Bob Carlson’s RETIREMENT WA TCH

[Pages:8]Bob Carlson's

RETIREMENT WATCH

Volume 22, Issue 10 Section 2: Investment Recommendations and Portfolios

October 2011

The Return of the Financial Crisis

The markets are responding

to changes in policies and in the

Market

economic cycle. We went from stimulative policies in 2009 and

Watch

2010 to much less stimulative and even austerity policies in

2011. With policymakers step-

ping back, investment prices are

responding to fundamentals.

Let's start with banks. Despite all the help from the

government and the Federal Reserve to shore up the banks,

the market says they're in terrible shape. The banking

stock indexes and ETFs are at levels not seen since the

worst of the financial crisis and generally are below the

level when Lehman Brothers filed for bankruptcy. Interest

rates on bank debt are soaring. Bank of America is laying

off employees, selling assets, and gave Warren Buffett a

sweetheart deal to add capital.

We see the same pattern on a smaller scale for non-

financial businesses. Interest rates are rising on both

investment grade and high-yield corporate bonds. The

yields aren't close to the depths of the financial crisis, but

significant new stimulus. In addition, three major headwinds continue to hold

back the global economy. The major impediment right now is the European

sovereign debt crisis. Political leaders and policymakers in Europe finally realize that the debt problem is enormous and easily could render many of their banks insolvent. Their delays in finding a solution made the problem worse.

Ultimately there will be a solution. That solution likely will involve the debtor countries, especially Greece, having a "soft default" under which payment terms are changed. The governments of the European core countries will take actions to restore the solvency of their banks and other lenders after the default. At this point, it doesn't seem likely that the creditor country governments will transfer much money or assets to the debtor countries.

In the U.S. we continue to have a balance sheet recession. Heavily-indebted households are working down their debts. The process will be slow because economic growth is below average after a major debt binge. The below-average growth means unemployment will remain high and wage growth will be low. The continuing decline

they are at their highest levels since the recovery began. Equities also show distress and investor pessimism. You know stocks globally have declined since early

2011. Most indexes gave up all the gains earned after August 2010, when the Fed first hinted at the second round of quantitative easing. Even the China and Asian markets that propelled the global recovery and supported the developed world's economies are down sharply.

The U.S. housing picture still is ugly. After a brief recovery following various stimulus measures, home prices overall declined again and are at or near 2009 lows. Commercial real estate measured by Moody's CRE Price Index is slightly above its all-time low.

You could look at this picture and conclude that prices are low and this is a good time to buy. I believe the prices accurately reflect the tightening cycle that began globally in 2010 and also the lack of resources and support for

in home prices also keeps consumers from spending and borrowing. The federal government stepped into the breech for a while to counter private deleveraging with public hyperleveraging. But there is little appetite or ammunition available for significant stimulus.

The developing economies have their own set of problems. They didn't take on too much debt in the boom period, so they bounced back faster in the recovery. They now have the opposite problem. Many are operating at or above their economic capacity. Inflation and asset bubbles are their problems.

A number of the developing economies, especially China, pegged their currency to the U.S. dollar. That means they're importing the Fed's easy money policy at a time when they're trying to reduce inflation. At some point they'll have to revalue their currencies against the dollar

October 2011 l 2 l Section 2

Bob Carlson's RETIREMENT WATCH

and perhaps let them float. They're delaying that day of reckoning, because an increase in their currency values likely will decrease exports to the U.S. and Europe.

The economic growth and investment boom of the last couple of years was fueled largely by the Fed's quantitative easing and other stimulus measures. It was artificial. With the programs ended, we have over-indebted households and weak employment. That means there won't be enough private credit growth and investment to sustain a normal rate of economic growth.

Some investors are tempted to purchase risky assets, such as stocks, because prices seem

low relative to a few months ago or relative to other assets, such as bonds.

Almost all the risks right now are to the downside. The main bright spot is that developed countries realize the downside risks and stopped their tightening and austerity programs. But they don't have room for stimulus or know how to generate sustainable growth.

We'll wait until risky assets are both inexpensive and safe to buy. There's no rush and no reason to try to pinpoint the bottom of markets and the economy. We want solid longterm returns, and we want to take only risks that are worth taking. RW

Finding the Market's Profitable Niches

Many investors

miss opportunities or

suffer losses because

Portfolio they believe widely-

"These two myths kept many

investors from joining us in

Watch

held but poorlysupported market myths and rules of thumb. We gain an

purchasing long-

edge over other

term treasury investors by carefully examining the facts and

bonds earlier this data before making decisions. Instead of using

year."

the lazy man's shortcuts and rules of thumb we

try to learn what others don't and look for future

events that aren't already reflected in market

prices.

