Current
Signal Performance as of
Signal
Type |
Trade
Date |
Index |
Return
since issued |
|
|
|
Nasdaq 100 |
|
Russell 2000 |
|
S&P 500 |
|
Stocks retreated over the five-day span and gave back their gains of the
previous week. All major indexes moved higher for most of Monday's
session but reverted around 2pm to close with losses for the day. More
selling ensued Tuesday as record oil prices took their toll and
inflation fears resurfaced following news that the core Producer Price
Index (PPI) rose by 0.4% in April, double the 0.2% reading analysts had
predicted. Despite oil prices hitting $133 a barrel, Wednesday's session
looked to be a quiet one, but things changed quickly after 2pm as the
minutes from the last Federal Reserve meeting showed that policymakers
are increasingly worried about inflation and hinted that the interest
rate easing campaign may be over. Investors immediately started selling,
causing both the Nasdaq Composite and the
Dow Jones Industrial Average
to close down 1.8%. After a modest one-day rebound, stocks finished the
week by losing more ground Friday as persistently high oil prices raised
worries that consumers may cut back spending and hurt the economy.
Please note that the US markets will be closed Monday, May 26 in
observance of Memorial Day.
For the week, the Nasdaq 100,
S&P 500 and
Russell 2000 posted respective
losses of 3.56%, 3.47% and 2.30%. While the Nasdaq 100 is still located
above both its 50-day and 200-day exponential moving averages (EMAs),
the S&P 500 now rests below both its EMAs and the Russell 2000 is
situated in-between them.
For its part, our World Index Ranking portfolio
posted a 3.37% loss
this week. The portfolio consists of the 5 top-ranked world
indexes as of April 25, which marked the beginning of the current
4-week holding period. The World Index Ranking portfolio is
being rebalanced today, as the current 4-week holding period
is now over.
Our current Buy
signal remains in effect.
Planning
for retirement
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 May 9, 2008 article
"A few words about 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 -1.3% (12-month average
as of March 2007)! 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 "The 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. 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.
Question:
Can I use TimingCube
with my 401(k)?
Many subscribers have 401(k) retirement plans through their
current or past employer but, for various reasons, have not
considered them as candidates to be directed by the TimingCube
signals and recommendations. Employers and 401(k) administrators
frequently present the plans as inflexible "set and forget"
plans that you should just leave on auto-pilot. True to our
Trend Timing beliefs, we do not favor investment approaches
that leave your assets exposed to the whims of the market. We
deem the risk of severe downturns to be excessive. Despite the
limited investment choices available in most plans, implementing
the Model should be quite doable and profitable over the long
run. Here are a few tips.
- Since
your investment choices most likely do not include the currently
popular leveraged and inverse fund or ETF families, you
will likely have to select the Long Only strategy.
It is not the most aggressive or performant strategy but
it has shown to consistently beat Buy and Hold. And you
will be reassured to sit in cash during major market declines
- 401(k)
plans offer a few equity mutual funds to pick from during
Buy signals.
Most have some type of a large cap fund which should be
a good substitute for an S&P 500 index
fund. Any fund described as small cap will be a good approximation
for the Russell 2000 index
funds. For international diversification purpose, you may
not find a perfect match to implement the World
Index Ranking recommendations but diversified equity
portfolio funds that blend a mixture of domestic and international
companies of various sizes should correlate well with our
Model. And you may also find international or regional funds
to chose from.
- During
Cash or Sell
signals you will park your money in cash, a money market
fund, or any interest bearing fund that protects your capital
- Some
401(k) plans may have restrictions on the frequency of transfers
between funds or on the number of trades per year. Since
the TimingCube
system only trades a few times a year (3 to 5 on average),
this limitation should not be a big issue
- If
you left a 401(k) with a previous employer's plan we would
recommend transferring it to a Rollover IRA at a broker
of your choice. It will keep all the tax deferred attributes
of the 401(k) but gives you the flexibility to choose from
many more investment vehicles and to implement any of our
strategies
- Regardless
of how you invest, we highly recommend you maximize your
401(k) contributions because they are one of the best ways
to build the financial independence you need to retire.
And in many plans, the employer will match at least some
of your contributions, which is like getting a raise
Warm wishes and until next week.
The TimingCube
Staff
|
|