Your immediate objective should be to begin establishing a positive credit history.

The overall strategy towards achieving this objective is to first apply for credit cards that require no credit history for successful application and issuance.

You will then build up your credit history with these cards, making sure you pay on time, and in full, always.

Suggested Credit Cards

"Student" Cards
These are normally issued to those with little or no credit history.

Secured Cards
A good issuer of these type of cards is Bank of America. You will be able to get a credit card for as little $300. The credit limit on that card is then set to the amount of the deposit. The other advantages of the Bank of America card are:

1. Low annual fee ($29).
2. Bank of America has a history of converting deserving secured card accounts to unsecured, often in as little as 6 months. They are also quite willing to steadily increase credit limits thereafter.

Be an Authorized User (AU)
This strategy calls for having someone to designate you as an authorized user on their credit card. This shows trust on their part that you have integrity and are capable and willing to maintain payments. It's best to have a friend or relative grant you this favor, and the longer their account has been active (and in good standing), the better the potential score the issuers may assign in evaluating your credit qualifications.

Cards from Gas Stations and Department Stores
These are usually easier to obtain as their use is extremely limited, and thus can be issued to those with minimal credit history. For instance, many people have reported high success rates with Target.

The Hooters restaurant chain also sponsors a credit card, and have been known to be quite open to applicants with poor history. It's possible that they are open to those with no history at all. Here's a reassuring-looking graphic I captured from their site:

The Hooters card also features a full points rewards program and a year's subscription to their magazine.

Macy's
Pros:

1. They are very good at increasing your credit limit later on.
2. If you're approved for Macy's, there is a high chance that you will get approved for Bloomingdale's as well.

The one disadvantage is that you might only get a $100 limit to start off with, but that shouldn't matter as you're only looking to begin building a positive credit history now.

Join a Credit Union

Ask around for the kinds of credit unions out there. You might be eligible to join one that is associated with your alma mater, community group or other affiliations.

They are initially strict about giving credit (due to the fact that credit unions are owned and controlled by their members, thus the members are bearing the financial risk), but they tend to be one of the more reliable sources of credit to established members.

At the very minimum, be sure to apply for a checking account upon joining.

Establishing a good relationship with a credit union is definitely a smart financial move.

Conclusion

If you're starting to build credit, keep any credit line for which you've applied and are approved, as long as there is no card fee. Every line that you establish and hold on to will go towards building your overall credit history, and this is invaluable when you have virtually none to begin with.

If you get a line of credit from established institutions such as Citi or Bank of America, it would be worth to keep maintaining those lines as an investment as they're known to reliably increase credit limits.

Only apply for credit lines which will truly benefit you, and for which there is a realistic prospect of being approved.

Once your credit history starts improving, you'll want to be selective about future applications. It means that you might have to wait to apply for cards which have a reputation for requiring strong credit scores until you're reasonably confident that your scores match their criteria for approval. Two cards which are known for having strict criteria are Discover (700+ FICO) and Sears (above 680).

You might like to start with Bank of America and Chase, two institutions which have been willing to extend credit to individuals attempting to rebuild their credit after a period of delinquencies.

Good luck!

[via cardratings.com]

How Does Credit Card Consolidation Benefit You?

The main benefit to credit card consolidation is lowering your monthly payment. All of your credit card debt is rolled up into one payment, which is most often lower than what you had been responsible for paying before with all of your payments combined. Credit card consolidation helps you to lower your amount of debt faster and can also save you money over time. And with your monthly payment lowered, you have more spending money throughout the month to use towards other college related expenses such as rent, books, or even a new computer to use for school assignments. Credit card consolidation is a wise choice for college students who want to enter the real world debt free.

How to Choose A Credit Card Consolidation Lender

There are several choices in lenders when it comes to credit card consolidation. A quick online search reveals about 814,000 results when you search for 'credit card consolidation lenders'. Your first choice should be to speak to your personal bank. If you have good credit and a bank account, you might be able to obtain a personal loan to use to consolidate your credit cards. This option allows you to keep your credit accounts open, which is the best choice. Closing your credit card accounts does not look good on your credit report. The longer you have kept a credit card account open and in good standing, the better your overall credit score will be. If you choose to use a personal loan to pay off your credit cards, be sure to watch out for high interest rates on the loan which could defeat the purpose of credit card consolidation. You can choose to use a debt consolidation company to help you with your credit card consolidation, but you will likely be asked to close your credit accounts. If you have a tremendous amount of credit card debt that you can't possibly pay off without help however, a debt consolidation company may be the best choice for you.

