Exchange traded funds which are popularly known as ETFs, are smart investment funds which are traded on the stock exchanges, like the stocks. ETF portfolio may include different assets class such as stocks, commodities or bonds. Generally, the ETFs track indexes such as the MSCI EAFE or S&P 500. The ETFs are indeed very much attractive investment options because of their low costs, tax-efficiency and stock-like features. ETFs replicate an underlying index and its purpose is not to outperform the index, but rather to mimic the index. The main aim of an ETF is to fetch the same return on investment (ROI) like the correlating index.

At the time of buying or selling a stock, you base your transaction on the predicted performance of one particular company. Again, at the time of buying or selling an ETF, you base your transaction on the expected performance of multiple companies. Like the equities and indexes, ETFs are traded on an exchange and during market hours.

You might have heard about ETFs and many of you have even included ETFs in your portfolios. However, many of you are not aware of different ETF trading strategies.

• Invest in the market with ETFs

Like an index, you can use ETFs to invest in the stock market period and even can play with market volatility. The QQQQ replicates NASDAQ, SPDR replicates S&P. The Dow Jones ETF is known as DIA. Apart from these, there are many more ETFs waiting for you.

• Industry exposure

Certain industries may show high potential for growth. You can purchase industry ETFs that replicate the indexes of those industries. This allows an investor exposure to an industry.

• Diversification

Investing in ETFs offers the investors not only to diversify across major asset classes, such as US equity, foreign equity and fixed income, but also to diversify into investments that have relatively low correlation with major asset classes. This includes commodities, emerging markets, real estate, small cap stocks and others.

• International exposure

Investing in foreign equities is very much complicated. While investing in foreign equities, you need to look after certain things such as currency adjustments, foreign tax laws and other general overseas challenges. However, some ETFs offer you the chance of international investing. Some ETFs are there which track individual countries such as Brazil and China.

• Exposure to commodities

ETFs offer you wonderful chance to expose yourself to commodities market. It does not require you to directly hold commodities. But by holding ETFs you can get instant exposure to commodities.

• Hedging

Some ETFs offer excellent chance of hedging. Investors willing to hedge against a decline in the market can invest in inverse ETFs or leveraged inverse ETFs. The main feature of the inverse ETFs is that it rises when the market actually falls. If you are worried about rising inflation, you can hedge by investing in inflation-protected bond ETFs. Currency ETFs offer you the chance to hedge against currency fluctuation.

• Market analysis

After carefully analyzing the market, an investor can take out various ETF trading strategies. If you are bullish about the overall market but bearish about any particular sector, they you can buy and sell ETFs accordingly. In this situation, you can but an ETF which tracks the overall market and sell the ETF of the sector which is likely to under perform.

ETFs are excellent investment avenues available to you. Because of its numerous benefits, these are increasingly being opted for by the investors.

Check out the 5 financial tips for the 2nd week of July 2011

Tip no 1 – Lower the usage of credit cards to avoid incurring huge debts

If you seriously want to avoid incurring debts, then it is better to lower the usage of credit cards. The interest rates on the credit cards are quite high. As such financial experts advise consumers to not use them regularly. You can make all your purchases in cash instead of credit cards. This way you’ll be compelled to spend only what you have in your wallet at a given point of time and not an extra penny. It is best to keep the credit cards for the emergency purchases and occasions. This will help you avoid getting into debt problems and lead a financially happy life.

Tip no 2 – Never co-sign for a loan if you can’t afford to pay it off

Many a times, friends or relatives ask you to become a co-signer for their loans. Most of the times, you agree to their requests out of love and respect. But it is not always a good decision for your financial health. The reason is, as a co-signer, you are legally obligated for a loan. So, if the primary borrower fails to repay the loan, then the lender will come after you for the payment issues. In such a situation, you will be accountable to pay off the loan. Therefore, before becoming a co-signer for a loan, check whether or not you have sufficient funds to repay the debt.

Tip no 3 – Maintain your state minimum coverage requirements

Every state has some laws regarding the minimum amount of coverage you need to purchase. You can visit the state insurance commissioner’s website to know about the minimum insurance requirements in your state. However, insurance experts are of the opinion that it is not a wise idea to buy only the minimum coverage. It may not be adequate for you. The Insurance Information Institute advises consumers to buy coverage as per their financial needs. You should explain you requirements to the insurance agent before taking out any insurance policy. The agent can tell you how much coverage you actually need.

