The Unique Selling Point of any ETF up until this point was the fact that they are a cheaper investment vehicle than mutual funds and it offers easy access to emerging markets and commodities for many that are just beginning to invest money. The ETF industry is expected to grow at 20-30% this year alone and the assets they manage totals $1.1 trillion right now, which still doesn’t compare to mutual funds that hold $19.5 trillion in assets. ETF’s are indexed to several commodity and emerging markets, but many of these markets are just too small to handle this kind of money and so large-scale buying has inflated the value of fundamentally poor companies just as it has fundamentally strong companies. U.S regulatory authorities are by their nature meant to limit ETF’s by taking away a large chunk of the money invested in emerging market funds and commodities, which are interrelated. An intense concentration of funds is not healthy, but it has been inevitable with very few companies to invest in.

Take the iShares MSCI Brazil Index ETF as a case in point. It has approximately $9 billion invested in assets, but 33% of that is put down to oil biggie Petrobras and mining company Vale do Rio Doce. As it stands, investing in an ETF does not mean that your investment is diversified in the slightest because your money is tightly concentrated in a few pockets, such as oil and minerals when it comes to Brazil. As more money enters ETF’s, they tally their holdings with that of emerging markets and this drives up share prices, drawing in more money. This is a vicious cycle that will not help markets that already have very clear boom and bust cycles. And it is to clamp down on this that the regulators are swooping in now. This can only be a good thing since the current structure is very open for fraud and ETF’s are crying out for controls lest investors are left the victims of their success and failure.

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Interest rates are low, and they aren’t expected to rise until the economy improves. And the banks are not at fault. ING is not trying to rip you off. Ally Bank doesn’t detest you.

So, Why Are The Rates Low?

The rates are low because the government doesn’t want you to save money into the bank. They want you to put money into the stock market, and boost it a bit, which will eventually help the economy.

Where Do I Put My Money? Where Can I Get High-Interest Rates?

That’s a good question. Let’s have a look at some of the options we have.

High Interest Checking Accounts

Although big banks aren’t offering a good rate of interest on checking account, there are many credit unions and small community banks that offer a higher rate of interest. There are several checking accounts, all with different names, but not much dissimilar features. There is an account known as Rewards Savings Account, which offers high rate of interest, but only if you meet certain criteria.

You have to:

• Get you statement through internet every month, you wouldn’t get it through mail.
• Log in into your online banking account once a month, at least.
• Make purchases on your debit card (number of times differs for each bank), and ATM withdrawals are not counted.
• Make one or more electronic payment each month, like payment for phone bills.

If you are able to meet these criteria, you can earn an interest rate of upto 5% on a part of your balance, if not the whole balance. Some banks ask for minimum balance of $10,000, and some for $100,000 in order to offer high rate of interest.

High Interest Savings Account

If you want a higher rate of option, checking account is not you must look for. You must deposit your money in a high interest savings account in an online bank or a traditional bank.

When you are looking for a high interest savings account, do not forget to check rates offered by online banks.

Why?

• Although banks like Wells Fargo and Bank of America have a strong online presence, the rates offered by them are usually lower than online-only banks, similar to ING Direct.
• Many people are afraid to deposit money into an online simply because of security issues. Hence, in order to attract more users, they offer comparatively high rate of interest. Experts, however, believe online banking is comparatively safer than traditional banks, as there aren’t any paper trails.

Which Online Banks Do I Consider?

Here are few of them. Do not forget to check the interest rates if you plan to deposit money into an online bank savings account.

EverBank
This online-only bank has been named as ‘Best of the Web’ bank by Forbes Magazine for five consecutive years. It offers APY of 2.25% 3 months bonus rate, and around 1.51% APY on it’s money market account on the first year, up to $50. It was also named as ‘Best of the Breed’ by Money Magazine. Initial deposit is $1,500, and minimum balance is $5,000.

Sallie Mae
It offers an APY of 1.40%. It doesn’t charge any monthly fee nor does it ask for minimum balance. Also, it provides compound interest on daily basis.

Capital One
This bank has come up with an InterestPlus Savings Account, which offers an interest rate of 1.35%, and it can increase up to 1.49% if you maintain a balance of minimum $15,000, or if you get a Capital One Credit Card.

Ally Bank
With no monthly fee and no minimum balance, it offers 1.29% APY. It was named as ‘Best High-yield Savings Account’ by Kiplinger’s Personal Finance last year.