Be Smart About Consolidating Your Credit

If you are going to take the initiative to consolidate your credit cards, be sure to stick to your plan. That means you cannot rack up your credit card bills again just because you have zero balances. Additionally, you must be sure to make your monthly payments on time to keep your credit in good standing. As a college student, credit card consolidation can be a wise choice if you do it the right way and for the right reasons.

Learn how to take control of your personal finances by utilizing credit card consolidation debt management services. Read articles found at the personal finance budgeting portal http://www.moneyspud.com

You may be having a financial crisis or maybe you would just like a little extra money to help with expenses, whatever the reason there are ways to generate some quick cash.

The first method is to sell one or more assets. Almost everyone has something that they could do without and that could easily be sold. You may have one of more large items such as: a boat, jet ski, stereo, extra vehicle, coin collection, jewelry, billiard table, gun, or furniture. Even if you don't have any large items to sell, you can still make some money selling your smaller items such as: decorations, clothing, movies, and toys.

There are several ways to sell or advertise your stuff. You could put an ad in your local paper or advertise on line. You could have a garage sale or set up a table at a flea marker. Some radio stations have weekly programs where you can call in and list your item.

A great place to advertise is Craig's List - http://www.craigslist.org Craig's list is simple and free to individuals. (They only charge to advertise job openings and rental property in some cities.) You can log on, click on Help Pages, and easily set-up an account and list your items. You can't get much easier and did I mention it is FREE. You will get more responses if you attach a picture to your ad. If you don't know how to do this, ask a teenager. They will know. Craig's list allows you to list one item every 48 hours.

Another great choice is re-sale shops. They are a good alternative when you do not have enough items to have a garage sale. A word of warning - do not spend everything you earn before you even leave the store - unless it is for something you really need or you defeated the purpose. Most re-sale shops charge about 50% of the selling price, so you should try to sell the more expensive items yourself and use the re-sale shop for the smaller priced items.

The second way to make some quick cash is to get a side job. Maybe the job is as simple as cutting the neighbor's grass for $30 a week to make some gas money. Think of how you could use your skills to provide a service for friends, neighbors, or others in your community. Some ideas would be - babysitting, house cleaning, auto detailing, auto repair, sewing, helping an elderly person with day to day activities, typing resumes, book-keeping, etc. One big caution - Do not go out and spend money getting ready to provide one of these services. This is meant to be a very low-cost project. If you decide you are going to offer Saturday night day care services and you go out and make business cards, buy sleeping bags, and stock up on toys you could very well spend more then you earn. (Maybe print a few flyers or business cards yourself or put a classified ad in the newspaper or on-line. You have a $10 limit. That's it.) Also, think long and hard before "investing" in any job, for example: a $100 sample kit so you can sell candles at home parties. There will be a future article posted on this site about starting your own business. Unfortunately, it does not work out for the majority of people.

If you don't think providing a service is right for you, getting a real part-time job may be a better fit. If you are currently working 40 hours a week, you could work another 10-20 hours a week at a second job. Just don't let it interfere with your primary job and don't talk about your second job while at your first job. If you talk about it your boss will be watching you expecting it to interfere. If your full-time boss finds out and asks you about it, assure him that it will not interfere and that your full-time job is your priority.

All of these suggestions take time and effort. It's not easy, but it is not extraordinarily difficult either. Think of it this way, any cash you generate is money that can be used to pay your expenses instead of going into debt further. You will be getting yourself out of a hole instead of digging a deeper one.

By Michelle Siebert

http://www.endofyourmoney.com

Ms. Siebert has over twenty years of financial management experience. Her website End of Your Money.com was created to provide families with information that will help them become financially strong and confident about their future. It contains information on how to budget, reduce expenses, and increase income.

