Last week I undertook the challenge of designing a $500,000 retirement strategy for people in IRAs or 401Ks that would produce $50,000 per year of current income while maintaining the principal. I said that I would put $200,000 into relatively safe bond funds that were paying about 6% interest and then create three $100,000 stock portfolios with the remaining $300,000.

I used a variation of the Vector + Vector Strategy to create the first $100,000 portfolio and I have named this strategy, "High VST+YSG Stocks." You may find it in the UniSearch Tool located in a new Strategy Group called, "Strategies - Retirement." Since this strategy is restricted to finding optionable stocks, I felt that I could generate at least $15,000 of cash per year from the top 10 stocks it found by selling Covered Calls. Therefore, I could produce about $27,000 per year of current income from the first $300,000 of investment. Now I need to generate an additional $23,000 per year from the remaining $200,000.

In the second $100,000 portfolio, I aim to generate most, if not all, of $11,500 per year of current income directly from dividend payments. This means that I must select high dividend yield stocks that are reasonably reliable. So I created a new strategy called, "High Yield 2x10s." This strategy finds stocks that pay at least a $2.00 per share dividend and have a yield of at least 10%. It sorts by VST+YSG descending. As of last night, it found 25 stocks with American Capital, AGNC, at the top of the list. VectorVest shows it paying a $6.00 dividend with a 20.11% dividend yield. Is that too good to be true? Well, the Dividend Safety, DS, rating of 28 means that the risk of a cut in dividends is relatively high. However, from what I read on Yahoo!Finance, the risk of a cut in dividends is low as long as the Fed keeps interest rates low. I'm willing to take that risk right now, so I own the stock.

The point is that you shouldn't jump into any of these stocks without thoroughly checking into them. Moreover, I would not buy more than one of these stocks in any single Industry Group and no more than two stocks from any Business Sector. Even though the top three stocks all look to be very juicy and have performed very well over the last six months, they are all in the REIT(Mortgage) Industry Group. When I put the 10 highest ranked eligible stocks into a WatchList, I see that the average dividend yield is 13.60%. So these stocks clearly could deliver the income I'm looking for, but they must hold up. Finally, nine of the 10 stocks I selected have options. This is good because it allows me to sell Covered Calls if I wish.

For your convenience we have created a new WatchList Group called, "Retirement Stocks." It contains two WatchLists: one called, "High VST+YSG Stocks," from the strategy I created last week and one called, "High Yield 2x10s," from this week's strategy. A QuickTest of these 10 stocks from 03/26/09 to 09/24/09 shows that they outperformed the VVC 43.13% to 29.62%. That's very good, but they behaved very much like the VVC over the past three years. So the high dividend yields didn't provide much added safety during the down market. Therefore, you can't buy these stocks and forget about them. They need to be managed just like any other stocks.

Next week I'll create the third and final portfolio of stocks in this series; then I will go into some detail on how to manage them. You may find that you can be kept busy managing the portfolio described in today's essay, Retirement Strategy - Part II.

HOW TO GENERATE EXTRA INCOME FROM DIVIDEND PAYING STOCKS.
Research in Motion doesn't pay a dividend and it has a Yield-Safety-Growth Vector (YSG) of zero. So you'll never find it listed as a High VST+YSG stock. That's good because RIMM closed down $14.15 per share today and you won't find too many highly volatile stocks among the High VST+YSG crowd. In a way that's too bad because high volatility makes options premiums very juicy and selling juicy option premiums on dividend paying stocks is a good way to generate extra income. This is exactly what Mr. Todd Shaffer, one of our best Instructors, will demonstrate in this week's "Strategy of the Week" presentation. So join Todd at the VectorVest University to learn "How to Generate Extra Income from Dividend Paying Stocks."

I received an email from a subscriber recently that said, "I retired four years ago with about $650,000 in 401K's and IRA's. This is essentially all the savings I have which is now about $500,000. I lost about $150,000 in the 2008-2009 period plus the drawdown of $3000 per month pre-tax. However, I've enjoyed some great swings to the upside exceeding $100k a number of times, but 2008 really hurt. I need a prudent growth strategy to generate 10% annually with some reliability. This could be dividend stocks combined with growth so I am in when your market timing indicators say I should be; out when you tell us and a safe downside short or ETF strategy. So a retirement strategy for people in IRA's or 401K's that includes the drawdowns while maintaining the principal is the challenge. What approach would you take?"

