No, I ain’t deviating from the topic. We all do know much about investment and various instruments available in the market. However, one of the least known investment products is an Exchange-Traded Fund. When I talk to people about it, after listening for a while, they ask me, ‘What’s an ETF?’ But I know my readers are not ignorant. So, I would directly start with how you can earn money buying this investment product.

1.    Avoid Commissions

Since ETF’’s are traded on major stock exchanges, you have to pay brokerage for your purchases. However, if you intend to have them in your portfolio for long term, it’s not really advisable to pay commissions. There are some funds available in the market that do not ask for any commissions. You broker can probably help you out with this. If no, start reading the fine print.

2.    Avoid Expense Fees

Many ETF’s requires you to pay extra amount as ‘expense fee’, which you must, at any cost, avoid paying. If a fund charges you too much, simply don’t purchase them. It can save you a lot over time.

3.    Don’t Bother about the News

Similar to a stock price, you ETF price would go up and down. However, you must not respond to such movements in any way except for ignoring it. If you are a long term investor, you must not bother about the changes taking place every hour. Checking it once a day is enough.

4.    Diversification

make sure you don’t have more than couple of EFT’s in each sector.

5.    Don’t Become a Short Term Trader

If you want to, don’t do it with your long term investment. Set aside some amount to play small games every day until you become perfect at it (which no one has ever become). If possible, let the trading to the traders.

As long as you invest correctly, ETF’s too are one of the best investment available today. Putting a part of your investment money would help you generate greater returns, along with diversifying your portfolio.

1. No Hasty Decisions Please
   Don’t get lured by those ‘once in a lifetime’ deals on real estate. There is no place for hasty decisions if you want to earn a substantial profit from your investment. Instead of believing the brokers, you must conduct a comprehensive research and invest accordingly.
2. Think Long Term
   Investment is always long term. If you are putting money in for short term gains, it’s trading. Focus on investment rater than trading to have a secure future. Trading often incurs you a huge loss. So, don’t pour money in considering its ‘value for money’. Instead, determine its long term benefits and make your decision.
3. Don’t Expect Too Much
   This happens mostly with first time investors. They invest money in some financial product and expect it to provide 300% – 400% returns within short time, which is quite unrealistic. Besides, they make commitments to other people based on these unreal expectations.
4. Believe in Yourself
   Even if you are a first time investor, I would suggest you to do your own research before investing, rather than depending on agent’s information. Derive a strategy, set a goal, and follow through rigorously.
5. Don’t Switch Investments
   Don’t make a mistake to withdraw money from an investment just because some other product is performing better. Not all investment will reap benefits at the same time. One may benefit you today, other after 2 months. Wait for it.
6. Consider the location
   This is one of the most important tips among top ten investment tips for 2010. If you intend to invest money in real estate, consider the area, it’s significance, growth potential, etc, before buying the property.
7. Keep Regular Check
   Investments are for long term. This, however, doesn’t mean you don’t have to bother about its performance. Keep a regular check on all your investments. Some might even need minor amendments for maximum profits.
8. Know about people associated with your investments
   Know more about the people associated with your investments. This would include your real estate agent, property builder, banker, consultant, broker, etc. Their trustworthiness is the test of your investments.
9. Don’t Repeat Mistakes
   Though this one lies in the bottom of top ten investment tips list, it is the most important one. Probably you would commit many mistakes while investing as none of us are perfect. You must, however, learn from you mistakes and make sure you don’t repeat them. This way you will develop into a prudent and proficient investor.
10. Have No Doubts
    As an investor, especially if you are a beginner, you will have lots of doubts about various investment products. Clarify every detail by asking questions. Remember, it’s not a disgrace to ask, you are investing your hard earned money.

These top ten investment tips would definitely help you to earn more in 2010, if followed religiously.

Though sometimes it seems the world is having an overdose of precious metal promotion, they are promoting the right instrument. Stocks all over the world were plunging at 52-week low (some 7 to 8-year low), gold produced a ravishing 300% return on investment. What else can you expect from an investment?

Is there any risk in owing gold?

Since past couple of decades, gold and silver are known to be excellent hedges against inflation. They provide high returns especially when stocks and other investments are striving to gain handful of benefits. It is, however, quite crucial to realize that the gold market is very volatile, if you intend to trade on daily basis.

Due to the volatility in daily market, most investors prefer to preserve their holdings for a period of 10-20 years, which will definitely provide good returns and hedge them against any economical risk. It is one the best retirement investment. Generally, the precious metal market varies inversely with stock market. When stock market rises, gold price will witness a plunge and vice versa. But over a very long period of time, these variations don’t matter much.