Contact your lender
The first thing you do is you need to contact your lender to confirm the amount you owe and the steps you intend to take to pay them back. Many lenders would rather put in place a payment plan than repossess properties but there needs to be dialogue between the lender and the mortgage holder. It is very tempting (and common) for people in arrears to bury their heads in the sand rather than face up to the situation but the earlier steps are taken the better it will be.

Most UK lenders are regulated by the Financial Services Authority (FSA) who have rules saying lenders must deal fairly with any customer who is in arrears. In practical terms each lender must:

* have a written policy on how to deal with customers in arrears;
* allow customers to set up a payment plans which is realistic
* send out regular information about the arrears;
* Not put pressure on customers through too many calls or letters.

If you took out a mortgage before 31st October 2004 and you think you are being treated unfairly by a lender, you can complain to The Financial Ombudsman Service (0845 080 1800). If you took out a mortgage after this date, then FSA rules apply and it is best to contact them directly (0845 606 1234).

Help towards paying your mortgage
If you need help towards paying your mortgage then there are a number of options you can consider.

* Check that you are not entitled to income support, child benefit, pension credit, jobseekers allowance, working tax credit or child tax credit. Contact your local Department for Work and Pensions office or local advice centre for more information.
* Check to see if your mortgage has payment protection insurance. If it has but you are still refused this contact the national debt helpline.
* Check to see if your lender will buy your home and rent it back to you (these are pretty rare and known as mortgage rescue schemes).
* Check rent back schemes by private companies as they can buy your home and rent it back to you (similar to the mortgage rescue schemes). They can often offer you the option to buy back your home at a later date when you have overcome any debt problems. Please check below for links to one such specialist company.

Arranging to pay off the arrears.

Do not arrange to borrow more money to pay off your existing debts as this will make matters worse in the long term. Switching all loans to a cheaper interest rate may be a sensible solution but increasing your debts is not.

In order to pay off arrears on secured loans you will usually have to pay extra monthly amounts to your lender. Lenders will sometimes ask for the arrears to be cleared over 12 to 24 months. Ask for a longer time to pay the arrears if you cannot afford to do this. If you cannot manage to clear the arrears as quickly as your lender wants, start paying the amount you have offered anyway and explain why you can only afford this, particularly if there are special circumstances (i.e. long-term illness, birth of a child, relationship breakdown or unemployment).

Other options to consider

* Change from an endowment mortgage to repayment/interest only mortgage
* Change from repayment mortgage to interest only to reduce monthly payments.
* Try and move onto a cheaper rate with your existing lender or move to a different lender.

What if I still can not afford my mortgage or arrears payments?

* Look for ways to increase your income (i.e. by renting out a room in the property) or reduce your other outgoings.
* Sell and rent back your home from a specialist rent back firm. Often the rent charged is less than previous mortgage payments.
* Sell your home and move to a cheaper home that you can afford.

What if they threaten to evict me?

If you have been given a court order (via the post) you will normally have 28 days notice of the hearing date. This court order does not mean you will be evicted on the date of the court hearing. This is just so the court can hear the case for and against your eviction. In order to understand the court hearing and preparation required we suggest you contact your local citizens advice bureau or national debt helpline.

Being in mortgage arrears is an incredibly difficult time for those experiencing them but it is very important to take action at the first instance of arrears. Unfortunately, many people get evicted unnecessarily by ignoring their lenders threats due to the stress of facing up to the situation.

Carl Robinson is an experienced property consultant and investor. If f you are in mortgage arrears and want to achieve a quick home sale or selling and renting back check out http://www.quick-homebuyers.co.uk

This site can also provide you with a Free comprehensive report on how to avoid repossession.

The ways of picking up a foreclosure on a bank property varies depending on where you live. In some states and provinces, it is possible to go to an auction to buy a house that's been foreclosed. In other areas, the bank may want the property to go into the MLS and be sold like any other house. But there are other ways.

There are rewards waiting for people that decide to do a little more leg-work. Some banks will allow you to get onto a short-list for their foreclosures, and you can then submit a bid in writing. That is one step closer, but not quite the most sure-fire way of finding a foreclosed house at a discount.