Tip no 4 – Save regularly

Make it a habit to save money on a regular basis. You should save a set amount every month. This will help you meet your long term financial goal eventually. The saved amount can also help you meet emergency expenses without taking out a new loan. You can also utilize the saved amount to pay off your existing debts.

You can invest the saved amount in stock or commodity market and double your income. The extra money can be used to finance your son’s college education. Make sure you use a sizeable portion of the saved money to contribute to the retirement accounts.

Tip no 5 – You only have to do a very few things right in your life so long as you don’t do too many things wrong.

It is extremely important to take right financial decisions in life. It is the secret key to a happy and healthy financial life. It helps you avoid the money troubles with ease. For example, correct investment choices may help you reap profits and become a millionaire within a short period of time. You may not need to do anything in your life. But, too many wrong investment decisions can make you bankrupt in a single day. You can be financially ruined. Discuss with your family before making any financial decision. This will let you know whether or not you are making the right choice.

Not many people regard July as a great shopping season. However, there are some products which you can get at a relatively low price in this month. You can grab some exciting deals in this month. All you need to do is choose the products wisely. Have a look at the article to know about the 5 must buy items in the month of July.

Purchases you can make in the month of July

Here are the 5 items you should definitely grab in this month:

1. Woolen clothes: Purchasing a sweater/woolen garment may seem to be weird idea in the hot month of July. After all, what is the point of purchasing a sweater when the sun is shining in the sky in its full glory? However, the market experts are of the opinion that this is the best time to purchase woolen garments. This is because you can get a sweater by paying half of its original price. You can keep these garments for the winter season.

2. Butter: There has been a tremendous increase in the production of butter in the month of June and July. The supply of butter is more than the current market demand. This is why some of the retailers are offering heavy discounts on it. So, if you love to have lots of butter in your food, then hit the nearest departmental store, and buy as much butter as you can. You can keep store butter in your refrigerator and use it in future also. Read the rest of this entry »

The 5 financial tips for 1st week of July 2011 are given below:

Tip no 1 – Do not use too many credit cards

It is better to not use several plastic cards simultaneously. It becomes quite problematic to pay all the bills at the same time. You may forget the due dates of the credit card bills. It may also become very difficult for you to make timely bill payments. Financial expert are of the opinion that most consumers get into debt problems as they can’t manage multiple bills at the same time. However, if you are confident that you can afford to pay all your bills on time, then you may use several credit cards to make various purchases.

Tip no 2 – Visit your State Dept. of Insurance website to remain compliant

Visit your state department of insurance website to know about the insurance laws in your state. You can know about the insurance rules and regulations in your state and follow them with ease. You can also gather knowledge on the licensed insurance companies and work with them. You’ll also be able to know whether or not your insurer is cheating you. If you feel that your insurer is cheating policy holders, then you can find out the consumers helpline number from the website and file a complaint.

Tip no 3 – Stick to a frugal budget – Eliminate stuff that you can do without

Frugal budgeting is one of the best ways to avoid debts. It not helps you to stay away from debts, but also assists you to lead a healthy financial life. It helps you save money gradually. For this, you need to spend your money cautiously. You’ll have to spend your money for purchasing the items you need. Sort out the items you don’t need in your daily life and avoid spending a penny on them. You should specially avoid purchasing branded items in the market. These are quite expensive and you can easily live without them. You get the same items at a much cheaper price from local companies.

Tip no 4 – Shop around to get the best mortgage deal

You should shop around before taking out a mortgage loan. The interest rates charged on the mortgage loans from lender to lender. Some lenders charge high interest rates where as the others charge comparatively low rates. Apart from that, it won’t be possible for you to understand the market rate if you don’t shop around. Compare the interest rates charged on the loans by the lenders and work with the one who offers you the best deal. Try to maintain decent credit throughout your life. This will help you obtain a loan at favorable terms and conditions.

