One of the best strategies to invest with good returns and lower tax liability is to invest in exchange-traded funds rather than a traditional mutual fund.

An ETF is very much like a mutual fund with the exception that they are traded on the stock market, just like a stock is.

When ETF shares are sold they are not redeemed in the same way that mutual funds are, they are sold to other investors. What's important in that is the issuer has no obligation to sell stocks to get cash for redemptions; consequently there are no net gains that have to be distributed.

Another advantage to ETFs is that they incorporate an index-type of investing that has a much more tax-friendly result contrary to mutual fund managers who continually go in and out of the market in pursuit of the next hot stock. This results in very little selling and movement so there are very few distributions.

Research by Morningstar reveals that ETFs are very advantageous to the taxpayer. At the end of January they reported that, ""the vast majority of domestic and international ETFs with five-year records ranked in the lowest half of their respective categories and broad-asset classes."

This is a very good opportunity for investors who look to minimize their tax burden. This along with index-type mutual funds and funds designed for the purpose of lowering your taxes should be part of your investing strategy.