A lesser practiced technique is for you to go around to all the banks in your area and ask to speak to the manager in charge of "non-performing assets" or foreclosures. Sit down with them and let them know who your are and what your plan is. Using this technique, it won't take too long before you shoot yourself up the list of interested buyers. That manager will remember you because now you're not just a name on a paper. They now have a face to the name and they will have an easier time identifying with you. This is also called "top of the mind awareness".

By simply staying in touch with bank managers, you will be part of a group of investors that get to hear about foreclosures before many others. Not all banks do this and it isn't done in all states or provinces, but sometimes you get lucky. Though, more often than not, you may still have to submit a bid, but that's still 90% closer than what the rest of the world is willing to do.

It's important to note that you should already have your financing in order and ready to make a purchase before you start shopping for a foreclosure. Banks do not want to wait for someone to go get qualified. Remember that money likes speed.

Sign up for weekly real estate foreclosure ideas at cosmeticallydistressed.com

Answer these questions and you'll get an estimate of your score.

Get started on the simulator right here.

[via]

But identical prices are not necessarily guaranteed because what is essentially ignored are interest costs on money spent to buy stocks and complying with margin requirements for short options and dividends received on stock ownership or dividends paid on short stocks.

• Long 1 call = Long 1 put and long 100 shares of stock
• Long 1 put = Long 1 call and short 100 shares
• Long 100 shares and short 1 call (covered writing position) = Short 1 put
• Short 100 shares and short 1 put = Short 1 call
• Long 1 put and long 1 call (long a straddle) = Short 100 shares and long 2 calls, or Long 100 shares and long 2 puts
• Short 1 call and short 1 put (short a straddle) = Long 100 shares and short 2 calls, or Short 100 shares and short 2 puts
• Long 1 straddle and short 100 shares = Short 200 shares and long 2 calls, or Long 2 puts
• Long 1 straddle and long 100 shares = Long 2 calls, or Long 200 shares and long 2 puts
• Short 1 straddle and short 100 shares = Short 2 calls, or Short 200 shares and short 2 puts
• Short 1 straddle and long 100 shares = Long 200 shares and short 2 calls, or Short 2 puts

Data extracted from The New Options Market by Max Ansbacher

1. Patience
2. Money Management

I can't stress this enough: Master the principles of patience and money management, or the options market will master you!

The only thing that separates the winners or losers in this game is how well you hold your head together, and think clearly when the market or trade isn't going your way.

If you don't know how to deal with frustration when trading options, you'll lose your capital faster than you can say "Where's my money at?"

I know, I've been there. Losing $8000 dollars in a month doesn't do wonders for the ego. Worse, if you learn nothing from your losses, your string of setbacks in future option trades is almost guaranteed.

How many times have you had the feeling that the options market knows exactly when you've entered, and what positions you've taken, and then it goes against you? Superstitions aside, it's understandable that we feel this way, especially after a string of losses (they add pretty quickly, don't they?) but since you're on your way to mastery of the options game, you can't allow these thoughts to defeat you.

The first thing you need to do when the odds are stacked up against you is to remember this rule: Do not ever give any position you have any love. If it didn't work, and all signs are saying that you shouldn't go in on this stock again, then don't. Do not get hung up on a name. Move on. There are many more profitable stocks and trades that are waiting for you out there.

Always follow your trading plan. What - are you telling me you don't have one? Remember my story about losing $8000 in a month? Well, I didn't have a trading plan. Wait, I did - my plan was to make money and become rich fast. Doesn't sound much like a plan, does it?

Moving on to you, start constructing a trading plan pronto if you want to ensure your survival in options trading. Contrary to what most people think, a trading plan isn't one that's going to make you rich yesterday. No. no and no. A trading plan helps keep your financial boat afloat.

If you can preserve your capital for at least a year, executing on disciplined and well-researched trades will ensure that your instincts are sharpened, and the wealth of trading experience is what will put you on the road to eventual wealth. Without the trading plan though, you're not going to survive long enough to amass that wealth of trading experience and instincts.

One practical tidbit that seems to be ignored by most traders who don't do well is this: None of your trading positions should make up more than 2% of your trading capital. I don't know why almost nobody takes this advice to heed. Perhaps it's because all of us are too caught up in the idea of The One Big Thing.