Buying gold isn’t difficult. And unlike stock, you can possess tangible asset (bullion, gold, coins, etc). If, however, it seems quite risky to stock gold at home, you can invest money in exchange traded funds or mutual funds.

Both these forms of possession have their set of advantages. People who intent to invest huge amount in gold usually opts to possess it physically as it would save him money charged as annual fees by mutual fund companies. On the other hand, small investors have to bear the expenses paid to securely stash gold. So, they go for funds instead.

Though the debate of ‘how much gold should be purchased’ is quite enduring and will reap varied answers, I would suggest 15-30% of your overall investment.

He is now gradually accepting this conservative method. So what if he had to learn it the hard way? It’s the lesson that matters.

If you ask me to define ‘Buy and Hold’ in few words, it is the safest type of investment I have used to protect my funds since last 40 years. No, I am 58. I started investing when I was 18.

What is ‘Buy and Hold’ anyway?

It is investing for long-term or very long-term to avoid the perils of market volatility. A peril faced by my son is quite small. The unpredictability of market can take away all your fortune if you are not a follower of ‘Buy and Hold’ policy.

Let me explain this with an excellent illustration. Imagine you are standing in golf course and the par hole is far away. Between you and the hole is a huge pond which definitely is not your target. Now, the pond here is the market volatility. If you want to achieve good returns (the hole) on your investment, you have to hit the ball hard enough to avoid dropping it in the pond. Imagine the energy applied to hit the ball as your investment period. The more energy you apply, the far golf ball will reach (nearer to the hole).

Ok, enough of theory. In short, buy stocks of reliable companies and forget about it for years. It will definitely increase in value.

Let’s check if it worked during the recent market crash. The stocks that I purchased early last year marked 45% loss in value during September 2008. When I learned about my loss, I farted and went to sleep. Why should I care about it when I know these losses are temporary and it will generate excellent profits in long term? In fact, I purchased some more next morning. Few days ago, I spared some time to check the value of my investment. I don’t remember the date, but till November 2009 I had gained 18%. Now, this is not the ‘long-term’ I am talking about. I wouldn’t think of selling it for more 15 years. And yes, you can sell your investments. I have heard people saying ‘How can you sell, if it says only ‘buy and hold?’

Asset Allocation

’Asset Allocation’ would definitely sound alien to those who asked me the idiotic question mentioned above. It is nothing but diversification of your investment portfolio. Your funds should be divided in stocks, cash, bonds, real estate, etc. according to your risk appetite. Also, it should be sub-diversified. That is if you are investing 40% of your funds in stocks make sure it is further diversified in all or most of the industries. Do not completely rely on any one category. This fairly reduces the risk of high losses.

How to Invest?

Maybe, like my son, many of you might have learned important lessons from the 2008 market conditions. Today, many good stocks are undervalued and now is probably the best time to buy them. However, it’s time that you invest your funds according to ‘buy and hold’ policy, if you are one of those who sold your investments due to panic.

First step is Asset Allocation. To invest according to ‘buy and sell’ policy, you need to diversify your investments. It is highly possible that may lose money if you are dependent only on one category or aspect of investment. I am not saying that you will definitely earn substantial profit every year through Asset Allocation. But it surely helps you to limit your exposure to the perils of the downturn economy.

If you are not much experience in handling your investment portfolio, hire a Money Manager. Here, I am not compelling to do so. I personally hate such managers as I can trust my judgments and can easily earn over long-term. However, I am suggesting you to hire their services, because it’s better to pay 1% of your investment and earn rather than saving this 1% and losing 75%.

Millions of people invested in the stock market in early 2008 and most of them sold their holdings after the crash because they thought it will fall further. However, it gradually rose and they are still regretting their decision of pulling out. Many have invested again in 2009. So, what’s my point? I am talking about the important lessons learned in 2008 & 2009. Market can never be steady for a longer time, it goes up and down. If you benefit once, you will lose the next time. So isn’t there a way to earn without losing? Yes, it’s called ‘Buy and Hold.’ Now does it sound convincing?

Selling your investment

There are times when you may have to sell your investments before your targeted tenure. And it can be for good reasons like:

1. Rebalancing

   Say you own some stocks of Company ‘X’ which is performing awful. You can sell half the stocks and invest in Company ‘Y’. Or

   Say Company X is doing great and you earned tenfold. However, you know it won’t even double now. You can sell half the stocks and invest in Company Y which is another stock with potential tenfold capacity. And there are many other ways that can be termed as rebalancing.