One prevailing myth is that low interest rates

mean we should sell bonds, because there aren't

any gains left. The fact is that bonds can generate

significant positive returns when interest rates

already are low. The Fed can't use lower short-

term rates to stimulate the economy at that point.

So if the economy continues to falter, long-term

rates will decline. Another myth is that high and

growing federal debt means higher inflation is

inevitable and imminent. The fact is there isn't

much of correlation between federal debt or

budget deficits and inflation.

Those two myths kept many investors from

joining us in purchasing long-term treasury

bonds earlier this year. We knew the facts and

bought Vanguard Long-Term U.S. Treasury

Bond in June at around $11.46 per share. Since

then, the fund's share price has climbed to a

recent high around $13.20 (a 15% gain), and

we've been collecting distributions of over three

cents per share every month.

When I recommended the fund last spring I

said long-term interest rates should fall to the

lows reached in August 2010. They've now

fallen below that level, and they'll probably get

near 3% soon and approach the lows of 2009.

Rates should fall further, unless there's a

sizeable new stimulus or other event to make investors more optimistic. Currently, there are no signs of a change from weak growth. Inflation is past its peak. It takes a year or more for consumer prices to reflect a shift in the economy. The economy shifted to slower growth a few months ago, and inflation is only a little below its recent peak. Lower inflation usually leads to lower inflation rates.

Treasury bonds should be a profitable holding until there are signs the economy is nearing a bottom or policymakers announce actions that make investors optimistic about economic growth. As a precaution we have a sell signal for VUSTX. Sell the fund if it closes below that price between our visits.

Banking on Gold Another myth is that treasury bonds and gold move in opposite directions, and you shouldn't own them together. People believe that because they think gold is only an inflation hedge. But gold can do well in non-inflationary periods along with bonds, as we've seen. Investors will buy gold when they become concerned about the value of paper currencies or financial stability in general. They seek safe havens or alternatives to currencies. Another reason gold's been on the rise in 2011 is that emerging economies generally are healthy and growing. Gold has more of a role as both a consumer good and store of value in many of those countries. Gold's been on a wild ride the last couple of months. It's spiked up a couple of times, and then sharply reversed course. It's about level for the last month after all the volatility but up about 10% over two months. I recommend keeping gold in our portfolios through iShares COMEX Gold Trust, but except downdrafts because of its more volatile

October 2011 l 3 l Section 2

Bob Carlson's RETIREMENT WATCH

behavior and sharp rise for most of the summer. Regulators market decline. Those hedges paid off in recent months as

tried to pull down the price, but weren't able to, by the stock indexes declined.

increasing the margin requirements on futures contracts.

Hussman remains rather pessimistic about the outlook

Gold hasn't been able to stay above the high price reached for both the economy and the stock indexes. He believes

in mid-August and again in early September. I've set the the S&P 500 is priced to return about 5% annually over the

"sell below" price at a level that I hope will preserve most next 10 years, and fears most of that return would be in the

of our gains if the market peaks but not cause a sale second five years. He's particularly concerned profit

prematurely in a short-term correction.

margins are peaking. A return to normal profit margins

Our hedge against the stock market, Hussman would make stocks appear highly valued.

Strategic Growth, came to life over the summer. Over two

A Recession Warning Indicator compiled by Hussman

months, the fund's gained about 5% while the S&P 500 fell "continues to corroborate the high risk of an upcoming

about 10%. The fund owns about 130 stocks that have recession." The indicator tipped to a high probability of

strong growth rates but sell at good relative values. In recession in early August, and indicators deteriorated after

addition, manager John Hussman examines a series of that. The indicator uses a number of data points, so

indicators of market valuation and climate. He then uses Hussman believes that when all or most of the data point

options to either leverage the portfolio or hedge it, toward recession, there is a high probability a recession is

depending on the reading his indicators give. For the last coming. We'll keep the fund in the portfolio because it's

few years the fund's generally been fully hedged against a proved a valuable hedge against bad equity markets and

has the flexibility to change its portfolio when

Sector Portfolio

circumstances change.

4-Wk Max. Buy Sell

Fund

Allocation Ticker Return Price Below

Doubleline Total Return Bond 34.4% DBLTX 1.03% N/A

N/A

A few of our funds have been "steady Eddies" through the recent turmoil and volatility.

At DoubleLine Total Return Bond,

PIMCO All Asset All Authority 20.0% PAUDX -1.45% N/A N/A manager Jeffrey Gundlach doesn't see much he

Hussman Strategic Growth

17.5% HSGFX 1.76% N/A N/A likes in the investment markets today. He

C & S Preferred Sec & Inc. iShares COMEX Gold Trust Wisdom Tree Yuan Vanguard L-T US Treasury

14.4% CPXCX -0.83% N/A 5.0% IAU 3.46% N/A 5.0% CYB -0.62% N/A 4.0% VUSTX 4.61% N/A

11.30 16.28 N/A 12.15

believes the European debt crisis has the potential to ignite a contagion effect similar to that following the Lehman Brothers bankruptcy. He also believes almost all investments are too highly valued.