Wake up, it doesn't exist. The trading plan and risk management is what will keep you in the game long enough to one day make the amount of money you wanted to make. Which do you think is the way forward - staking 80% of your capital on one trade (yeah, that one big thing), or having 50 well-researched trades, each taking up only 2% of your capital? I don't need to give you the answer to this question do I?

With 50, well-researched option positions, and remembering to cut your losses according to your trading plan, you start to focus on your trading system as a whole, rather than being banged up (and frustrated) on your losers. So what if you have 30 losers? You caught your losses on them, didn't you? And you're left with 20 winners - cool beans!

You want your gains to outnumber your losses, and once your account is starting to grow at a healthy rate, your losses become unimportant. Crucially, you start to think like a true business person, always seeking out new investment opportunities. Investments which turns sour are simply done away with, while the good ones are nurtured. You can't get to this level without risk diversification, and that, my friend, is the secret behind those who win, and those who're still wondering what hit them.

Take trading holidays when the need arises. Regular employees have annual holidays, why not you and your trades? A good reason to have a trading holiday where you stop all trading activity is if your entire account dropped a certain percentage. Stop trading immediately, don't get emotional. Examine why your account dropped. Re-analyze your trading system and your assumptions.

Another reason to take a trading holiday is when the market simply isn't cooperating. Yes it happens. When it's choppy and there's no clear direction, why trade? Because you think someone else is making money and you should get your cut too? Nonsense - yeah, at any given moment, somebody is making money, but let me tell you that nobody is consistently making any significant amounts of money during these periods.

So, stop your trading, relax, learn up more trading stuff and sharpen your skills. When the market is ready, those who are prepared (financially, emotionally and intellectually) can then come in and share in the trading spoils.

Conclusion

In options trading, those who get frustrated easily are sure to lose in the end. Their thoughts are riddled with regrets "If only I had ...", "But I was sure that this position should ..." and so on and so forth.

Realize, quickly, that the market doesn't know who you are or care for your thoughts. There will always be more losers than winners, and if you want to come out winning, make sure you master your emotions, have a trading plan and put a money and risk management policy in place. Simply put, you will come out a winner because the masses refuse to put into practice these basic elements.

The Thesis

I note with interest all the news that is generated by the EPA and environmental NGOs about the scarcity of fresh water. There’s no doubt that fresh water is one of the few precious resources on the face of the planet, it is also a known fact that water resources all over the world is under threat; ironically, the main factor that threatens this precious resource is the world’s very own population growth.

According to Water Partners International (www.water.org) :

• 1.1 billion people lack access to an improved water supply - approximately one in six people on earth.
• 2.6 billion people in the world lack access to improved sanitation.
• Less than 1% of the world's fresh water (or about 0.007% of all water on earth) is readily accessible for direct human use.
• A person can live weeks without food, but only days without water.
• A person needs 4 to 5 gallons of water per day to survive.
• The average American individual uses 100 to 176 gallons of water at home each day. (6, 7)The average African family uses about 5 gallons of water each day.
• Millions of women and children spend several hours a day collecting water from distant, often polluted sources.
• Water systems fail at a rate of 50% or higher.
• Every $1 spent on water and sanitation creates on average another $8 in costs averted and productivity gained.

And one more thing,… the global water infrastructure is in real (desperate) need of repair and upgrade.

In Oct 18, 2007, the Water Infrastructure Network estimated the 20-year need for clean water infrastructure at approximately $300b-$500b over the next 20 years. This claim is also supported by the EPA and Congressional Budget Office (http://www.win-water.org/news/101807article.shtml).

Mind you, the $300 - $500 billion estimate is very likely going to be a much bigger number as nobody can truly predict cost effectively over a 20-year time frame, IMHO.

Do take note that we should be grateful that the water industry is regulated and this means we do not have to pay exorbitant price for a liter of water. Imagine having to shell out $1,000 per month for drinking water.

The main downside of a regulated market is, of course, the companies dealing with water utilities are not raking in the dough. Having said that, I believe this is where good governance comes into the picture and plays the part it supposed to – ensuring the population gets access to clean water without being subjected to corporate greed; and I am all for that.

Having said my piece without veering too much into being political, let's find out how we can participate in the potential boom in this industry.

