Credit Card Survey Says ...

In its 2005 credit card survey, the San Francisco-based nonprofit
advocacy group Consumer Action examined the pricing policies of 146
cards from 47 issuers. Here are some findings which might interest you:

Annual Fees: The majority of cards (68 percent) don't charge annual
fees. Of those that do, the average is $43.27.
Late fees: About 95% of cards carry late fees. The average late fee is
$27.46.
Penalty Rate: 79% of issuers impose a penalty rate when cardholders
are late with their payments. The average penalty rate has gone up to
24.23%, from 21.91 percent in 2004.
Over-the-limit fees: Again, 95% of cards have them and the average is
$30.18, with a high of $39.
Bounced check fees: If your payment check bounces, 89% of banks
surveyed will charge you an average fee of $28.61, with a high of $38.
Universal Default Rates: Even though you have a perfect record with
a credit card company, your rate may get jacked up because something
happened in another area of your financial life (like falling credit score,
late payment on a loan or other obligation, bouncing a payment check on
another account, too much debt, too much available credit, getting a new
credit card, or even inquiring about a car loan or mortgage). You get to
pay what is called universal default rate. About 45% of card issuers
impose a universal default rate. The rates can be as high as 35% (at
Merrick Bank). The 2nd highest rate of 29.99 percent is imposed by
Citibank, Bank of America and Providian.
Rewards: When it comes to rewards – e.g., airline miles, cash back,
points for merchandise or gasoline -- the number of cards offering them
has increased to 36% from 23% last year.

C & BAC: Downgraded

Citigroup (C) and Bank of America (BAC) are considered to be wall street
bellweathers for financial sector. So, on wednesday, when Merrill Lynch
downgraded both these stocks together to neutral, that must be taken into
consideration with lot of seriousness.

Merrill analyst Edward Najarian pointed out that there are few, if any,
potential catalysts to drive the stocks higher. Regarding Bank of America,
in addition to concerns about the flattening yield curve, he cited earnings
quality; expectations that the bank would post 2nd half and 2006 earnings
below current analyst estimates; expected dilution to earnings from the
MBNA acquisition in 2006; and a cutback in the share buyback program.
He also said he's concerned that the bank's $5 billion in unrealized losses
in the bond and derivatives portfolios could lead to realized losses in
upcoming quarters.

As for Citigroup, Merrill analyst Guy Moszkowski said that the broker's
2006 estimates for the bank at $4.31 a share are too high. It remains
dependent on private equity gains and some yield curve steepening, which
could fail to materialize. A flatter yield curve could pressure the corporate
business. Moszkowski pointed out that Citi's been spending faster than
revenue growth to maintain and grow business volumes and there are
"signs that this can no longer be offset by falling credit costs, especially
given the flattening yield curve." He also noted that there's no sign the
bank would slow spending.

For our readers, our suggestion is to invest money in some Exchange
Traded Fund (ETF) like iShare's S&P Global Financials Sector Index
Fund (IXG) or Select Sector SPDR-Financial (XLF). The yields are good
and expense ratios are low. Advantage: Diversified portfolio in this sector.

401(k): Changes Cometh

Over the next 6 months, some substantial changes may take place in your
401(k) or 403(b) retirement plan at your job.

Research has shown that workers who are eligible to participate in their
companies' 401(k) plans are sometimes slow to join the plan and feel
overwhelmed if faced with too many investment choices, and rarely take
time to rebalance their portfolios in accordance with changes in market
scenarios or in various aspects of their life. Few of them even contribute
the maximum allowed, or care to regularly increase contributions. So
employers are trying to initiate a streamlined 401(k) that will have a
number of default options designed to improve workers' chances of
building a solid nested egg. The changes include far fewer investment
choices, automatic enrollment, automatic rebalancing and automatic
deferral contribution increases.

Roth 401(k): Starting in 2006, the law will allow employers to offer a new
option in 401(k) plans: to contribute after-tax money that will grow
tax-free. Currently, your 401(k) contributions are pre-tax, meaning you
get a deduction the year you make the contribution, and you pay income
taxes on your contributions plus earnings when you retire. Since this new
option is similar to Roth IRA (but also differs in many ways) it is called a
Roth 401(k) -- or a Roth 403(b) if you work for a non-profit organization.
It's not a separate plan from your existing 401(k), but rather a new
element to it.

So you will be asked first how much of your gross income you'd like to
contribute to your retirement plan -- say, 20%. And then of that, you'll
indicate how much you'd like to put in the pre-tax portion of the plan and
the after-tax portion – say, 10% in each.

