I received another email recently in which the writer is concerned about the future. Specifically, he is concerned about deficit spending, the money supply going through the roof with all of its unintended consequences, stagflation and inflation. He wants to know if there's a strategy one can use to help maintain a person's current buying power.

The issue of maintaining one's buying power is not a trivial matter and is more important now than ever before. Even with the rally from the March low, many investors are still recovering from sizeable investment losses suffered in 2008 and they cannot afford to see their buying power reduced further for any reason, be it retirement, a weaker dollar or inflation. So what to do?

As indicated in Chapter I of "Stocks, Strategies & Common Sense," the answer is to "invest in stocks which have earnings growth rates greater than the sum of inflation and long-term interest rates." True, but you can't buy just any old stock. You need to buy stocks of the most successful companies, companies that crank out higher and higher earnings year-in and year-out. These are large capitalization stocks that have visibility and are favored by Pros.

OK, so how does one find these stocks? Simple, I created a strategy called Premier Growth Stocks and put it into the Strategies - Retirement Group of the UniSearch Tool. I tested it over three time periods covering a total of 126 months: (1). January 5, 1996 to March 24, 2000; (2). March 21, 2003 to November 1, 2007; and (3). March 26, 2009 to December 2, 2009. I stayed "Long" 100 percent of the time during each test period and managed the 10 stock portfolios on a weekly basis. The Average Annualized Rate of Return for the three tests was 51.65% and the Average Maximum Drawdown was 14.15%. The Premier Growth Stocks Portfolio outperformed the VectorVest Composite in each test.

I tested the Premier Growth Strategy during the two Bear markets between the periods cited above and the results were not pretty. I have some ideas on how to cope with this problem for those who need or want to be long all the time, but for now my suggestion is to go into cash or buy some Contra ETFs when the next Bear market arrives. Yes, but how does one know when a Bear market has arrived? Simply read the Views. We called the one in March 2000. We called the one in November 2007, and we expect to be able to recognize the next one when it comes. Moreover, I plan to start a Premier Growth Stock portfolio next year so you can use that as a guide.

Right now I'm quite sure that you can maintain your purchasing power by investing in Premier Growth Stocks.

PREMIER GROWTH STOCKS.
This is a strategy that's easy to implement and produces good results. But you have to know the secret to making it work. Like anything else, it's so simple once you know how. So join Mr. Glenn Tompkins at the VectorVest University to see this week's wonderful "Strategy of the Week" presentation: "Premier Growth Stocks."

Four weeks ago I began writing about 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 build three $100,000 stock portfolios with the remaining $300,000. Almost immediately we began receiving calls and emails asking about safe bond funds. That's not our particular field of expertise, but I didn't think it would be all that hard to find such funds, and it's not.

Just recently I went to my bank and put some money into a "Tax-Advantaged Municipal Closed End Portfolio," which is expected to pay about 6.9%. You should be able to do the same if you wish. If you don't want to do that, you can Google the term, "safe bond funds," and get nearly 900,000 hits. The top three listings should more than meet your needs. Of course you can always Google the term, "Pimco," and also receive a wealth of information.

If you don't want to go that route, you can always use VectorVest. Simply click on Viewers on the Main Menu Bar, click on Sector Viewer, click on ETFs, right click on the ETFs row, click on View Industries in Business Sector, sort By Industries Asc, click on ETFs(FixedInc\Other), right click on the ETFs(FixedInc\Other) row, click on View Stocks in Industry Group and sort by DY. You should see JNK at the top of the list with a DY of 12.29%. Overall, you should see nine ETFs with dividend yields of 6% or more. Pick your poison.

As you can see, even in the world of zero percent Federal Funds rates, you can still find Relatively Safe Bond Funds Paying 6%.

ATTENTION REALTIME USERS.
Have you run any searches using double crossovers? Try it, you'll love it. I've been experimenting with a search that finds stocks having a 20 day DPO crossing above zero and MACD crossing above the signal line within the last two days. The search also find stocks with Price greater than $1.00, AvgVol > 100000, and %PRC < 100. It is sorted by %PRC Desc. It has found some really big winners, and virtually all of the Quick Tests I have run, of which there have been many, have given positive results.

DON'S DIVIDEND DANDIES.
Would you like to buy stocks with the highest combinations of Dividend Yield and Earnings Yield? Then sort them by DY*EY. Ah, but there's more to it than that. Mr. Don Thornton, one of our best instructors, will show us the magic little twist that produces the best stocks with the highest DYs and EYs. So join Mr. Thornton at the VectorVest University to see this week's "Strategy of the Week" presentation: "Don's Dividend Dandies."

For the last three weeks I've been writing about 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 build three $100,000 stock portfolios with the remaining $300,000. Three new searches, which may be found in the UniSearch Tool located in the Strategy Group called, "Strategies - Retirement," were created which could be used to build these portfolios.

My biggest concern regarding the idea of managing stocks for current income is that of losing sight of capital preservation. In other words, you may become so intent on capturing a dividend payment that you end up holding stocks that should have been sold. Consequently, you will lose a lot more money than you could have possibly made in current income. Don't let that happen to you. Capital preservation should be your top priority. The first portfolio to build is the one comprised of optionable, high VST+YSG stocks.

Given current market conditions, I would do this by running the "High VST+YSG Stocks" search using the Options Rate of Return Tool, set for December Expiration, At the Money Calls, sorted by Option ARR. This search returned 19 Records, as of 10/08/09. BKE was at the top of the list, showing an Option Price of $3.96 per share and an Option ARR of 55.74%. At approximately 2:30 PM, Yahoo!Finance said the stock was down 78 cents and the option price was only $2.40 per share, lowering the ARR to 33.80%. These figures meet my criteria of trading only stocks with an Option Premium of at least $2.00 and an Option ARR of at least 25%, so I would consider buying it on an up move.


The next stock, GG, does not have a Dec option, so I looked at the Jan 40. It showed an option price of only $2.21 per share, which means the Time Value of the option, was only 40 cents. I don't like to trade anything with a Time Value less than $1.00, so I moved on down the list.

Finally, I got to CVS. It didn't have any Dec Options, but the Jan 35 premium was shown as $2.82 per share. This price gave an Option ARR of 28.44%, which is OK in my book. Its stock graph could be stronger, but I'd give this stock a shot.

As you can see, it's going to take a little effort to build this portfolio, but just take it a step at a time. Before you know it, you'll be dealing with some really good prospects. And don't stray too far from the criteria of trading only stocks with an Option Premium of at least $2.00 and an Option ARR of at least 25%. You also don't need to completely fill your first portfolio before starting on the second and third. Actually, it might be a good idea to start off with just two or three stocks in each portfolio so you can gain experience and become accustomed to Managing Your Retirement Stocks.

WINNING WITH WEEKLY WINNERS.
Several months ago we began delivering videos of the Daily Color Guard Report. Its primary function was to keep you abreast of the market. In this regard, we reported the daily winners, i.e., the best performing Strategies, of the VectorVest RealTime Derby. The idea was to inform you of the hottest strategies on a daily basis. Some of these strategies exploded even in a lackluster market. Which ones were they?

Mr. Glenn Tompkins, Manager of Internal Training, will show us how to identify these Strategies on a timely basis so you can jump on the fastest horses and ride them to the bank. So join Mr. Tompkins at the VectorVest University to see this week's "Strategy of the Week" presentation: "Winning with Weekly Winners."

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."