Investing in Water Resources

Those of you who are reasonably seasoned in the stock industry would know that you can invest directly in water utilities. However, you will also be aware that the utilities industry needs to be regulated and is a very difficult industry. Most of the time, an investor wouldn’t particularly classify the water utilities as a "growth" sector; and that's a good thing, mind you.

However, as mentioned above, the infrastructure involved in obtaining, treating and delivering safe, clean water to the population is in dire need of various stages of upgrade and repair. This means that the engineering firms servicing this segment will be seeing an increase in demand for their products and services.

My first and very possibly the most cost effective way to invest in this industry would be to invest in the PowerShares Water Resources ETF (AMEX ticker: PHO).

This ETF ("Exchange Traded Fund") offers investment opportunities that tracks the Palisades Water Index. Based on the information from it’s website as of Nov 30, 2007, the ETF invests in 35 companies that relates to the water consumption in one way or another. With an annualized expense ratio of 0.66%, this ETF has a year-to-date return of 16.36% so far.

For a more global reach, PowerShares launched the PowerShares Global Water ETF (AMEX ticker: PIO) on June 13, 2007. As of Nov 30, 2007, the ETF has 40 positions in various companies around the world. It’s expense ratio of 0.75% p.a. is pretty reasonable for a global fund.

For those of you who are more inclined to take risk, you might want to take a closer look at the positions held within the ETFs as disclosed by the funds.

Of the holdings that are disclosed, Veolia Environment (Depositary Receipts listed on the NYSE under ticker VE) offers a great opportunity given the fact that it has been in the business since 1853 and currently is one of the well-established (pure play) operators in the industry. However, with its current price at $92.80 per share, the stock is trading at a trailing price multiple of 29x which may seems fairly valued.

Besides Veolia, I am also impressed with the performance of ITT Corporation recently.

Having won the contract to implement the upgrade of selected US civil air traffic control systems for the US’ FAA (Federal Aviation Administration), ITT Corporation expects their defense electronics and water units (both segments totaling approximately 85% of revenue) to be the key growth driver in 2008.

Besides, ITT Corporation’s Fluid Technology segment derives 46% of the division’s revenue from non-US markets (33% Europe + 13% rest of world). With the global demand to develop and upgrade its water infrastructure, it is very likely that the non-US segment of Fluid Technology is poised for further growth.

Moreover, ITT Corporation in fact has been consistently able to beat or meet Wall Street expectations over the past quarters and this consistency is rarely seen in the industry.

The company has also given a very favorable 2008 guidance and based on the recent price action below $65 per share, I believe this stock is worth researching further into for addition into your portfolio.

Disclosure: I hold stocks of Veolia Environment and ITT Corporation personally

Links to Useful Resources:

Water Resources:
http://water.usgs.gov/
http://www.win-water.org/reports/winow.pdf
http://water.org/waterpartners.aspx?pgID=916
http://www.lib.umich.edu/govdocs/stenv.html
http://waterindustry.org/Water-Facts/world-water-6.htm

Investments Resources:
http://www.powershares.com/products/overview.aspx?ticker=pho
http://www.powershares.com/products/overview.aspx?ticker=PIO
http://soundmoneytips.com/article/31264-investing-in-water-the-world-s-most-precious-resource

Having read through the book, "A Random Walk Down Wall Street", by Burton Malkiel, I am convinced that one of the best ways to achieve a long-term diversified portfolio would be to invest via index-tracking funds.

That said, I have to say that if you are willing to put some time to do some research and homework on the stock market, you will be able to find the diamond in the rough. However, the chance of Joe Regular is being able to get strike gold and find tomorrow's Apple Inc. or Amazon.com Inc. can be relatively low.

Besides, for an investor to beat the benchmark index, be it the KLCI, S&P 500, the Dow Jones Industrial, the Hang Seng Index, etc., Mr. Investor will probably need to devote at least 36-48 hours per week to research.

Even with the work done, there is still the likelihood that the portfolio may not beat the market ALL the time. That fact alone convinces me that the best course of action for MOST investors will be to have their CORE asset base invested in index-tracking funds.