CD investment update

It is the same story that is going on for a year or so. The short-term yields
continued to benefit from hikes in Federal Reserve's rate, whereas the
longer term yields remained as sluggish as cow by the economy's trouble
spots. With more possible rate hikes in line, it is a wise policy not to lock in
your cash in long-term CDs.

Short-term CDs, especially with 6-month maturities seem to be the best
opportunity to take advantage of rising yields. If you donot even want to
lock in your money, you may still enjoy a good 3.50% APY by putting it in
NY-based bank Emigrant-Direct by simply opening a savings account. No
minimum deposit is necessary. The Ing-direct bank also offers similar
account but with 3.15% APY.

If you will still consider a 1-year CD, the 'Raise Your Rate' CD offered by
IndyMac Bank could be a good choice. You need to put minimum $5000
and the yield is 4.10% APY. Advantage is: They allow One-time rate
increase feature which may be exercised by you at any time during the
term whenever you feel it is prudent to do so. The entire balance will begin
earning the higher rate (available at that time) from the day following your
request. The original maturity date will remain unchanged.

Inflation-linked Investment

As of June end, 2005 the inflation rate is 3.1% in USA.
Inflation is defined as a sustained rise in the general level of prices of
consumer goods and services and is measured by the non-seasonally
adjusted Consumer Price Index (CPI) for All Urban Consumers. The CPI
is a good measure of inflation as experienced by consumers in their day to
day living expenses and is often referred to as the cost-of-living index.
For getting additional information about the Consumer Price Index, visit
the website of U.S. Department of Labor .

In an inflationary environment, today’s dollar may be worth only a fraction
of a dollar next year. Inflation poses a problem for all investors, including
holders of fixed-income investments, because the effects of inflation can
erode the real value and purchasing power of coupon payments received
in the future. To illustrate, it takes $12,746 in 2004 to buy what could be
purchased for only $10,000 in 1994.

For investors who rely on the stability and predictability of fixed-income
investing, finding ways to limit or mitigate the effects of inflation are
crucial. It’s clear from the example above that investors who are saving
for some future expenditure, be it a major purchase or living expenses in
retirement, could benefit from an investment that preserved purchasing
power. Individuals already in retirement are keenly aware of the effect of
inflation on the fixed payments generated by many investments.

An investment with coupon payments linked to changes in the CPI can
help investors maintain the same standard of living even as prices rise. In
fact, any investor with a well thought out asset allocation strategy would
be wise to consider adding inflation-linked investments to their portfolio.
Such investments provide diversification benefits when combined with
equity and fixed-income investments and also help to offset the negative
effect inflation can have on other asset classes.

Targeted Maturity Funds

Target retirement funds are also known as life-cycle or target maturity
funds. The rule is very simple to understand: As an investor approaches
retirement, these funds take less risk with stocks and put more money
into conservative bonds. In retirement, these funds put most of the
money in income-producing bonds.

U.S. fund companies like Fidelity Investments, T. Rowe Price Group, the
Vanguard Group and Charles Schwab & Co., among others, have launched
versions of the life-cycle strategy. Nowadays the earliest retirement funds
mature in 2010, with others offered in 5- or 10-year increments up to
2045. In general these funds have been well-received, even though most
of these are not much more than a year old and performance records are
short.

Not all life-cycle funds are alike. Some funds take more risk than others.
The trade-off is straightforward: Stocks can provide a larger retirement
nest-egg but are more volatile -- especially smaller-capitalization shares.
Bonds are relatively stable and safer but lack stocks' long-term punch.
Vanguard Target Retirement 2025 Fund (VTTVX), for example,
emphasizes on growth and income, whereas T. Rowe Price Retirement
2020 Fund (TRRBX) allocates almost 80% in stocks - a more aggressive
approach than the Vanguard fund's 60% allocation to stocks. Fidelity
Freedom 2025 Fund (FFTWX) invest 64% in domestic and 11% in
international equities.

PBW: Clean Energy ETF

On Monday we discussed that socially responsible funds recently lagged
the broader index mainly because of their aversion to the Energy sector
which boomed in recent months with rising oil prices.

Today we talk about an Exchange Traded Fund (ETF) that might try to
reap some benefits of being in the Energy sector while keeping your
social responsibility intact: PBW.

PBW is based on an index of publicly traded energy companies that focus
on environmentally friendly sources of energy and technologies and
started trading on the American Stock Exchange on March 3. The index
contains 37 companies that use greener and renewable energy
alternatives such as wind, solar and hydrogen fuel cells.