*Returns are as of September 16, 2011.

The fund remains focused on mortgage

Our portfolio is avoiding the worst of the global market turmoil, because we identified the few niches that are generating profits. I recommend holding all the positions, but follow our "sell below" prices. Sell a fund when it's closing price falls below that price. I've set or adjusted the "sell below" prices for gold, long-term treasury bonds, and preferred stock.

securities. It holds a number of securities that were purchased at deep discounts from their face values and that are not insured by the quasi-federal agencies. Gundlach believes these securities were purchased at such low prices

that the fund will earn double-digit returns on

them even if the housing crisis deteriorates to

Balanced Portfolio

Fund Doubleline Total Return Bond

4-Wk Max. Buy Sell Allocation Ticker Return Price Below

38.8% DBLTX 1.03% N/A N/A

something worse than occurred during the 1930s. The fund receives cash from mortgage payments and refinancings, though the refinancing cash flow currently is low. The fund also owns more conservative mortgage

PIMCO All Asset All Authority 15.0% PAUDX -1.45% N/A N/A securities that earn safe returns.

Hussman Strategic Growth

15.0% HSGFX 1.76% N/A N/A

The yield on the fund currently is around

C & S Preferred Sec & Inc.

13.8% CPXCX -0.83% N/A 11.30 8%.

iShares COMEX Gold Trust

6.0% IAU 3.46% N/A 16.28

We had cash over the last month in all our

Wisdom Tree Yuan

6.0% CYB -0.62% N/A N/A portfolios except Retirement Paycheck. I

Vanguard L-T US Treasury

5.0% VUSTX 4.61%

11.75

12.15

recommend moving that cash for now in DoubleLine Total Return Bond. The fund's net

*Returns are as of September 16, 2011

asset value held steady during all the turmoil,

We identified the few assets and funds that are avoiding big losses in the global market decline. We're likely to maintain these holdings until the European sovereign debt crisis is further along the path to the inevitable defaults. But we need to be cautious about some of our positions that have done well. I set or adjusted the "sell below" prices for gold, long-term

and it's paying an 8% yield. I've scoured the markets and can't find anything offering the same risk-return trade off.

Policymakers might announce a resolution of the European debt crisis and the deficit

treasuries, and preferred stock. When a closing price is less than the "sell problem in the U.S., and that would trigger a

below" price, sell the fund and put the proceeds in a money market fund. sharp stock rally. But that's also a long shot. For

October 2011 l 4 l Section 2

Bob Carlson's RETIREMENT WATCH

now, we'll add to DBLTX. It doesn't have redemption fee, so we can move any time.

a

Income Growth Portfolio

There are two share classes for the fund. The

4-Wk Max. Buy Sell

DBLTX shares have a minimum investment of Fund

Allocation Ticker Return Price Below

$100,000 ($5,000 for IRAs). Or you can buy the Doubleline Total Return Bond 39.4% DBLTX 1.03% N/A N/A

DLTNX shares with a minimum $2,000 ($500 for IRAs), which have a little higher expense

PIMCO All Asset All Authority

10.0%

PAUDX -1.45%

N/A

N/A

ratio.

Hussman Strategic Growth

17.5% HSGFX 1.76% N/A

N/A

We've had a relatively flat return from C & S Preferred Sec & Inc.

14.4% CPXCX -0.83% N/A 11.30

PIMCO All Asset All Authority the last couple iShares COMEX Gold Trust 7.0% IAU 3.46% N/A 16.28

of months, though it has a positive return for the Wisdom Tree Yuan

7.0%

year. The fund can invest in any of the strategies

offered by PIMCO, including those offered only Vanguard L-T US Treasury

5.0%

to institutional investors. Manager Rob Arnott is *Returns are as of September 16, 2011

CYB -0.62% VUSTX 4.61%

N/A 11.75

N/A 12.15

a value investor who changes the fund's

allocation based on his own quantitative You should feel safe in the shelter of this portfolio's holdings. We avoided

valuation models and PIMCO's secular economic and investment outlook.