Over the long-run, even seasoned professionals such as Benjamin Graham, Peter Lynch and Warren Buffett agree that index-tracking fund is the best investment option for the man on the street.

For more insight into this interesting subject, I would definitely recommend you the book I mentioned, "The Time-Tested Strategy for Successful Investing: A Random Walk Down Wall Street".

Now, let's get started with the basics for constructing a cost effective global investment portfolio.

Global Portfolio - The Main Purpose

As we all know, a global portfolio is probably the best way for us to diversify our investment because it gives the investment a better opportunity and potential to grow by tapping in to the economic growth beyond our shores.

The main reason for this thought is the fact that economies around the world, although co-related, have different cycles of growth. By diversifying globally, you will also give yourself the opportunity to increase your investment's return without and not risk depending solely on one country's economy stability.

To illustrate, imagine if ALL your investments are focused in the SE Asia market in early 1996. Regardless of the quality of the domestic company you invested in, your investment is 100% exposed to the risk and economic uncertainties of one region while the rest of the world such as Europe and US recovered and chugged along to further growth.

Investing globally also gives you the opportunity to tap into the high growth emerging market economies such as Brazil, Russia, India and China (also known as BRIC).

Of course, there is the remote probability of a global meltdown; if that happens, the flight to quality / safety will normally means capital flight to developed market's capital such as treasury bills and bonds offered by Western European countries and USA.

With a globally diversified portfolio, a portion your investments will be sheltered (or may even buck the downtrend) from a total portfolio meltdown, as opposed to a 100% disintegration if you had invested 100% domestically.

Global Portfolio Construction - the Primer Components

To construct a portfolio of stocks that covers the world over based on a typical man's payroll is virtually impossible. After all, how can you invest in the economy of every single country in the world? Even Mr. B Gates will very likely have some trouble doing it.

So, how can D Joe Regularis achieve his objective of "GLOBAL DOMINATION" !!! ... err (must have got a bit too excited there),... I meant, global diversification without having to become as rich as Mr. Gates? The answer - Exchange Traded Funds (ETFs) and/or Mutual Funds.

Mutual Funds

A Mutual Fund is an investment vehicle comprising of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market securities and similar assets.

One of the main advantages of a mutual fund is that it gives small investors access to a well-diversified portfolio of equities, bonds and other securities, which would be quite difficult to create with a small amount of capital. Each shareholder participates proportionally in the gain or loss of the fund.

Mutual fund units or shares, are issued and can typically be purchased or redeemed at the fund's latest net asset value per share, which is calculated at the end of regular business day.

The mutual and/or unit trust funds issued by the domestic financial institutions include PB Mutual's PB Funds, Affin Funds, CIMB, etc.

Exchange Traded Fund (ETF)

A typical ETF is definted as a security that tracks an index, a commodity or a basket of assets like a mutual fund, but trades like a stock on a listed exchange.

Unlike a Mutual fund, however, an ETF does not have its net asset value (NAV) calculated every day. As it is traded on a listed exchange, you don't have to wait until the end of the day for a NAV get that sale order you processed.

By owning an ETF, you get the diversification of an index or mutual fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund.
The only downside, you will need to pay a broker commission on any ETFs you trade on, just like trading on a common stock.
Given the choice of using either a Mutual Fund or ETF to construct my portfolio, I would normally have a preference to ETF as my choice first.

Expense Ratio - Why It Matters?

The expense ratio is the measure of what it costs an investment vehicle to operate. It is determined through an annualized calculation, with the fund's operating expenses divided by the average dollar value of its assets.
A fund's operating expense typically include recordkeeping, custodial services, taxes, legal expenses, and accounting and auditing fees, with the largest component relating to investment management fee. Some funds will have a marketing cost, also known as 12b-1 fee, which is included as operating expenses.

All in, operating expense is a charge to the investment fund's asset base and over time, it lowers the investor's return; the higher the expense ratio, the more of a drag it will be on the investor's return on capital over time. So, what is a typical operating expense ratio of an investment fund?

Operating Expense - the Domestic Take

Here's some food for thought - the operating expenditure for the Malaysia EPF is 2.37% (source: 2006 annual report). How do I get the number? Group-level Operating Expenditure on pg 165 of RM$688,586 divide by (Group-level) Member's Fund on pg 164 of RM$289,452,716. If you use the EPF-level, you will very likely get an operating expense ratio of 1.60%.