The ETF, which is managed by PowerShares Capital Management, tracks
the WilderHill Clean Energy Index, a benchmark calculated by the Amex.

DVY & PEY: For Dividend

Barclays Global Investors (BGI) is a big powerhouse in the business of
Exchange Traded Funds (ETFs). In November 2003 they launched an
ETF : "DVY". Its performance benchmark is the Dow Jones Select
Dividend Index which invests in 50 of the highest dividend paying stocks
(non-REIT) in the Dow Jones U.S. Total Market Index. DVY does not
invest in REITs (real estate investment trusts), because of the
unpredictable nature of their dividend distributions.

A company can be considered for the index if it has been paying dividends
for five years and has a high payout ratio (dividends in relation to
earnings). The reduction of tax (to only 15%) on dividend income by Bush
administration fuelled a strong growth and popularity of this ETF among
both individual and institutional investors.

In our past postings we discussed another such ETF: "PEY", PowerShares
High Yield Equity Dividend Achievers Portfolio. PEY seeks investment
results that, before expenses, generally correspond to the price and yield
performance of the Mergent Dividend Achievers 50 Index. The Index is
comprised of the 50 highest yielding companies with at least 10 years of
consecutive dividend increases.

The Wheaton, Illinois-based PowerShares is rather a new player in ETF
world but this year they have launched quite a number of new ETFs.
PowerShares' PEY could produce a higher yield, although with 50 stocks in
its portfolio, it has more risk from less diversification as compared to
100-stocks' portfolio of DVY. Another difference in investment strategy is:
PEY weights stocks by dividend yield, whereas DVY allocates its assets
among stocks based on the absolute size of the dividend.

International Funds: Q2

These are the top-performing international mutual funds of the 2nd
quarter:
1. T. Rowe Price Latin America Fund (PRLAX) , which gained 12%.
2. Scudder Latin America Fund (SLANX), Gain 10.7%
2. Eaton Vance Greater India Fund (ETGIX) , Gain 10.7%
3. T. Rowe Price International Emerging Europe Fund (TREMX) ,
Gain 10.6%

Latin America performed quite well during this quarter. The average
Latin American fund gained 10% in the period. Continued upbeat
corporate earnings, notably from Brazil, and a weaker dollar versus Latin
American currencies helped the funds to boost over the past 3 months.
However, there is caution on Latin America, though, as most countries
are facing major elections next year and many fund managers have
started taking profits now.

The average emerging market portfolio has only about 7% of assets
dedicated to India' stocks, which have been hitting new records due to
upbeat corporate results and inflows of foreign funds. In addition, the
quarterly gross domestic product surged a higher-than-expected 7% in
the 1st quarter. Some analysts are expecting that level of overall growth
for both 2005 and '06. That compares to 2006 growth expectations of
8% for China. Indian companies have better corporate governance and
liquidity than China stocks. The Indian market is one of the more richly
valued markets. Corporate earnings in most Indian companies have been
consistently turning in impressive results.

Among developing countries, Russia has been attracting buyers in the
past few months for its relative stability. Investors are slowly gaining
confidence again in Russia markets.

Socially Responsible ETF

Being Socially Responsible while investing in stocks gives you a good
feeling and it may matter a lot to you if you are averse to industries
such as tobacco, defense and energy.

However, the reality is that if you take those industries out of your
portfolio, your investment may suffer from high risk of less
diversification. Also, recently these funds lagged the market because
they are usually underweight in the energy sector, which has posted
strong gains with oil prices rising dramatically. Also, these funds never
utilized the tobacco company Altria's (MO) recent gain and regular
dividend.

But money may not be everything in investment and some people
argue that socially responsible companies, by their nature, are usually
solid investments and in long term they really pay off. Two of the
respected index funds in this area are: Vanguard Calvert Social Index
Fund (VCSIX) and the TIAA-CREF Social Choice (TCSCX).

In late January, Barclays Global Investors launched the iShares
Select Social Index Fund KLD , the first socially responsible ETF. As a
comparison, KLD's expense ratio is 0.50 percent of assets, while both
these Mutual funds have fees of 0.25 percent and 0.27 percent. Also,
unlike no-load mutual funds, ETF investors must pay broker
commissions to buy and sell shares. This is somewhat disadvantageous
if you plan to dollar-cost average.

Silver & Gold ETF

Barclays Global Investors filed an initial prospectus for the first exchange
traded fund (ETF) to reflect the price of silver bullion. If approved by the
Securities and Exchange Commission, the ETF's shares would trade on the
American Stock Exchange under the symbol "SLV." Each share of the ETF
would be equivalent to 10 ounces of silver.