2. Asset Allocation Alteration

   For some reasons, you want to change your asset allocation. Like when people move in their forties and fifties, they try to minimize the risk exposure. So they sell their stocks and invest in bonds or bank deposits. Alteration in Asset allocation is not a negative sign. It can be corrective measure or just change in preferences.

3. Taxes

   Taxes are charged on short term gains. If you have any mutual funds or stocks that give you regular short term gains, you have to pay a hefty amount as tax. It has happened with me a couple of times. Now, you will ask me why I invested in such mutual funds. It was simply a gaffe. I learned from my mistake and kept learning since then. You are free to sell your investments and out it somewhere else if you are paying high taxes.

4. Retirement

   Most of us keep investing all our lives so that we can enjoy our final years. Alright, not enjoyment, but at least we need money to take care of our daily expenses when no source of income is left. However, it’s not always necessary to sell the investment. If you have invested wisely, the dividends earned on the shares and interest on your bank deposits can take care of your expenditures.

5. Macro Economics

   The general economic situations can sometimes compel you to sell your investments. For instance, you have invest huge amount on domestic stocks which are performing poorly now due to the shrinking economy of US. You have to sell these domestic holdings and invest in foreign markets.

Do you still think my son is right? Am I really thinking conservatively and earning nothing?

The brokers either charge a specific fee or take a percentage as commission on the money invested. These fees may or may not be obvious. These funding salespersons are very expensive to hire. They quote exorbitant rates. They mostly title themselves as financial consultants or registered advisors and they offer consultation services regarding funds. According to a 2002 funds sales analysis it costed $23.8 billion for paying up the people selling mutual funds and for financing the operational costs of funding companies. Investment consultants are really expensive. They charge you a minimum of $25 per hour. This is quite an expensive amount. Sometimes the total fee given amounts to more than the amount being invested in mutual funds.

As studied by professors from Harvard and University of Oregon, over 4,500 funds, it was found that brokers show small and newer funds. These funds do not show any good returns. It was also observed that the funds that were bought from brokers worked less efficiently than the ones bought directly from the funding companies regardless of any adjustments being made to the risk factors. You might expect the brokers to find funds that come with low operational costs for you. But many of them are not successful in that. Many people patronizing the broker system of buying funds say that the advantages of purchasing from a broker should be assessed among less tangible lines. The brokers generally tend to sell funds that bring them the maximum returns, rather than the ones that are actually beneficial to the customer.

Investors should rather read reviews on the different investment funds online, rather than take the word of investment advisors. It has been found after research by Professor Richard Evans of University of Virginia that people who did not consult brokers but acquired knowledge on their own by directly interacting with funding companies and reading literature on media were more literate than others on the subject of mutual funding and were wealthier than those who followed the guidance of mutual fund brokers.

Direct funding companies seem to be a much better option to brokering firms and advisors along so many dimensions. When you want to buy funds consider this before knocking the door of a broker. There are of course some genuine brokers who you can rely on.

According to a Gold News report, Natalie Dempster, head North American investment, “A recovering global economy coupled with most major central banks keeping benchmark rates at record low levels increased demand for gold as a store of value, as some investors feared about future inflation. Moreover, we saw an improvement in risk appetite during the quarter, which also put more downward pressure on the dollar as investors sold US Treasuries in favor of higher-yielding assets overseas, further increasing demand for gold as a dollar hedge.”

The reasons for the increase in gold investment seem to be many:

• With the increase in inflation due to the economy still being in the early stages of recovery, you can expect more and more people to go for gold investments as they have a lot of intrinsic value.
• The depreciation in dollar value has diverted people’s attention from the currency to investment in gold which has a steady value.
• The fall in interest rates in investment businesses owing to the weakened economy seem to be another good reason for increased investments in the yellow precious metal.
• Speculation is the next major reason you’d want to go for a gold investment.
• Hedge fund investors are the ones who are interested in gold investments.
• Investor psychology also has been playing a very important role in gold investments. Since ages people have been finding peace in investing in the metal, as they view it as a major commodity of security. I know of so many people who’ve used gold to meet their monetary requirements at the time of an economic crisis.
• Gold is bought in Asian countries like India and China for gifting purpose and this is the reason many people buy gold.
• Gold is the least volatile investment option

According to Gerald Mc.Connell, CEO Etruscan Resources, the prices of gold are predicted to rise in future. He says, “A prediction of $2,000 per ounce within the next ten years does not sound far-fetched. Some experts are predicting more significant increases.”

Talking about investments in precious stones and metals, diamond has been considered as a beneficial investment option by many, but seems to have a lot of drawbacks. You can go through them at Prime Targeting . In comparison gold is always a better investment option as it does not have the drawbacks that the diamond business has.