The first thing I would do is to open an account with a discount broker and make sure that I could sell Covered Calls. Then I would allocate my money into five parts. Two parts, i.e., $200,000, or 40%, would go into relatively safe bond funds that were paying about 6% interest. I would then create three stock portfolios with the remaining $300,000. The first of these portfolios would be created as follows:

Vector + Vector. This portfolio would be based upon the Vector + Vector strategy, which is ideally suited for retirement portfolios. It finds stocks with the best combination of VST-Vector for capital appreciation and YSG-Vector for current income. I ran this strategy as of yesterday and it found only one stock. So I copied the search and revised it. I lowered the RS requirement from >= 1.50 to >= 1.25. I also adjusted the search to return only xA, xN and xO stocks. It then found 15 stocks. I also ran the revised search as of March 26, 2009. It found 20 stocks. Quick test showed that the top 10 stocks when sorted by VST + YSG gained 26.97% with 100% winners. This is less than the 31.80% gain of the VVC, but it's not bad.

I then put the top 10 stocks from March 26th into a WatchList called Vector + Vector, 1.25. It showed that the average Dividend Yield, DY, was only 1.30 percent. That's not so hot, but I'm not worried because I would sell out-of-the-money Covered Calls against these stocks to generate current income. This income could easily exceed $15,000 dollars per year. The really good news is that a comparison graph showed that the portfolio of these stocks handily outperformed the VVC over the last 1, 2 and 3 year periods. So I feel pretty good about the Vector + Vector portfolio.

Now I have to get to work putting the last $200,000 to good use. My challenge is that I expect to make only about $25,000 to $30,000 dollars of current income from my first $300,000 of investments. So I'm going to have to generate a higher rate of return on the remaining $200,000 and I can't afford to take on too much risk. I'll explain how I intend to accomplish this task next week. In the meantime, you can get started on doing the things we discussed right here in Retirement Strategy - Part I.

BEELINE WINNERS.
Last week I wrote a few words about how I had been intrigued by stocks that had received two or more consecutive "B" recommendations. I called them "BeeLine" stocks and I also said I had never turned the idea into a killer Strategy. Well, maybe we got one.

Mr. Jerry D'Ambrosio, one of our best Product Support Reps, did an extensive study of the performance of "BeeLine" stocks and arrived at some startling conclusions. He will share them with us in this week's "Strategy of the Week" presentation. So join Jerry at the VectorVest University and learn all about an exciting new strategy that you're going to love: "BeeLine Winners."

If you haven't been watching the videos of the Daily Color Guard Report, you've been missing out on some great information. Where else can you get an objective analysis of exactly what the market is doing, a list of the best and worst performing Strategies of the day and guidance on what to do now for the price of just a few minutes of your time?

For example, last night's presenter, Mr. Don Thornton, said that even though we are waiting for the 1% trigger to go long in our Yellow Brick Road and Riding-the-Wave portfolios, it was OK for you to buy stocks of your choice if the market was moving higher. In other words, it was OK to "tippy toe" into the market when the Color Guard is Bullish.

While I thought this would be self-evident, we continue to get hundreds of calls each day asking about the YBR and Model Portfolios. You may now go to http://www.vectorvest.com/modelportfoliocalls to see the current status of this portfolio. In order to not move the market, it will tell you whether we are Long, Short or in Cash, but it will not reveal the Strategy we used. Incidentally, thousands of you have learned how to know what we're going to do and I think that's great. But it is the reason we plan to use high volume stocks in our portfolios. See my essay of July 31, 2009.

Since this decision may place more of a burden on you to find the hottest Strategies, we will list each day's top five winners of the VectorVest RealTime Derby in the Strategy section of the Views. Last night, Mr. Thornton discussed each of these Strategies and suggested that you use the UniSearch Tool to see what they were offering for today's trading activity. That's great advice. Mr. Thornton also suggested that you join him in tonight's "Strategy of the Week" presentation. He's got something very special to share with you.