The fund's been focused on safety and

the big losers in the global capital markets and identified the few winners among funds and strategies. Follow the "sell below" prices I set for gold, long-term treasury bonds, and preferred stock. When a fund's closing price is less than the "sell below" price, sell the fund and put the proceeds in a

inflation protection. It's also sought oppor- money market fund until our next visit.

tunities outside the dollar. I suspect a major

headwind for the fund recently is a significant position in with a 0.25% 12b-1 fee and 1.58% expenses. PIMCO

PIMCO's Total Return Bond fund. That fund made an recently took over the fund distribution from its parent

untimely sale of treasury bonds early in 2011 just before company. That lowered some expense ratios and probably

interest rates began a new decline, and it bought non-dollar will reduce them more in the future.

bonds before the dollar began its recent recovery. It lags

Another fund that's been preserving our capital in the

most intermediate bond funds this year. PAUDX also face of declining markets is WisdomTree Dreyfus

recently held a large position in a fund that sells short U.S. Chinese Yuan. We own this ETF with the expectation that

stock indexes. The fund's benefited from positions in at some point China will have to allow its currency to

inflation hedges.

appreciate against the dollar. The longer they wait to reset

PIMCO funds have several different shares classes. the price at which the currency is pegged to the dollar, the

For this fund, I recommend the D shares for most investors bigger the jump is likely to be. The fund's price is likely to

(ticker: PAUDX). There's a $1,000 minimum investment trade in a narrow range until the adjustment comes.

and a 0.25% 12b-1 fee with a 1.38% expense ratio.

The ETF is partly invested in derivative contracts that

Investors with over $1 million to invest should consider track the value of the Chinese currency. The bulk of the

the institutional (PAUIX) and P shares (PAUPX), which fund is invested in money market instruments in the U.S.

charge lower fees. The C shares (PAUCX) charge a 1% The result should be a return roughly equal to that of a U.S.

deferred fee, 1% 12b-1 fee, and regular expenses. The A investor owning a money market fund denominated in the

shares (PAUAX) have a 5.5% front-end load and 0.25% Chinese currency. Since the yuan is unlikely to decline

12b-1 fee along with expenses. If your broker offers the against the dollar, the worst return we're likely to earn is

load waived A shares (PAUAX.LW) these are a good deal that of a U.S. money market fund.

Warren Buffett says he wants to own

Retirement Paycheck Portfolio

preferred stock of banks, and we've been

12-mo. Max. Buy Sell doing that for a while through Cohen & Steers Preferred Securities & Income. The fund's

Fund

Ticker Allocation Yield Price Below been the worst of our holdings through the

Doubleline Total Return Bond DBLTX 73.0% 8.48% N/A

N/A

summer, with a loss of around 5%. The loss was concentrated in a three-day period in

iShares COMEX Gold Trust IAU 10.0% N/A N/A 16.28 August from which the fund has only partly

C & S Preferred Sec & Inc. CPXCX 17.0% 6.21% N/A

recovered. It pays a yield over 6%.

11.30

I like the fund because it is more

*Returns and yields are as of September 16, 2011

diversified among both sectors and countries than alternative ways of owning preferred

We boosted the yield on this portfolio and preserved our gains by reducing the holdings. I plan to add diversity to the portfolio. For now, these are the funds that will generate generous income without risking our principal. Follow the "sell below" prices for gold and preferred stock. Sell either fund if its closing price is less than the "sell below" price and put the proceeds in a money market fund until our next visit.

stocks. I am watching it closely, however, and recommend you do the same by following the sell signal I've established for it. Companies that issue preferred securities often don't have the highest credit ratings. That can cause investors to sell their holdings when they

October 2011 l 5 l Section 2

Bob Carlson's RETIREMENT WATCH

become concerned about a recession. This fund has also different share classes with different

loads and expense ratios. Most of us can't buy the

Personal Solutions for Your Investment Portfolio

institutional shares (ticker: CPXIX) because of the

Would you like Bob Carlson's investment recommendations

$1,000,000 minimum. The next best choice is the C shares

customized for your portfolio, goals, and needs? Do you wonder

(CPXCX) that have no front-end load but have a deferred load and a 12b-1 fee. They're available on some broker platforms with trading fees. The A shares (CPXAX) have a 4.5% front-end load, which I don't recommend. There are load-waived A shares (CPXAX.LW) available on some of the retail networks. These are the least expensive class for most investors if they're available to you.

There are few alternatives to the fund. There are two closed-end funds managed by Flaherty & Carmine, Preferred Income Fund (PFD) and Preferred Income Opportunity (PFO). These are not as diversified as the Cohen & Steers fund and use some leverage, so they're more volatile. As closed-end funds their share prices fluctuate based on supply of and demand for the shares rather than the value of the assets owned.

There's also an ETF, iShares S&P U.S. Preferred Stock Index (PFF). This fund is not leveraged, but it's not as diversified as the Cohen & Steers fund. Also, since it follows an index, it holds a stock just because it's in the index. The Cohen & Steers fund buys only stocks that pass management's fundamental analysis.

I believe Cohen & Steers is better than the alternatives because it is more diversified by industry and country. Its ability to hedge the risk of interest rate increases also is an advantage (and a factor in the expenses).