Since US has attached itself to most of the financial markets in the world, the dilemma is now global. The UK’s Independent has predicted that the “UK mortgage market will contract by 80% in 2009” and the trend of falling house prices will continue for another 12 months. Although Nationwide Group Development director Tony Prestedge has estimated the value of Mortgage market to be £18b in 2008 from £90b in 2007, investors are still optimistic about this year’s prices.

The continuous shrinking mortgage market has recently seen some activity in financial firms as they are trying their best to recover and bring the market back to normalcy. After lowering the interest rates substantially, the purchase index still shows a fall of 6.2%. According to Housingwire.com, the fall in percentage of mortgage applications in the week ending Sept 25th was 2.8%. Even steeper fall was quoted by another weekly survey, Mortgage Maxx, which shows the decline of 7.3% in the same week, which reduced the count of multiple submissions by same borrowers.

In 2008, conditions displayed worse effects, as the total mortgage applications were down by one third as compared to 2007 and almost half of 2006. The rejected application rate amounted to 32% in the same year, according to Builderonline.com. Even these statistics were due to visible government efforts as the loans back by Federal Housing Administration mounted to 21% from under 5% in 2005 and 2006.

The worldwide effects were worse as well. The fall of Mortgage market affected even the tiny and under-developed countries, which were thought to be completely safe from the crises consequences. For example, Bulgaria shrunk 20 times the size of its original mortgage market in early 2009, as stated by Novinite.com. Compared to the huge sum of BGM 355 M invested in early 2008, the Bulgarian mortgage market received an amount of just BGN 18 M in the same months of 2009.

The mortgage-backed securities had been bought by investors from all around the world due to which, it’s not only a local crisis for US, but the world. However, the estimations and predictions by experts sound quite decent this year. Lowered interest rate of below 5% has attracted loads of new mortgage applicants which are now four months high. The world crisis now seems to slowly loose the effect and indicators of market correction are slightly visible, however it’s too early to jump on any optimistic conclusion.

Buying Fancy Vehicles

Many of us go crazy over new vehicles. College students are especially very prone to the temptation of owning the best car or bike in town. I’ve come across many of my college mates being obsessed with the idea of possessing the latest limousine or bike in town. One of my friends did buy a dandy car a couple of years ago. In a hurry to own the vehicle, she bought it at an auction for quite a bit. But the honeymoon with the car lasted for only a short time. After a year, one by one, the parts started developing defects. Despite good maintenance by my friend, how could the car develop so many defects? Obviously the problem was that my friend had bought the car without scrutinizing it properly. I can understand, being a youngster the only thing that was topmost on her mind was to possess the car and nothing else.  Don’t ever let your emotions take the better of you. Don’t take any item on face value even if the seller makes the sale look very reliable. Always take your mechanic along and get the vehicle examined thoroughly before buying it. If the owner objects to that, just forget the deal.

Banking on Student Loans

Gone are the days when a worthy student lacking in monetary resources would realize his/her dream of studying courses in colleges with the aid of monetary funding from financial institutions. If you go through the Student loans infographic from Mint you’ll probably come to know that they have been hiked up beyond reasonable limits and you’ll be simply repaying the loans for years after you get a job. With the current job slashes owing to recession, it seems getting a job with a good pay is something that you’ll have to wait for some years to come. The lesson for you is that don’t bank on expensive student loans even if the financial institutions make it look a very positive venture for you. Many of them are just waiting to bait you with that. Many students have already fallen prey to that.

Don’t Try Business on Credit Loan

I wonder how reckless people can get with their business planning! Many people try to start business by investing with their credit card loans. This is the biggest blunder that you could ever make. Mostly, college students make this mistake because they are lacking in funds and taking loans on credit cards seems to be an easy option for their over-positive minds. When the profits don’t come, they cannot pay back the credited amounts which hampers the credit score and any savings that they might be having.

These are not the only blunders you could make, there are many others where you could land up in a soup like the 529 college savings scheme, investing in the first-time-home-buyer  real estate scheme, internet stock trading and stock trading in general.

By the way, did you think that the US Treasury bonds were the best investments? You’re wrong my friend !If you’ve thought that running from the failing US stock markets to the succeeding Chinese markets was a smart move, let me tell you, that you aren’t all that smart after all. Did you choose the investment that rose steeply after falling steeply? You might have, but that again is a wrong choice.

