors have always taught that when the Fed expanded the money supply it did so by buying government bonds and bills. Indeed back in September 2001, the Fed provided liquidity by buying what it has always traditionally bought; treasury securities. So why is the Fed buying MBS now, and when did it acquire the authority to do so?

First a note on how open market purchases work. The Fed uses what are called open market operations to control the Federal Funds rate, the rate at which large commercial banks lend cash to each other overnight to fulfill their reserve requirements to the Fed. The Fed sets a target for the federal funds rate and defends it by either withdrawing or injecting money according to the requirements of commercial banks. It injects by buying securities from the banks with freshly created checking deposits, or money. This injection increases the reserves commercial banks hold, allowing these banks to expand credit to businesses and consumers. The Fed withdraws money by selling securities to commercial banks and receiving money as payment, thereby reducing reserves and removing credit from the system.

The Fed conducts both temporary open market operations and permanent ones. Permanent, or outright operations, inject cash and remove securities from the banking system forever. The Fed keeps the securities it has acquired outright in the System Open Market Account, aptly initialed SOMA (in Aldous Huxley’s Brave New World, the drug soma is produced to keep citizens in a steady state of happiness, much like the Fed’s SOMA). Temporary operations, the ones entered into this Friday, involve 1–14 day repurchase or reverse repurchase agreements whereby the Fed purchases (or sells) securities in return for cash with an agreement that the commercial bank on the other side of the deal will buy back (or sell back) the securities after a period of days.

Temporary reverse repurchase operations, the short-term withdrawal of money from the banking system, are rare. The Fed has only engaged in 16 reverse repos since late 2000, versus 1247 repurchases. This imbalance means that the Fed is almost always augmenting commercial bank reserves by buying securities, allowing the banks to use their larger reserves to expand credit and borrowing. Thus the rate defended by the Fed is lower than the rate at which the commercial banks would be willing to lend each other if the Fed did not exist.

Back to Friday’s MBS purchases. Historically, the Fed’s open market operations have been confined to US Treasuries. Clauses 3 to 6 of the Guidelines for the Conduct of System Operations in Federal Agency Issues ensured that Federal Reserve operations could not engage in temporary purchases of securities issued by federal agencies like Freddie Mac and Fannie Mae.[2]

In an August 1999 Fed meeting officials temporarily suspended clauses 3 to 6, giving themselves the authority to freely purchase Ginnie Mae–, Freddie Mac–, and Fannie Mae–issued MBS on a provisional basis without hindrance on size and timing. The reason given: it needed full reign to inject money into the banking system in preparation for the year 2000 crisis.[3] The period for which the temporary suspension was to extend was from October 1, 1999 through April 7, 2000.

The year 2000 crisis proved a dud. But rather than removing the temporary suspension on buying MBS, the Fed renewed the suspension in 2000 and 2001 before permanently striking off clauses 3 to 6 in 2002. In recent Fed documents, only clauses 1 and 2 are listed. This storyline may sound familiar to Fed watchers. The Fed was founded in response to the crisis of 1907, and had its ability to increase the money supply dramatically increased during another crisis, the Great Depression, where gold convertibility was suspended.

Since the Orwellian rewriting of the Guidelines the Fed has been gradually expanding its MBS purchases, which reached a crescendo this Friday. This (relatively) new power of the Fed is startling given the current liquidity crisis prevailing in the mortgage markets of late. By openly stating its willingness to buy thousands of mortgages and temporarily to expose itself to the financial health (or lack thereof) of the homeowning public, and doing so when the rest of the world is shunning them, the Fed is propping up mortgage markets, and thereby the housing market. This despite the fact that open market operations are not supposed to support individual sectors of the market or channel funds into issues of particular agencies[4]

While the purchases are only temporary — the cash must be returned by Monday — one wonders how long before the Fed grants itself the power to buy MBS permanently. Either way, the Fed’s response shows that it is worried about the growing mortgage crises and willing to do anything to buy its way out of it. Unfortunately, by buying up MBS and propping up the market the Fed will only cause more harm than it already has.

——————————————————————————–

John Paul Koning writes for Pollitt & Co, a brokerage based in Toronto, Canada.

What WAS the effect of the regulation and creation of Fannie Mae, and what would be the effect of deregulation of Fannie Mae and Ginnie Mae?

I’m aware of the New Deal and the history of it, I’m just not grasping the concept.

If you had 0K to invest, would Ginnie Mae funds be the best investment? How would the gov bailout of mortgagees affect GMNA?

So far, the only real failures in the economy are:
–banks (and toxic housing loans)
–Fannie Mae, Freddie Mac, Ginnie Mae (home loan owners)
–AIG (insurer of real estate derivitives)

Have you liberals figured out why the bail out bill is being used to pay off democrat political pacs and interest groups?

I am unable to find any meaningful information online. Everything I can find says that GNMA pass-through certificates are backed by the U.S. Treasury, so where do the mortgages come into the picture? This seems to eliminate any credit risk, so I don’t see what the difference is (aside, possibly, from tax considerations) between GNMA pass-throughs and treasuries. Is there some sort of prepayment risk? If someone could explain the cashflow involved in one of these I’d be extremely grateful.
Okay, so a mortgage default looks like a prepayment from the investor’s perspective?

Also, are T-notes good? Thanks

I am trying to diversify my portfolio with this product, but I can’t find anywhere to invest in it, except certain mutual funds. Can I just buy a bond note worth 00 like other bonds out there?

From what I have read, you can buy GNMA certificates, starting with a minimum ,000 investment. Are there some brokerages that are better places than others to buy these certificates. I know that the bid-ask spread on fixed income securities can be quite large at some firms.