As a general rule I recommend consolidating your investments at one broker or mutual fund company. It makes investing easier and more efficient and makes you less likely to procrastinate. It also gives you a better idea of your overall position than when your money is spread among different firms. For this fund, I make an exception. When the fund isn't available through your broker or fund company, I recommend investing directly through Cohen & Steers at or 800-330-7348.

We don't need a separate discussion of the Retirement Paycheck portfolio this month, because it doesn't hold any funds that aren't in the other portfolios. Recent changes pushed the portfolio's yield over 7% with low risk. We'll

who'll manage your wealth after you? Join other RW subscribers in a

unique joint service offered by Bob and TJT Capital Group. You'll

receive Bob's recommendations, professionally tailored for you with

customer service and reporting by TJT Capital. Available for taxable

accounts, IRAs, and some 401(k)s and pension plans. For more

information please call 877-282-4609 or email info@.

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only to wealthy investors and institutions. Most of the funds have a low correlation with the S&P 500, and they have low correlations with each other. Over the long-term most of the funds have a higher return than the S&P 500. The result is a portfolio that isn't as volatile or risky as the stock indexes but earns the same or a higher return over the long term. Because the portfolio has true diversification and risk management, we have much higher risk-adjusted returns than the stock indexes and traditional portfolios.

Naturally, the largest recent declines in the portfolio were from our stock-based funds, Third Avenue Value and Wintergreen. In the four weeks closing Sept. 12 each of the funds lost more than the index (4.81% and 2.44%, respectively). That's because they have large portions of their portfolios invested outside the U.S., and many international stock indexes declined more than the U.S. indexes. Also, the funds probably were hurt by the recent rise in the dollar.

Cohen & Steers Realty Shares registered a positive return for the four weeks, which was a surprise. In the last few years, REITs bounced up and down with the S&P 500. But low interest rates caused investors to seek high yields , and REITs offer that. That's kept a floor under the fund.

Our balanced funds had mixed results. Oakmark Equity & Income lost 2.49% in four weeks, which is more than I would have anticipated. FPA Crescent matched the S&P 500 with a 1.22% loss, and Berwyn Income was the best of the group with a loss of only 0.15%. Price High Yield Bond matched BERIX. PIMCO All Asset, a tactical allocation fund, lost a modest 0.66% over the period.

Of course, American Century International Bond

diversify more in coming months.

"Hedge Fund" Mutual Fund Portfolio

Hedging Still Pays Off

Our "hedge fund" portfolio of mutual Fund

Ticker

funds continues to do its job of providing true Hussman Strategic Growth HSGFX

diversification that preserves value in difficult Third Avenue Value

TAVFX

markets and earns solid returns the rest of the Price High Yield

PRHYX

time. For the four weeks ended Sept. 12 the Oakmark Equity & Income OAKBX

portfolio lost only -0.66% compared to a loss FPA Crescent

FPACX

of -1.22% for the S&P 500. We did a complete PIMCO All Assets D

PASDX

review of longer-term returns last month and Berwyn Income

BERIX

will do it again in December's visit.

Cohen & Steers Realty Sh CSRSX

Longtime readers know the "hedge fund" portfolio is a group of no-load, low-expense mutual funds that use the investment strategies of the better big-name hedge funds available

Wintergreen

WGRNX

Am Cent Intl Bond

BEGBX

*Returns are as of September 16, 2011

Alloc. 20% 10% 11% 11% 11% 11% 11% 5% 5% 5%

4-Wk Return 1.76% -4.06% -0.52% -0.41% -0.19% -1.05% 0.69% 0.52% -0.71% -1.71%

12-mo. Return -4.65% -2.26% 4.40% 6.87% 7.29% 5.47% 5.41% 10.75% 8.34% 8.58%

October 2011 l 6 l Section 2

Bob Carlson's RETIREMENT WATCH

declined, because the dollar rose. The fund holds primarily bonds issued by developed country governments outside the U.S. and doesn't hedge against the dollar. This fund is our dollar hedge in the portfolio. When the dollar increases in value as happened recently, the fund will decline. It lost 1.2% over four weeks.

Our big winner in the portfolio was Hussman Strategic Growth with a gain of 2.55%. Since it also is our largest holding, it made up for a lot of the losers.

Not all of the funds in this portfolio are available to new investors. I gave alternatives in the August 2011 issue. This issue is available under the Back Issues tab on the members' web site at .

You can see how the portfolio and its true diversification work. Many investments and portfolios can capture bull market returns and register positive numbers

when times are good. But the key to long-term investment success is to keep your bull market returns when bad times hit. The stock market indexes have a pattern of giving up 50% or more of their bull market returns in bear markets. I'm happy to earn solid positive returns that are less than the stock indexes in bull markets, because I'll keep most of my gains when the inevitable bad markets occur. The result is more long-term wealth.

