This is exactly the time where you want to tighten your stops, take some profits off the table, and consider getting off any margin. While the market has not by any technical means broken down yet, the risk factor for a several week or longer correction just shot up tremendously.

Below are charts of Goldman Sachs, the S&P 500, the NASDAQ, and the Volatility Index (VIX).

Most retirees, or soon to be retirees, live on fixed incomes. That is, retirees don’t get a pay raise just because prices go up. Yes, you might get a small cost-of-living-adjustment on your Social Security but most other “mail box” money does not increase with inflation. What’s more, the money you’ve set aside for retirement grows only as fast as the earnings will allow, and generally these are below the rate of inflation. In the early stages of stagflation, judging from the limited times it has occurred, interest rates are generally very low even though prices are rising rapidly. This means your earnings on bank CDs and fixed-rate bonds are below inflation and your purchasing power (what your money will buy) is losing ground. But, you’re reluctant to move your money to the stock market or put it in real estate because they are generally depressed, or highly volatile, as well. So, how do you protect your retirement nest egg?

Unfortunately, you’ve received a difficult assignment because there are not a lot of safe harbors. You should immediately assess the risks you are taking with your investments — if you can’t afford the worst case outcome, you need to take action. Inflation and the erosion of your purchasing power is bad enough but add to that losses from investments and you might have a really dull retirement. What investments might be at risk? Any money that you’ll need in the next ten to twelve years that is currently invested in stocks, bonds, mutual funds, variable annuities and anything else that goes up and down in value with economic and financial cycles.

The next thing you look at is income taxes. Are you paying income taxes on your Social Security benefits? If so, how might you reduce them without lowering your lifestyle? Let’s see, you have a bank CD that earns interest which is included in your taxable income and boost income taxes overall as well as makes a larger share of your Social Security benefits taxable. Why not move this into a fixed, tax-deferred annuity that either pay you a fixed rate of interest or interest that is determined by a stock market index? You will pay no current taxes on earnings, there is no tax bite on your Social Security benefits and you have the guarantee of an insurance company that you’ll not lose money unless you cash in your annuity early. As an added sweetener, with an index-linked annuity you’ll get the opportunity for an above-market return while avoiding the possibility of market losses.

The last way to protect yourself is to divide your retirement money into segments. The first segment will be the money you’ll be using in the next five years. This money will need to go into safe investments and be readily available. This means you’ll be forced to stick with bank CDs, money market accounts and possibly money market mutual funds. Stagflation is going to have an impact on this money and there is little you can do except hope for a near-term economic turnaround.

The second segment is where you put your annuities to get the tax deferral and the opportunity for higher earnings without sacrificing safety. This is the money you’ll need in five to fifteen years from now.

The last segment is the money you’ll need in twelve years and beyond. I’m assuming you have enough for this segment, if not you’ll simply place none of your retirement money here. Since it is reasonable to expect economic and market cycles to work themselves out over a decade or longer, you can afford to take a bit more risk; therefore, conservative mutual funds, diversified stock portfolios and other securities may be appropriate assuming you can afford the risk and sleep well.

You’ve just constructed a retirement ladder with your money. Each “rung” means that the money you’ll need during that time period will be maturing and ready for use “just at the right time”. You’ve minimized your taxes, lowered your risk, shelter more of your money from stagflation and diversified your investments. If all this sounds a bit too complicated for you, why not call your financial advisor and get professional help? If you elect to do nothing different in the face of changing economic times, then you’ll probably not sleep as well, have less to carry you through retirement and pay more taxes. What are you waiting for?

For more on safe retirement options check out the Retirement Pros website http://www.theretirementpros.com/ Join us in our monthly online Retirement Video Seminar at no charge http://www.theretirementpros.com/Tele-Seminar-MRM.php

“When will this horrible bear market end?” and “When will a new bull market begin?”.

To set the record straight, I will now reveal exactly when these two events will occur. But before I do I must first explain how the stock market works.

The markets are driven by three economic factors: interest rates, company earnings, and inflation.

In a healthy economy you want to see low interest rates so folks can borrow to expand a business or buy a home. You want companies making profits quarter after quarter. Finally you want inflation down so your money is not erroding. This is where we want to be. Stocks will soar under these conditions.

Now lets examine where we are now. Company earnings are dropping, inflation is dropping, and interest rates are rising. We still have a long way to go. Before we can get to the ideal scenario above the markets have to go through a process. It is a process that has always been repeated as the markets go through their cycles.

So how does the stock market work? For the current bear market to end we want to continue to see  earnings dropping. So we are on the right path here. We then need to see inflation. Yep, inflation has to rear it’s ugly head. What the government is doing by spending trillions is to create inflation. This may take six months (btw, good to be in gold during inflation) or more. Once inflation starts rising we then want to see interest rates drop. Once all three cycles are in order the bear will go off to hibernate.

But all is not perfect yet. We now need to get a bull market off and running and that catalyst for that is company earnings. Once company earnings stop dropping and begin to grow, a new bull market is starting.

As you see, we need to get inflation up, get companies to start making profits, and get interest down.

The final step in the process now that we have companies profiting, interest rates dropping, is to get inflation to drop. When inflation stops or drops, people’s income will go even further and that kicks the bull market into full gear and prosperous times again.

If you have ever wondered “How does the stock market work?” and “When will this mess be over?” now you will know based on the economy.

Since the stock market is much like the ocean, it goes up and down. Sometimes the waves are strong and suck you under. To stay afloat you need a life preserver. The life preserver I use in the ocean of stocks is Sectors. There is always one sector that seems to move higher when everyone else is being sucked under. On June 30, 2008 the hot sectors were Energy and Petroleum. The markets were down 14% for the year and these sectors are producing stocks that have gained 400% and more over the last few months. Truly one of the best stock investments.

To identify the hot sectors (you should be hearing about them in the news consistently) you can always look in the financial papers or online website also. Once you have located the hot sectors, look at all the stocks in those sector. Some will be leaders and some will be laggards. The leaders will be the biggest names in that industry/sector. If you look at their charts you will see a pattern of the stock moving consistently higher over the last 6 months or more. These usually make the best stock investments over the long term during a bear market.

Now if you are looking for some great short term profits over a weeks time or a month, here is what you do. Look in the same sectors but look at the laggards (usually the stocks in the $2 to $5 range). Look at their chart and find the ones that look like they have reached a bottom. You don’t want to see a chart where the price is getting lower each day. You want to look for one that hit its low point and is either moving sideways or been rising the last week or so. Put these on a watch list. Watch these stocks for one that gains 10% or more in one day on BIG volume. This would make a great short term play.

The reason this works is all in the mentality of the investors. When a sector takes off, it’s the leaders in that sector who gain the most. They lead the way. As more and more investors get in on the bandwagon, this sector and the leaders rise in price. Soon more people want to invest in this popular sector. When they look at the prices of the leaders they see three digit numbers. “That’s too expensive” they think, but they don’t want to be left out either so they buy the laggards. Now all these companies with horrible earnings start to take off. You want to jump in right when they take off. So keep an eye out for the 10% jump.

Here is a warning, like the housing bubble, like the tech bubble, the energy and petroleum sectors will tank too and it is the laggards that drop the most first. This is why I recommend them as short term investments only.