FNBO Direct
This too is a great choice as it offers around 1.10% APY without charging any monthly fee or minimum balance. According to research conducted by BankRate, FNBO is one of the safest online banks available today.

Certificate of Deposit

You can earn a high rate of interest by investing in a Certificate of Deposit, also known as CD. For people who are not aware about what they are, this is a type of investment (or loan) you give to a bank, and don’t touch it for certain period. Usually, the period of investment is directly proportional to the rate of interest. The longer you invest for, the higher would be the interest rate.

However, this is quite different from a savings account. Once you put your money in a CD, the rates don’t change. For instance, if you put your money in a CD at 4.00% for a period of 2 years, you would receive 4.00% even if the rate drops by 1% during the tenure.

There is, however, a disadvantage of not investing money in CDs. Your money is not liquid. You can withdraw money from your savings or checking account, but you cannot pull it out from a CD befere the maturity date.

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The current situation, however, is quite different. People who had invested in gold few years ago are receiving great returns. However, due to elevated prices, it’s very expensive to own gold now. For instance, current price of gold per ounce is 300% more than it was 10 years ago, and it was all time high in December at 1,226.56.

In recent years, billions of dollars have flowed into this investment product, as every investor wanted to be a part of this rally. And, as ever, gold is considered to be a an investment that hedges you against inflation.

Since gold prices are at its peak, many aren’t planning to add it in their portfolio, simply because it would take a long time to double the investment. Besides, when a product’s price is at peak, there is a constant fear the prices might go down, keeping the short term investors from buying product.

However, for people who intend to design an investment portfolio with a long term view in mind, I would suggest them to invest at east 10% of their money into gold. The gold market, unlike stock market, has never seen a major decline when we compare it on year-to-year basis. If the price is $1,000 per ounce today, it would certainly be higher in June next year.

Besides, profits should not be the only intention when you designing a safe, strategic portfolio. Gold adds value to your investment, along with diversifying it broadly. You invest money in stocks, bonds, and mutual funds, and term your investment as ‘diversified’. However, they belong to the same category, and when the economy collapses, you realize you have made a grave error.

This is, however, not the case with gold. Even if the economy of a country collapses, the prices wouldn’t be affected much as the gold market is not driven by socioeconomic conditions of a country. Also, it has been noticed that when the stock market collapses, gold prices are at its peak, hedging your investment.

In conclusion, I would encourage investors to put money into gold at any time, regardless of its spot price.

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Mutual funds, however, are comparatively safer. But with so many to choose from, this too becomes a complicated task. There are thousands of funds available in the market today, how would you pick best mutual funds for your portfolio? That’s exactly what we discuss in this article. In order to pick the best ones among all, you will, as an investor, have to follow few basic rules.

Rule #1: Diversification

It’s quite risky to invest in a particular sector, especially when the market is unstable. Diversification, however, reduces your risk, if not eliminates it completely. Select a fund that has stocks from at least three sectors. So, if one collapses, you have another to rely on.

Rule #2: Analysis

To pick best mutual funds, analyze the performance of each of them, and know how they performed in long term. In a bull market, every fund has positive figures. It is the performance of a fund over last couple of years that should be taken into consideration.

Rule #3: Investment Style

Although a fund is an investment product, it actually invests money in stock market. The way it invests is known as investment style. Some funds are aggressive in nature, while some are designed keeping tax-benefits in mind.

Rule #4: Fund Manager

Fun manager is the one who designs every aspect of a mutual fund. He is the one who decides which sectors the fund should cover, which stocks to pick, and when to redesign the fund. In order to select best mutual funds, follow good fund managers.

Rule #5: Keep a Track

Finally keep a track of all the mutual funds you have invested in. If you have committed a mistake, quickly exit and invest in a better product.

That’s it. You don’t have to do anything else. Just a bit of research on each of them and you will be able to pick best mutual funds available in the market.

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In spite of falling straight on our faces, we still ask this question ‘Does free money exist?’, simply because we learnt another thing in childhood, ‘never lose hope’. And those you never lose hope, gets its reward. There is absolutely free government money available, and the best part is, there isn’t any scam. It’s real.

Around $25 bn is given away by our government as free money. This amount, however, is distributed in form of government grants. So, what should be your next step? There are two ways you can get this money. If you want whole of it, derive a flawless plan to kick those people out of Washington, or White House, or wherever the money is kept with a gun, and don’t get out of the country as soon as possible. However, such people always have a sad ending; remember childhood stories? If you don’t care about endings, execute the plan.