We achieve that result in the "hedge fund" portfolio because we have a diverse collection of assets and strategies in this portfolio. In some funds the managers have discretion to change the portfolio mix based on market valuations or other measures they use to reduce risk. Our long-term returns will take care of themselves when we manage risk and are careful to avoid the major losses of bear markets. RW

One-Stop Recommended Portfolios

Simplify your investment life and probably improve returns by concentrating your investments at one or two mutual fund firms or brokers. It will be easier to track and manage your portfolio.

The One-Stop Portfolios let you follow our margin-of-safety investment approach at the major fund companies and No Transaction Fee (NTF) programs. Those who want to use Exchanged-Traded Funds can follow our ETF portfolio.

Start with our recommended fund in the left column. Find the alternative fund in the same row in the appropriate column to the right.

There is not always a good alternative to one of my recommended funds. Then, consider paying a fee to invest in my recommended fund or opening an account directly in that fund. Other alternative funds are on the web site under Carlson's Choice mutual funds.

One-Stop Alternative Portfolios

RW Recommended Fund

Doubleline Total Return

iShares Comex Gold Trust

NTF Funds* Dreyfus Basic US Mtg. Rydex Precious Metals Inv

ETFs N/A iShares Comex Gold

Fidelity Mortgage Securities

Select Gold

Price GNMA

N/A

Vanguard GNMA

Precious Metals & Min.

WisdomTree Dreyfus Chinese Yuan PIMCO All Asset All Auth

N/A PIMCO All Asset All Auth

WisdomTree Dreyfus Chinese Yuan N/A

N/A

N/A

N/A

N/A

Capital Appr Dividend Growth

Hussman Strategic Gr.

Leuthold Asset Allocation

NA

Trend

Value

Wellington

Vanguard L-T U.S. Treasury Wasatch-Hois. US Treas V'guard LT Govt Bond Spartan LT Treas US Treas LT L-T U.S. Treasury

C&S Preferred Securities &

N/A

iShares S&P US Preferred

N/A

N/A

N/A

Income

*Not all NTF funds listed are available from all the NTF programs. Some are more restrictive than others, and some funds do not want to be available

on all the NTF programs.

Portfolio Performance

Last Month Year to Date Last 12 Months 3 Years* 5 Years* 10 Years* Compound Return *Annualized.

Sector -0.30% 4.58% 8.22% 2.16% 1.37% 4.08% 269.14%

Balanced 0.03% 3.72% 7.22% 0.59% 0.29% 4.16% 251.27%

Income Growth 0.67% 4.94% 7.14% 5.60% 2.87%

N/A 35.66

Retirement Paycheck

-0.33% 7.58% 15.75% N/A N/A N/A 17.99

IWW ETFs -2.42% 17.96% 23.28% 12.89% 8.48% N/A 54.99%

All portfolio returns are total returns, including dividends and other distributions, as of August 31, 2011. An investor might incur taxes, transactions fees, and other costs that are not included in the calculations. The Income Growth Portfolio was begun in July 2001. The Retirement Paycheck Portfolio began Dec. 2010. The IWW-ETF Portfolio began December 2005. Other portfolios began Jan. 1995.

October 2011 l 7 l Section 2

Bob Carlson's RETIREMENT WATCH

What's Up In Mutual Funds

Funds Am. Cent. Target Mat. 2025 Vanguard Long-Term U.S. Am. Century Global Gold Equities Am. Cent. Target Mat. 2020 FBR American Gas Index Vanguard L/T Corp. Bond Harbor Capital Appreciation Am. Cent. Real Estate Neuberger&Berman Manhattan T. Rowe Price Blue Chip Grth Am. Cent. Inf. Adj. Bond Am. Century Utilities Income Fidelity Infl.-Prot. Bond Vanguard Infl. Prot. Sec. Value Line

4-weeks 13-weeks 0.66% 16.44% 0.86% 14.71% 4.26% 21.64% 0.37% 9.85% 6.38% 2.13% -1.14% 6.07% 12.34% 1.72% 7.72% -1.60% 14.17% 0.27% 12.46% 2.05% -0.85% 5.56% 5.78% 0.00% -0.72% 5.81% -0.84% 5.22% 11.15% -1.73%

26-weeks 23.22% 20.21% 8.63% 14.70% 7.68% 10.98% 3.78% 3.74% 1.29% 0.75% 7.84% 5.18% 8.03% 8.04% 2.02%

39-weeks 25.83% 21.85% 11.05% 17.18% 14.80% 13.95% 3.27% 12.11% 2.62% 2.61% 12.02% 8.40% 11.29% 12.01% 5.47%