Tip no 5 – Try to buy items in bulk so as to get items at discount price

Some retailers offer special discounts to the consumers purchasing items in bulk. Most of the consumers don’t purchase the products in bulk. They visit the shop and purchase 1 or 2 items. The retailers don’t make huge profits by selling few items to the consumers. If the customers buy a lot of products from their shops in a bulk, then they are able to make huge amount of money at once. This is why they agree to give discounts to the consumers purchasing products in bulk. The retailers give discounts to encourage other consumers for buying products in bulk. The retailers may agree to give as much as 20% discounts on the products, which is great.

When you as a household or business, spend more than your income, you are harshly criticized. Even the state governments in the United States are not legally allowed to keep deficits. But, this rule does not hold good for the country as a whole. In fact, the US government is actually spending more than it earns since the past decade. And currently, the deficit level of US has reached such a proportion that it has raised eyebrows on the long-term prospects of the country. Many experts are of the opinion that if the country is not able to arrest the deficit in time, it could undermine prospects of economic growth and investments in the long run. Fears are widespread that it may even lead to higher unemployment, weaken US competitiveness and erode the quality of life of the Americans. Apart from these, there are rising concerns that galloping deficits may result in higher rate of interest, stymie economic growth and force the government to spend more and more to make payments on past dues. This will in turn leave less for services and other government functions. In other words, if the US people want the kind of programs that they are enjoying now, they will need to pay more in taxes.

The deficit is the difference between spending and revenue on a yearly basis, and total debt is the result of annual deficits accumulated over decades. For the current fiscal year, the deficit is estimated to cross $1.5 trillion, up from $459 billion in 2008. The maximum debt level set by the Congress is $14.3 trillion and the current debt level is just a shade way from the maximum debt level set by the Congress. Given this situation, the pertinent issue that is doing the rounds whether or not the US will increase the maximum debt level so that the government can continue its borrowing program.

The run up to the crisis

A lot of factors can be attributed to this rising deficit. The massive stimulus program to tide over the recession, huge costs due to wars in Iraq and Afghanistan have led to this mounting deficit figures. In addition to these, low tax revenue due to the weak economy and rising expenditures for entitlements such as Medicare, Social Security and the prescription drug program enacted in 2003, have resulted into escalating debts of the country.

The recent debt crisis in many countries in Europe, have brought the crisis in the United States in the forefront. In as recently as in mid-April, Standard & Poor’s – the leading global rating agency, downgraded its outlook for US government debt from ‘stable’ to ‘negative’, as the country has not come up with any convincing debt-reduction program. Bill Gross, the legendary investor, who manages the world’s largest mutual fund, Pimco, said that he had eliminated US treasuries from his portfolio due to prospects for poor returns. China, the largest creditor to the United States, has indicated that it may move to diversify into other forms of debts to reduce risks.

One of the ways available to the government to finance deficits is to borrow. The US government has been financing deficits by selling government bonds such as selling US treasuries and then selling new bonds to pay off the old ones which is akin to individuals shifting debt from one credit card to another. This however requires that the government needs to pay more interest rate to attract creditors. Currently, the rate of interest associated with key 10-year US treasury note is 3.35%. However, dangers are lurking that it may go up to 6% to 7% level.

Whatsoever, over the years the US Treasury bonds have established such an impregnable reputation that it would not be quite easy to break it. The global investors still have adequate faith on US treasuries. They are of the opinion that Washington will surely do something to manage the crisis otherwise situation will go out of hands. They are of the view that US treasury bonds are safer bets than other alternatives such as government bonds sold by other countries, corporate bonds or stocks.

Plans to reduce deficits

Currently, there are two major proposals –Paul Ryan proposal and the Barrack Obama proposal, to contain the deficits. Both the proposals have recognized that the government-sponsored health care programs – Medicare and Medicaid are mainly responsible for this mounting deficit. Both the plans have not preached for tax increases on the middle class to contain the deficit. There has not been any specific proposal of taxes. However, there is an agreement that health care costs should be trimmed down. However, there will be far-reaching implications of lowering down health care costs. Price of lowering down health care costs may also be politically very costly. Chances are there, but not in the near future, that the citizens of the United States may face unpleasant combination of benefit cuts and higher taxes.