Firstly to make your investment choices you need to analyze the performance of investments across a finite period of time, let’s say for the last two years, when the recession had actually started. Investments that did well even if the timing was not the most appropriate are the ones that you should find out. You should pick up those investments that did well despite bad timing.  The evergreen investment opportunities that have stood the test of bad times and have remained at a high or an almost high are the ones that you should identify. You are not risking any losses then. You always tend to win in such situations.

Due to falling and fluctuating stock conditions you might have contemplated investing in Treasury Bonds, but it was seen that Treasury bonds that looked to be in highs is not immune to fluctuations. In fact now the Long Term treasury Index of JP Morgan is lower by 11 % than what they were during the recession. In the middle of December last year they were on a high, but by June the loss was about 17 %. The T-bond performance was better than that of stocks, but with a long period purview they were no better.

Well, if you think I’m giving thumbs down for T-bonds, what according to me should be the most profitable investment that should have been made? Have you ever tried to invest in corporate bonds? You might have looked upon them as some inferior bonds but they are the ones that seem to have done well. From January they are up by 32 %. The stock markets might have fetched you a gain of 48 % during the crisis but they are deviant from their highs by 36 %. So junk bonds are still the more favored ones. You start from the bottom and you’ve got nothing to lose. Even though you had bought and sold them at the wrong times you lost only by a small margin.

Gold investments were another good investment that you could have made during the recession. Because it’s intrinsic value did not fluctuate. The deviation from the high was only about 1 % and that is not much.  With a gold investment by now you’d be better off by 53 % under favorable market conditions and otherwise you’d gain 35 % which is the same as the corporate bonds.

“Invest For Money, Not For Living”

You know what many prudent property buyers are doing these days? They are buying property out of business interest. They don’t want to live in the homes or properties they purchase, at least not immediately. What they do is, buy the property and give it on hire or sell it at a really huge profit. They strike the iron when it’s still hot and make dizzy profits! Now, if you invest with such an intention you definitely will be making a wise investment. When you get back the capital that you’ve invested through rents or by selling, you’re left with much more than what you’ve begun with. Now, you can use this money to purchase a better house than earlier and use it for living or renting out again. You’ll see that if your real estate venture clicks, you’ll climb up the ladder of affluence and purchase the kind of house I was dreaming about. Remember most of us are not born with silver spoons in our mouths. But we can always use our brains and skills to realize our dreams.

For this, you’ve got to start young, when you are on the right side of age and have lot of years to earn. Take a small housing loan. Nowadays with the recently announced housing loan facilities, you can easily take a loan and start off with a small investment that you can conveniently bear.

Your Housing Loan Should Never Exceed Your Take-Home Pay

Today, you’ll come across a lot of housing cooperatives coming forward to offer you some of the best housing loans possible. It’s amusing to observe that the number of lenders seems to be greater then borrowers. For their own benefits, these lenders are flouting rules of lending and offering huge loans to people regardless of their incomes. As a result, you’re house loan might far exceed your monthly income and that’s when you’re left bankrupt. Now don’t put yourself in such a situation ever.

Don’t Sell When Market Value of Property Is Low

People who’ve property more than three years ago might have to sell their properties at a price lower than their initial worth owing to the present economic condition. In such a case if you sell your property you are at a loss. So don’t sell it off, come what may. Wait for an opportune moment and sell it then. Otherwise you’ll be at a loss.

Save For Unforeseen Expenditures before You Purchase

While you are still on your housing loan, if you face sudden situation where you’ve got to spend huge amounts, you’re bankrupt. For this it,s always better to save up for emergencies beforehand.

Assess Your Current and Future Income

A property purchase should never be a burden to you. Careful planning and taking the correct step is what is required. Before making a property purchase, always estimate your present income and your future income and then apply for that loan. Otherwise you’ll be in deep trouble. If you think you’ve got a stable career and can afford to take a loan and repay it in the given term, go ahead and take it. This is a crucial step in which you might fall, as it happened in the case of many business persons. You know, these investors have a fluctuating career graph. At times when they make a lot of money and at others they don’t have any income. So, if you are one such please be prepared for paying out your house dues even during the lean period and then take any loan.

Clear Off Your Current Debts First

If you don’t want to feel the pinch of a house loan, clear off you current debts first. Otherwise all these loans will get piled up. If you are a student better get your student loans paid up because you’ll not be able to take the stress. If you are a married person with children, first see to your child’s savings and secure future. Only when these expenditures along with funds for emergency have been met with, you can think of buying a house.

Your ideal home debt should not be more than 30 % of your net income. Otherwise, you are always on the pole desperately struggling to do the balancing act.

Move ahead with a concrete resolution and you’re going to win your dreams.