To get into the rhythm of knowing what to do and when to do it, watch the "Daily Color Guard Report" and the "Strategy of the Week" presentations. They're Priceless.

BEELINE SIXERS.
Fifteen years ago, when we were Beta testing VectorVest ProGraphics v1.0, I became fascinated by stocks that had received a series of consecutive "B" Recommendations. Of course, these stocks were performing quite well and many of them continued to do so long after they had achieved the exalted status of having received six consecutive 'B' Recommendations. I coined the term, "BeeLine Six," for these stocks and that was fine. But I never turned the idea into a killer Strategy. Now I think I'm a step closer.

In last Wednesday's Daily Color Guard Report, Mr. Thornton observed that seven Strategies had identical results. The key was that every one of the Strategies sorted stocks by VST Descending and five of them found stocks that had received two or more consecutive 'B' Recommendations. A ha, I thought, the momentum market has surely returned. So I went into UniSearch and ran a series of "BeeLine" searches from March 17, 2009 forward and Quick Tested them to yesterday. The results were quite good.

Then I thought, "What would happen if I sorted by VST Asc instead of VST Desc?" The performance was usually better, sometimes much better. By golly, bottom fishing works even when you're dealing with high momentum stocks such as the BeeLine Sixers.

The key to making money in any market lies in mastering the fine art of buying low and selling high. This, of course, is a lot easier said than done.

When it comes to stocks, most of us have been taught that a stock's price is low after it has fallen in price. So we bought stocks that were going down in price, hoping they would turn around and start going up. Bitter experience taught me that this was a dangerous practice...you never knew how low they would go. So the alternative would to be to buy stocks that were going up in price, right? Right.

You have to be kidding. If they were going up in price, they are higher now than they were before, so how could they be low? The answer lies in your assessment of what the stock's price is likely to do. If the stock's price has been going up and you thought it was likely to continue going up; then it would be low in price. On the other hand, if you felt that the stock's price was more likely to start going down; then it would be high. So the secret to buying low and selling high lies in assessing what a stock's price is likely to do.

Fundamentalists, who tend to invest for the long term, believe that undervalued stocks, such as those with low P/E ratios, are most likely to go up in price over time. They also believe that stocks of companies with consistent, predictable earnings and solid growth rates, i.e., safe stocks, also will go up in price. Technicians, who tend to invest for the short-term, look for evidence, such as moving averages, of price movement to the upside. Both of these schools of thought have merit, therefore, VectorVest advocates buying safe, undervalued stocks, rising in price. Even so, judicious application of these techniques is not enough to achieve the best results in both bull and bear markets.

Our experience has shown that if you want to make money in both bull and bear markets you must let the trend be your friend. You must buy rising stocks in rising markets and sell falling stocks in falling markets. Everything starts with the market direction and that's why we put the Color Guard right at the top of our Home Page. It tells you in an instant what the market is doing. When the Color Guard is showing Green, the market is rising. When it is showing Yellow, the market is in transition. When it's showing Red, the market is moving lower.

In my essay of September 12 2008, I said, "Think of the Color Guard as you would a traffic light. Green means go, it's OK to buy stocks. Yellow means caution, it may or may not be OK to buy stocks. Red means stop, don't buy any stocks." I urge you to read the entire essay, which is entitled, "The Color Guard, Clarified." It will go long way in helping you master the fine art of Buying Low and Selling High.

IS USING LEVERAGED ETFs WORTH THE RISK?
If you "Google" the term "Risk of Using Leveraged ETFs," you'll get about 175,000 hits with several good articles in the top 10. So the risks of using leverage ETFs has not gone unnoticed, but understanding why and how the risks arise may also be of interest to you. We're not going to go into those subjects here, but Mr. Todd Shaffer, one of our best instructors, will give us a fascinating presentation in which he compares the performance of standard ETFs vs. leveraged ETFs. So visit the VectorVest University to see this week's "Strategy of the Week:" "Is Using Leveraged ETFs Worth the Risk?"