52-weeks 15.92% 10.56% 9.95% 12.80% 21.99% 10.27% 17.31% 15.35% 19.65% 17.09% 11.68% 16.17% 10.88% 11.07% 21.42%

Tickers BTTRX VUSTX BGEIX BTTTX GASFX VWESX HACAX REACX NMANX TRBCX ACITX BULIX FINPX VIPSX VLIFX

Telephone 800-345-7574 800-662-7447 800-345-7574 800-345-7574 800-343-3355 800-662-7447 800-422-1050 800-345-7574 800-877-9700 800-638-5660 800-345-2021 800-345-7574 800-544-8544 800-662-7447 800-223-0818

There shouldn't be any surprises in this month's list of the top-performing funds for recent periods. Treasury bonds and gold have been the safe havens during this period when the European sovereign debt crisis and U.S. debt ceiling debate scared investors. It's hard for investors now to look back to last spring and remember how risky these two investments were considered. Back then, most investors though the European problem was on the way to being solved, that quantitative easing had righted the U.S. economy, and that we were in a normal cyclical recovery. The conventional wisdom changed quickly. It became clear the European problem was bigger than had been realized, and no solution was in place. The U.S. economy started to slide when quantitative easing ended. Investors sought treasury bonds and gold. Real estate investment trusts also did well, as investors sought their above-average yields.

There are a few stock funds in the top-ranked funds. These tend to be funds focused on large company stocks that held up better than others in the general stock decline. Also, these funds benefited from returns of 6% or more in the week ended Sept. 12. Their 13-week and 26-week returns are much lower. I anticipate more stock weakness going forward.

What's Down In Mutual Funds

Funds STI Classic Intl Equity Tr Legg Mason Special Invstmt. Harbor International-X Morgan Stanley Inst Lat Am A Vanguard Intl Equity Euro Price European Stock Dodge & Cox International Dreyfus Small Company Value Oakmark Int'l Small Cap Price Latin America Dreyfus Emerging Leaders Longleaf Partners International Oakmark International Fairholme Fund US Global China Region

4-weeks 0.82% 8.76% -0.22% -0.99% -0.17% 1.66% 0.83% 10.16% 0.67% 1.26% 9.82% -0.99% 1.61% 7.26% -4.60%

13-weeks -13.68% -14.32% -13.53% -10.75% -15.99% -15.91% -13.83% -16.84% -14.00% -10.90% -17.09% -14.54% -16.69% -13.86% -7.91%

26-weeks -11.35% -16.97% -11.43% -7.33% -13.80% -13.20% -13.14% -20.37% -13.51% -12.93% -20.85% -15.48% -15.49% -21.71% -13.42%

39-weeks -9.72% -15.55% -9.28% -11.01% -6.50% -8.87% -11.54% -18.46% -13.19% -16.02% -18.99% -12.84% -14.44% -20.92% -18.12%

52-weeks -5.11% -4.43% -0.36% -13.42% -3.99% 1.18% -4.87% 0.00% -2.34% -7.86% 0.92% -5.43% -7.50% -16.34% -13.51%

Tickers Telephone STITX 800-428-6970 LMASX 800-577-8589 HAINX 800-422-1050 MILAX 800-548-7786 VEURX 800-662-7447 PRESX 800-638-5660 DODFX 800-621-3979 DSCVX 800-373-9387 OAKEX 800-625-6275 PRLAX 800-638-5660 DRELX 800-373-9387 LLINX 800-445-9469 OAKIX 800-625-6275 FAIRX 866-202-2263 USCOX 800-873-8637

This month's bottom-ranked funds are a series of case studies in why investors shouldn't chase the returns that make the headlines. Not too long ago, stock indexes outside the U.S. were the global market leaders. Emerging markets, in particular, were trouncing the returns of developed markets, and the developed market returns weren't anything to feel bad about. A number of factors ended the international party: the general slowdown in global economic growth, the efforts of developing market governments to slow their growth to fight inflation, and the rise in the dollar. Most of these funds don't hedge against the dollar. So when the dollar increases in value, the dollar value of the foreign stock portfolios declines. The funds have steep declines for 13 weeks and 26 weeks, and most now have negative returns for 52 weeks. International stock funds are more volatile than U.S. funds and should be purchased when they're down, not when they're doing well.

Fairholme fund remains near the bottom of this ranking and also victimized headline chasers. The fund won accolades during the financial crisis. But its focused stock portfolio held the market's few big losers in 2010 and early 2011.