Another way to get a part of this money, if not whole, is to do what it takes to receive this grant officially. You can plan to build a day care center or a big sports complex in your city, or erect a new recycling center. Yes, these kinds of projects get government funding. And the best part is you don’t have to repay the amount. It’s absolutely free government money. Another good thing about having your project financed by government is they would never like to watch it go down.

In short, once you get this money and your business starts operating remarkably, you would keep getting absolutely free government money. Maybe I put the whole thing quite casually, but the fact is, there are numerous people in US, UK, and Canada who have availed this money and depended on it for their whole lives.

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Usually, maintenance cost or overheads are quite huge in IT companies, or that’s what every manager says. However, many harsh measures are taken to keep this cost under control. Some companies prefer rightsizing the number of employees, some buy the software instead of developing them, and few outsource the whole spectrum of operations. Due to these measures, or may be some other reasons, these companies have continued to grow, mainly for two reasons: More work is done by them every year; and managers increase the cost, a counterproductive result.

However, this cloud computing, although saves lots of money and increase the overall productivity, may prove to be quite expensive, if not used appropriately.

Companies under ‘Cloud Computing” can be lumped in three categories

1. Internal Cloud
   Internal computing infrastructure is organized, today, with server farms, which comprise of thousands of individual servers. Servers are owned by the company, even if the management is outsourced. This internal cloud helps the company to maintain its data and keeps from leaking. Such farms were first used by Google (GOOG), Yahoo (YHOO), Ebay (EBAY), and Amazon (AMZN).However, investors should switch their focus on companies that provide software and hardware solutions to develop and maintain these internal clouds. Few major players include HP (HPQ), Cisco (CSCO), Dell (DELL), EMC (EMC), and IBM (IBM) in hardware; and Microsoft (MSFT), Oracle (ORCL), and VmWare (VMW) in software.
2. External Cloud
   Instead of maintaining such a big cloud, few companies finds it beneficial to outsource it. Many companies provide such solutions. However, companies like Google and Amazon have a radical advantage over other minor players as they have better software & hardware combinations and they are quite good at building relationships. These companies provide the requisite machinery to their clients along with the operating system, which is usually chosen by the client.For investors, favorites include HP, Dell, Yahoo, Oracle, Ebay, and IBM.
3. Software Services
   I really don’t know why these companies are known as cloud computing. It doesn’t fit any of the above categories either. These companies provide applications to businesses through web browsers. It is possible that these applications, may be then used to support internal or external clouds, but it’s a different model all together.Here, companies providing software services don’t really need to build or maintain an IT team to run the application. Current leaders in this section are Rightnow Technologies (RNOW), Oracle (ORCL), and Salesforce.com (CRM).

   Salesforce is definitely a leader in this business. May be, according to sources, Microsoft might consider entering this business through internal developments or acquisitions. But, as of now, there aren’t any moves indicating such decisions.

Among all the categories of ‘cloud computing’, companies providing software services seem to be a clever investment. Internal cloud too is a decent one; however, I don’t see any reason why one should invest in external clouds. If none of these companies interest you, you can at least use the buzzword.

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Another financial instrument which is getting popular when it comes to saving taxes in the current low interest rate regime is master limited partnerships (MLPs). These instruments have also become popular because of the higher yield in comparison to other instruments like treasury bonds, bank CDs, or money-market accounts. MLP’s can operate at a loss particularly in the first few years particularly in industries like developing oil and gas pipelines due to high depreciation and hence reduced net earnings.  However after the initial phase MLP’s will in probability generate free cash flow in excess of earnings on which taxes are not levied until the owner sells the unit as it is treated as a return on capital. Approximately 80% of MLP distributions are labelled as return on capital.

High yields on MLP’s is another factor that makes this an important tax deterring instrument. Yields on pipeline MLP’s is as high as 7% to 8% in comparison to yields on around 2% to 4% yield on real estate investment trust which is also very popular when it comes to saving taxes. Also the yield on MLP’s have more than doubled in the past one year. Yield spreads on MLPs in comparison to the 10-year Treasury note has more than doubled to approximately 5.75% in 2009 from 2% in 2008. Also MLP’s have experienced less market volatility in comparison to the 10-year note.