The silver held by the ETF would be valued on the basis of that day's
announced London Fix, the price per ounce set by 3 market-making
members of the London Bullion Market Association at approximately
noon, London time, each day.

The silver ETF appears structured similarly to 2 existing gold ETFs
(Read our past posting) -- StreetTracks Gold Trust (GLD) and
iShares Comex Gold Trust (IAU). Shares of the gold ETFs represent
ownership in fractions of ounces of gold bullion held in a vault. The
introduction of StreetTracks Gold Trust, the first gold ETF, in
November was one of the most successful mutual-fund launches of 2004,
as the ETF gathered about $550 million in its first day of trading. It now
has roughly $2.5 billion assets, compared with $175 million for the
iShares Comex Gold Trust, which began trading in January.

Like the gold funds, the silver ETF launch could tap the demand from
institutional investors who cannot hold silver directly. In recent weeks,
market observers have said anticipation of the first silver ETF filing may
have been pushing price of the metal higher.

Remember that similar to investing in gold ETFs, silver is classified as a
"collectible" by the IRS -- if held for more than one year, gains are taxed
at a 28% rate, compared with the 15% rate applicable to most other long
term capital gains.

Microcap Index & ETF

With the market's smallest stocks outperforming in recent years, coming
out of a recession, new interest on microcap stocks has surfaced among
investors of all kind. ..And at least 3 benchmark providers came up with
brand-new indexes seeking to capitalize on the popularity and strong
performance of microcap stocks.

In late 2004, Morgan Stanley Capital International (MSCI) introduced a
microcap index targeting the bottom 1.5% of the U.S. stock market. MSCI
is best known for its international stock indexes. It has made inroads in
the U.S. market after index-fund giant Vanguard Group switched over to
MSCI benchmarks for several of its passively run portfolios starting in
2003.

On June 24th, Russell Investment Group, which calculates the small-cap
Russell 2000 (RUT) and other widely followed indexes, launched a
microcap benchmark in conjunction with its annual index reconstitution.
Barclays Global Investors has already filed a registration statement with
the Securities and Exchange Commission for an Exchange Traded Fund
(ETF) tied to the new Russell Microcap Index.

In the following week, on June 27th, Dow Jones Indexes, an unit of Dow
Jones & Co. (DJ) launched an index of 281 microcap stocks listed at the
New York Stock Exchange, the American Stock Exchange and the Nasdaq
Stock Market. The benchmark has been licensed to First Trust Advisors
as the basis for a future exchange-traded fund.

So, it is time to wait for these microcap ETFs to hit the market...

Again ..Fixed and ARM

Yesterday we posted advantages. Today we discuss disadvantages of
both the Fixed and ARM type of mortgages.

Fixed: o More income needed to qualify because of higher initial
mortgage rate. o If interest rates decrease appreciably, it will be
necessary to refinance to get a lower payment and refinancing is an
expensive process. o If you need to sell your house within 5-6 years, you
will make unnecessarily higher payment than what you would by going
for ARM.

ARM: o If interest rate increases after a specified period, your payment
will also increase (but not more than 2% in a year). o A large increase in
rates - and payment - may make your house unaffordable for you.

Even though we are talking about disadvantages today, let us also
indicate again that in ARM option, you will make lower payments in initial
years. So, even if the ARM rate increases after that, you may get some
more years' time to break-even with higher payments that you would
have made by selecting a Fixed rate. So, if the difference in rates of ARM
and Fixed is quite a bit, it is worthwhile going for ARM and save money
now rather than later. Whatever you do, always keep the refinancing costs
in mind. It's not cheap.

Refinance: ARM & Fixed

Refinancing activity has peaked up again.
When buying or refinancing a property, you need to choose between a
fixed interest rate (that remains constant through the life of the
mortgage) or an adjustable (adjusted up or down - at specified times
during the mortgage term). Adjustable Rate Mortgages (ARM) will have
an initial interest rate lower than fixed rates but will adjust upward
(unless rates really fall) after a specified period.

ARM may be good choice if you are sure that you will not be owning the
home for an extended period (more than 5-6 years) of time. Today we
discuss Advantages of both types of mortgages. Tomorrow we will post
disadvantages of both.

Fixed: o No anxiety over interest rate fluctuations. o Since you know
what your payment will be for the life of the loan, you can budget more
easily. o No possibility of an interest rate change making your mortgage
amount suddenly unaffordable.

ARM: o Lower initial rate and so lower monthly payment. o If interest
rate declines your rate will also decline. o Easier to qualify for due to
lower monthly payment which increases your affordability too.