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Signal Update
Current Signal Performance as of
Signal Type
Trade Date
Index
Return since issued
Nasdaq 100
Russell 2000
S&P 500
QQQQ

Cumulative Returns since First TimingCube Live Signal () as of
Index
Long Only
Long Only
with
Margin
Long & Short
Long & Short
with
Margin
Buy & Hold
Nasdaq 100
Russell 2000
S&P 500
QQQQ

Note: QQQQ returns are included for continuity sake.

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Market Update
A tug of war between good economic news on one side and higher oil prices and inflation concerns on the other caused the major indices to mark time the first four days of the week. Then on Friday, a better-than-expected February jobs report sparked buying interest and helped the S&P 500 and the Dow Jones Industrial Average completely erase their January losses to close at new 52-week highs. In fact, the Dow managed to finish the week above 10,900 for the first time since June 2001. The economy added 262,000 jobs in February, the best number in 4 months. Further, payrolls expanded without hinting at inflation, showing that the economy is on solid footing. With the exception of the Nasdaq 100, which is still lagging, all major indices are resting comfortably above their 50-day exponential moving average (EMA).

For the week, the Russell 2000 and S&P 500 respectively gained 1.16% and 0.89%. As for the Nasdaq 100, it posted a 0.41% loss. Our active Buy signal remains in effect.

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Trend Timing School
Retirement investing basics

When it comes down to investments and retirement readiness, Trend Timers are typically miles ahead of the average American, both for having chosen to save and for having selected a superior investment approach. Building, growing and keeping the wealth we will need during our older years is such an important, yet all too frequently ignored or neglected, aspect of our lives that we felt compelled to reinforce some basic principles. This short article cannot replace a good financial or tax advisor, nor is it a substitute for the many traditional sources of retirement-related advice such as retirement calculators or lists of best retirement spots.

For those (few) who keep their financial house in perfect order, we apologize in advance for there will be no revelation here. For the rest of us, the commentary may sound like a lot of common sense or motherhood and apple pie, but if we can convince even a few to begin saving, to increase their level of commitment, or to take action to invest for wealth, it will have been worth it.

Retirement investing involves two different phases, before and after retirement. The former is crucial because it is the accumulation phase when, during our earning years we should amass wealth through savings and growth. Since most of us will spend about three times longer working (about 45 years) than retired (about 15 years), we should all have plenty of time to save and to let compounding do its miracles, right?. Well, guess again.

Begin as early as possible
The rationale for accumulating wealth for our older days should be obvious to everyone. If nothing else, chances are that most of us will see smaller social security benefits by the time we retire (if any, for the younger ones) and we know that we will have to depend in larger part on our own savings. Human nature being what it is, most people do not really think or worry about their retirement at an early age. Very few ever do any serious financial planning and as a result, most of us only begin significant efforts to build a nest egg in our forties or fifties. Time wasted has to be the single biggest culprit for problematic retirement finances. In our December 5, 2003 article "The power of compounding", we showed how time combined with good consistent returns can dwarf the amounts invested. In forty years time, a single $10,000 investment at an average yearly return of 15% grows to well over $2M. Let this serve as the "kick you know where" for those of us "too young to get started". And if you happen to know someone "too young to get started", the best service you can do is to teach them about the miracles of compounding.

Save as much as possible
The personal saving rate in the United States has fallen sharply over the last 20 years, and it is now at record low levels as compared either to U.S. historical experience or to the savings behavior of many other industrialized countries. The U.S. Department of Commerce's Bureau of Economic Analysis shows the personal savings rate at a new all time low at 1.1% (12-month average)! Japan and most European countries' saving rates range between 12% and 15%. There is serious evidence that a minimum of 10% of your disposable income should be a minimum savings rate. What's more, it is not that difficult to achieve if you set your mind to it. If you have trouble in this department we would highly recommend reading "Richest Man in Babylon" by George S. Clason, a modern classic and great inspirational book on financial planning and personal wealth.

Maximize contributions to qualified retirement plans
While our circumstances vary, we can all benefit from the qualified retirement accounts allowed under the current U.S. tax code. Even if our contributions are not pre-tax because we earn too much money, exploiting the yearly deposits to qualified plans should be a no-brainer. As we spelled-out in the April 16, 2004 article on "Tax considerations", the benefits of growing and compounding your money tax-deferred are overwhelmingly attractive. In addition, contribution in many of the plans, such as a 401(k), can impart you with "free money" because of the participation of your employer.

Invest consistently and aggressively
Statistics such as those frequently published by Morningstar and others show that the vast majority of investors do not come close to achieving the average returns of the broad stock market. There are of course many reasons for this, but the most important ones are the level of commitment and consistency. If you have most of your assets sitting in cash or interest-bearing vehicles like bonds and treasuries, you should not be surprised that your overall yearly returns are lagging. If you have been burned by losing your hard-earned savings by holding all the way down during a bear market, you need a new tactic. If you keep chasing the hot tip, sector, or investment system, you are bound to be disappointed over and over. In order to achieve superior results you have to commit substantially all of your serious money to the stock market. To do that for the long-term, it has to be with a sustainable and manageable method that will not drive you crazy, and that will not lose half of your portfolio during every bear market. These are the motivators behind our Trend Timing approach which offers a long-term, all-weather system of investment.

Continue investing aggressively after retiring
You first have to know what you retirement age is, and most people wrongly assume it is 65. Since the Social Security Amendments signed by President Reagan in 1983, our retirement age has been rising. For persons born since 1938, the full retirement age is now closer to 66 or 67. Want to find what your full retirement age is? Click here. Most of us have been brainwashed into believing that as soon as we retire, our money needs to be yanked from the "risky" stock market and placed in "safe" interest-bearing instruments. While it is true that you will depend on withdrawals from your reserves for your living expenses after you retire, it would not be wise to switch everything to income generation. Most interest-bearing investments tend to trail inflation and cause your nest egg to shrink over time. Further, recently published figures from the National Center for Health Statistics show that life expectancy for American men has reached a new all-time high 77.6 years at birth. Over 80 if you are a woman. If you are 65 today, your life expectancy is 18.5 years, which means odds are good that you will celebrate your 83rd birthday. Remembering the compounding discussion above, it is quite compelling to want to continue receiving superior returns for such a long period. Especially if instead of suffering losses during market downturns you are able to gain from them.

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FAQ of the Week
Question: Are options not much more risky than ETFs?

Yes and no. First of all we would like to stress one more time that options are complex securities that could be used in very high risk transactions, which is why you should never invest in something you are not fully knowledgeable about. This being said, the option trading strategies we describe in these pages (see the 01/21/2005, 01/28/2005, 02/04/2005, and 02/11/2005 Trend Timing School articles) are intentionally simple and offer a known and limited risk.

When buying calls or puts, the maximum loss possible is the amount invested. Yes, the chances of an option position becoming a total loss is a lot higher than of those of an ETF going to zero. After all, our options could become worthless if the underlying security declined by a few dollars to put us out of the money, and stays there through expiration. This is exactly why we recommend only investing 10% to 15% of your portfolio when buying options, which is the reason our option strategies can also be safer than investing in ETFs. Instead of having your entire portfolio exposed, as when holding ETFs, our exposure is only 10% to 15% with the equivalent option position, the rest being in cash. In case of an extreme event our ETF holdings could conceivably drop by 30% or more while our portfolio would only decline by 10-15% should the options become worthless.

Warm wishes and until next week.

The TimingCube Staff

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