The main tax benefit of owning an MLP is that though the entire annual distribution is received tax payment on the same is deferred to the extent it is classified as return on capital. For instance if an investor’s total annual distribution is say $2 per unit of which 80% is classified as return on capital, which is deferred, then his tax payment is  only on 40¢ of each unit’s income. These distributions are taxed like ordinary income on which normal income tax is levied. Also tax experts feel that by deferring the taxes to the future and by holding the unit for a long time you would end up in the lower tax bracket and hence be taxed lower.

Also if you are looking for investing in fixed income market minus the low yields or interest rate risk associated with treasury bonds then MLPs are the right instrument for you. However stock performance of these partnerships is correlated to the return on the 10-year Treasury bond.

One main problem with MLP’s is that under the US tax code any net loss that results when they are sold is taken to be inert and hence cannot be used to compensate for income from other sources. Accounting wise this loss has to be taken forward and netted off only against future income from the same partnership.

Ofcourse the performance of MLP’s is dependent on the sector they are investing. For instance MLPs that are involved in building natural gas and oil pipelines or storage facilities are considered to be better than MLP’s that invest in oil or gas production as pipeline and storage capacity are let out at fixed rates through long-term contracts and hence generate cash irrespective of the change in energy prices. MLP’s that invest in energy production are exposed to fluctuation in energy prices and hence rise or fall according to oil or gas prices. When energy prices increase energy MLP yields increase and vice versa.

In addition to the above discussed financial instruments, dividend paying stocks are also good investment options when it comes to saving taxes as the income stream from the same is taxed at the dividend rate of 15% which is the equivalent to capital gains rate.

Last but not the least the most important rule for investors looking to save taxes is to keep their eyes and ears open for developments in order to maximise return and save taxes. In all probability in 2011 tax rates on both dividends and capital gains are likely to increase and return to the pre Bush tax cuts. With this the whole financial environment will change and the current options for tax saving may become redundant.

Read more at: Tips For Investors Looking To Save Taxes- Part I

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In short investors need to understand the methods of financial planning that will help them reduce their tax liability on gains in their portfolios. Below are few investment tips that will help in saving your taxes in building your portfolio for 2010.

Municipal Bonds

From a tax point of view the best investment any day are Municipal bonds as interest received on these bonds is tax-free. However there are still small technicalities in investing in municipal bonds that one needs to understand and keep in mind before investing. For instance if you invest in bonds that are used to finance nonessential services like tobacco, sports stadiums, and airline terminals then you would be subject to Alternative Minimum Tax (AMT).

However financial planners still consider municipal bonds to be the best instruments to beat the tax atleast for the next couple of years assuming that the current levels of capital-gains and ordinary income tax rate will continue. However in the current economic environment given the current high level of federal deficit, there are high chances that income tax rate may be increased in 2011 and president Obama has already hinted about increasing capital-gains taxes. Still municipal bonds score higher than treasury bonds as they provide a larger after tax returns due to higher yields. Municipal bonds are not however risk free like treasury bonds though the amount of risk is much lesser than most other assets.

Financial planners recommend municipal bonds for those who are looking at maximising their income. Also it is advisable to buy them only through a money manager like the American Century High Yield Muni Fund. Investing in municipal bonds requires research into the books of the municipality to understand the actual value of the bond and the risks involved. Fund managers with their credit research department are trained to do this research. It is very important to properly evaluate the fund and look into the technicalities before investing. There are many hidden risks involved which only a trained eye can bring to the forefront. For instance it is important to know the reason behind the bond paying premium yields to get an idea of the risk involved. The high premium could be to cover up risk of the issuer being a smaller entity or the bonds being an unrated or uninsured bond. These hidden elements carry their own risk which an investor needs to evaluate before putting their money in these assets.

Selecting the fund manager is again an important decision which will determine the course of financial future of your assets. I personally believe and advice to go in for fund managers who believe in preserving capital. I don’t prefer to go in for fund managers who take more risk and result in fluctuating returns in search of higher returns. But this decision is entirely a matter of individual preference and risk appetite.

It is also advisable to invest in funds that invest in municipalities that provide critical services like build sewers or run electric utility or the primary hospital rather than those that are involved in non essential services like building a stadium. No doubt the latter will provide higher yields but then these higher yields are also associated with higher risk.

Normally at year end one can get municipal bonds at good discounts as people who are holding closed end municipal funds would sell funds that have had losses irrespective of their value so that they can compensate for gains in other parts of their portfolios. This year the discount however is much lesser at just 5% to 7% as against a discount of 25% last year mainly on account of increased demand for municipal funds which due to current low interest rate regime has resulted in higher dividend payouts this year.

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