If you are curious how much the EPF is making for its members, here's the weblink to the website, which is pretty well-constructed: http://www.kwsp.gov.my/

For financial information, please navigate into the Financial Statements section within the "About EPF" domain. Being curious, I also took a quick look at the expense ratio of the Public Mutual fund group (link: http://www.publicmutual.com.my/).

Looking at the numbers, I guess it's typical for the domestic fund managers to fetch a nice 1.60% p.a. on the average asset under management.

So, the question at hand - how much you are willing to pay for the professional portfolio manager's investment management expertise? In a nutshell, I believe the domestic investor is willing to incur no more than 1.60% p.a. on his/her capital to generate a suitable premium return over the regular (risk-free) fixed deposit return at the local bank.

Global Portfolio Construction - Assembling the Components

Without further ado, let's see what a typical investment portfolio that spreads and diversify your investment risk and yet, gives you the opportunity to partake in the bountiful economic growth all over the world.

I have constructed a fairly aggressive global-oriented portfolio consisting of 7 (ViPER) ETFs from the Vanguard Investment Group; it comprises:

VEU - Vanguard FTSE All-World ex-US ETF (15%)
VGK - Vanguard European ETF (10%)
VWO - Vanguard Emerging Markets Stock ETF (15%)
VV - Vanguard (US) Large Cap ETF (20%)
VO - Vanguard (US) Mid Cap ETF (15%)
VB - Vanguard (US) Small Cap ETF (10%)
VXF - Vanguard (US) Extended Market Index ETF (15%)

The above portfolio will provide the investor with a 60% / 40% US / Rest of World exposure. Depending on the risk-appetite of the individual investor, the % in Emerging Market or Rest of World ex-US can be increased at the expense of the US market exposure.

And by back-testing the portfolio all the way back to Jan 2 this year, the portfolio mix seems to have provide Joe Regular a YTD (year-to-date) return of approx. 14.5% thus far (Oct, 25, 2007), outperforming the Dow Jones Industrial and S&P 500 by at least 2% points so far.

The only index that could have beaten it thus far is the US Nasdaq 100 which has been on fire lately. Alternatively, if you are more into US-based Growth-oriented, you can opt for the Growth variety of the Mid-Cap and Small-Cap ETFs, which are represented by the ticker symbols VOT (Vanguard Mid-Cap Growth) and VBK (Vanguard Small-Cap Growth).

If you would prefer a more conservative approach, the Value-play ETFs include the VOE (Vanguard Mid-Cap Value) and VBR (Vanguard Small-Cap Value).

I chose the Vanguard ETFs only as an example. If you do some research, you will see more ETF providers ETF which caters to various investment profiles. Even with only 7 (equity-focused) ETFs to work with, you can see as illustrated how versatile the world of ETF can be for an investor to work with.

The main reason I opt for the ViPERs in this example is their expense ratio, which is very low - less than 0.5% p.a.!

The US Small, Mid and Large cap ETFs have expense ratios of 0.1% to 0.13% p.a. whereas the emerging markets and international funds charges on average of 0.2% to 0.5%! And as you can see, there are many combinations for an investor to tailor his/her portfolio in relations to his/her appetite for risk.

Compare that to the expense ratio of 1.6% p.a. charged by most domestic mutual / unit trust funds - you should at least give try and take the opportunity to let part of your investment portfolio participate in the global growth.

And by the way, there are even ETFs out there that track security types (bonds or bank debts, anyone?), commodity markets, and even lets you short the major stock index such as DJ S&P 500 (?!), and much, much more!

The possibilities to use ETFs as a tool to improve your investment return are endless and can be used in many ways to broaden your investment reach.

Parting Words

Hopefully, the introduction to the versatility and opportunities of ETF as an investment diversification tool will spur you to look at the various ETF resource centre on the finance website within Yahoo! Finance or MSN Finance that you can use to find out more about this useful investment tool.

So, go out there and explore the variety of investment options available to you with this investment instruments alone.

Until the next time, invest well and enjoy.