October 2011 l 8 l Section 2

Bob Carlson's RETIREMENT WATCH

Invest with the Winners Trading Portfolio: Exchange-Traded Funds

Funds StreetTracks Gold iShares Comex Gold iShares Silver iShares Barclays 20+ Year Treasury NASDAQ 100 SPDR - Utilities DJ US Utilities iShares Barclays 7-10 Yr. Treasury SPDR - Technology DJ US Technology SPDR - Cyclical/Transportation SPDR - Consumer Staples C&S Realty Majors DJ US Consumer Non-Cycl S&P 500 Growth Vanguard REIT Nasdaq 100-Equal Weight TIPS Bond S&P 500 Value Russell 1000 Growth SPDR - Consumer Services DJ US Healthcare Russell 3000 Growth Returns are as of September 16, 2011

Tickers GLD IAU SLV TLT QQQ XLU IDU IEF XLK IYW XLY XLP ICF IYK IVW VNQ QQEW TIP IVE IWF XLV IYH IWZ

4-weeks -2.18% -2.28% -5.49% 0.94% 12.91% 4.91% 6.33% -0.11% 10.92% 12.56% 10.93% 4.37% 7.02% 6.82% 9.65% 7.50% 12.56% -0.74% 0.00% 9.95% 6.41% 7.22% 10.12%

13-weeks 17.40% 17.30% 12.70% 15.83% 5.01% 3.00% 2.05% 6.71% 2.19% 2.09% -0.47% -0.95% -3.63% -1.29% -0.75% -3.51% -1.95% 4.24% 4.25% -1.60% -5.03% -5.46% -2.08%

26-weeks 27.22% 27.20% 14.94% 20.09% 3.96% 10.04% 8.22% 10.09% 0.32% -1.00% 0.51% 6.16% 0.85% 4.07% 0.35% 0.14% -0.84% 4.52% 2.02% -1.50% 3.28% 1.94% -2.07%

39-weeks 31.17% 31.18% 38.17% 20.38% 3.98% 9.09% 8.32% 10.90% -0.40% -1.93% 1.10% 5.04% 9.09% 2.47% 0.87% 6.84% -1.13% 7.34% 7.01% 0.00% 4.26% 3.53% -0.60%

About the Invest with the Winners Aggressive Strategy

52-weeks 41.34% 41.38% 94.14% 10.40% 18.11% 10.15% 10.91% 6.91% 10.87% 11.47% 15.33% 11.94% 8.64% 12.95% 13.11% 7.26% 12.99% 7.28% 16.53% 13.37% 10.29% 9.73% 13.34%

We started the last month with the portfolio evenly split between three funds: iShare COMEX Gold Trust, StreetTracks Gold, and iShares Barclays 20+ Treasury. It's been a wild month for all three funds.

IAU peaked at $18.50 on August 22 but it hasn't declined more than 7% (below $17.21) since then. GLD wasn't so fortunate. It peaked at $184.59 on August 22 and declined a few cents more than 7% on August 24. It was sold from the model portfolio the next day. This is a good example of why I prefer IAU to GLD in our recommended portfolios. IAU's lower expenses provide better value for investors, and I suspect GLD's larger size also creates problems and inefficiencies.

TLT's had a very volatile period. It declined over 5% on August 11, but recovered to eventually set a new closing high of $113.82 on Sept. 12. It's been in a trading range for the month of September and avoided declining more than 7% from that closing high.

Two of our top-four ranked funds this month have negative returns for the last four weeks, so we won't buy them: GLD and SLV. In addition, one of our rules is to sell a fund when its four-week return is negative in our latest tabulation. So we'll sell IAU and put the entire portfolio in TLT. Sell the fund between our visits if its closing price is more than 7% below its recent high, which was $113.82 as we went to press.

A quick review of the IWW Strategy: Our simple buy and sell rules for the IWW portfolio are in the free report given to new members, 5 Easy Chair Portfolios to Fund Your Retirement Dreams, which is available for download on the members' web site at . Here's a quick review. We invest in the four top-ranked ETFs in the rankings, if they meet our buy rules. When a fund doesn't meet our buy rules, we equally split its share in the top-ranked funds that do. We don't look below the top four funds in the rankings. If none of the funds meet our buy rules, the portfolio stays in cash for the month.

The buy rules are simple. We buy equal shares of up to the top four funds if they meet the rules. The fund can't have a negative return for the most recent four weeks (or for one week if you want to be conservative). Also its price at purchase must not be more than 7% below its recent closing high. (I sometimes recommend a floor lower than 7% for volatile funds such as emerging market stock funds.)

Sell any of the funds if it falls more than 7% below its recent closing high between our monthly visits. You need to check daily to see if the recent closing high has increased or if the fund has fallen more than 7% below it. When you sell a fund between issues, put the proceeds in a money market fund until receiving the next issue. When our monthly issues arrive, sell an ETF when it drops below #15 in my rankings or its latest four-week return is negative.

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