E*TRADE E*SSENTIALS

E SSENTIALS AN

PUBLICATION

DIVERSIFY

YOUR PORTFOLIO Time Tested Strategies

BUYING A NEW HOME How Much Can You Afford?

BOOMERS NEAR RETIREMENT Changing The Paradigm JUNE 2010

E SSENTIALS AN

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PUBLICATION

BUYING A HOME

HOW MUCH CAN YOU AFFORD?

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THE NEW INVESTOR

5 Steps To Getting Started

COLLEGE SAVINGS PLANS

Parents Get A (Tax) Break

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JUNE 2010

CHANGING JOBS MANAGING THE FINANCIAL TRANSITION

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OPTIONS TRADING

Learning To Minimize The Risks

DIVERSIFY YOUR PORTFOLIO Time Tested Strategies

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SPECIAL FEATURE

Marshall Loeb ON KIDS AND MONEY

BOOMERS NEAR

RETIREMENT

CHANGING THE PARADIGM

The baby boomer generation has always been on the cutting edge of economic and social trends. As millions of people in this group approach retirement age, they have legitimate concerns about how to plan for a rich and satisfying golden age and an unprecedented opportunity to shape a new retirement paradigm.

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CREDIT CARDS

WHEN THEY HELP AND HURT

What To Tell Them

is an innovative financial services company offering a full suite of easy-to-use online brokerage, investing and related banking solutions, delivered at a competitive price. The company empowers individuals to take control of their financial futures by providing the products, tools and services they need to meet their near- and long-term investing goals. Every two weeks, E*TRADE E*SSENTIALS will bring this commitment to life with articles and information to help you better master your personal finances and individual investments.

PERSONAL

RETI REMENT

BABY BOOMERS HAVE UNIQUE APPROACH TO The baby boomer generation has always been on the cutting edge of economic and social trends. As millions of people in this group approach retirement age, they have legitimate concerns about how to plan for a rich and satisfying golden age and an unprecedented opportunity to shape a new retirement paradigm.

In the big picture, the boomer approach to this next stage of life differs from previous generations in two fundamental ways. For one thing, boomers can expect to live longer and healthier lives. This means a potentially more a diverse retirement experience than our parents or grandparents: more travel, more experiences, more relationships, more opportunities to mix work and play. The other is that boomers cannot necessarily depend upon financial guarantees available to past generations — think Social Security, union pensions or company retirement plans — to exist or to last a longer lifetime. The result: boomers can and must be more flexible in their retirement planning and more proactive in their financial decisionmaking.

HOW TO GET STARTED

CLICK HERE TO SEE AN E*TRADE VIDEO ABOUT “RETIREMENT TRAPS TO AVOID” NEED HELP ROLLING OVER AN IRA? CLICK HERE TO WORK WITH THE E*TRADE RETIREMENT QUICKPLAN CALCULATOR

With this as background, the experts point to four critical personal and money matters that warrant consideration.

1. Timing Is Everything. Timing can be critical to the success of retirement. Know Thyself, the ancient Greeks said. Boomers need to reflect on their strengths, weaknesses, relationships with loved ones, what they really want out of retirement, and when entering into retirement makes sense.

2. Purpose and Passion. More than any other generation, boomers express concern about having a purpose during their retirement years. It may sound a bit New Age-y, but having a goal and/or finding a passion is important to giving boomers a retirement of meaning and well-being.

3. Health and Wellness. Health, they say, is one of two main pillars for retirement. Boomers who are near retirement should start or maintain good choices about nutrition, stress management, and exercise for mind and body. It is also the right time to become more disciplined about regular medical exams.

4. Financial Planning. Financial health is the other fundamental pillar of successful retirement. There's no set formula for retirement planning. Each plan is unique, but everyone should make one. One could write a book on each step of the process of retirement planning — E*SSENTIALS will explore each over time — but the keys are to have a realistic grasp of your income and expense, to establish an amount that you need to maintain your lifestyle and make a savings and income plan to get there, and to prepare to make decisions on pensions, 401(k) plans, Social Security, supplemental medical insurance, your estate, and more.

For the boomer generation, retirement is coming fast. It will not be a destination but a journey, not an end but an ongoing process. This means opportunities no prior generation has had, and the same for risks. Careful thought about the personal and financial issues can only help.

INVESTMENTS

THE BASICS OF

DIVERSIFICATION Diversification can be the key to sound long-term investment performance. Though the execution can be quite complex, the concept is simple: spread your assets over a variety of different investments and avoid concentration into one company, one industry, one asset class, or even one country. The reason for this approach is that if you diversify your portfolio, investment performance will fluctuate less because losses from some investments are offset by gains in others. Diversification also makes sense because no single asset class performs best in all economic environments.

One of the key steps to investing is deciding on

other ways to more narrowly define an asset

ilar investments— in your portfolio which will

of diversification is to use asset classes which

an asset allocation. This is the relative amounts

of different asset classes — a grouping of simdetermine how much risk your portfolio has.

Most people use the general asset classes of

Stocks, Bonds and Cash to diversify, but there

are other asset classes (such as real estate) and

class (such as oil stocks). The concept of asset classes is important because one of the goals are not correlated with each other. Diversifi-

cation tamps down the volatility; less volatility

makes the best and worst investment performances less extreme.

The factors in developing an optimum asset allocation are varied and depend largely on

the individual investor. Oneʼs risk profile is an

issue: assets like stocks have a higher rate of expected return but are more volatile than fixed income or cash. Finding a happy medium is vital. Those seeking higher returns might take

the risk of an 80/20 portfolio, 80% is invested in stocks and 20% in bonds; the more risk adverse might go to a 60/40 mix. And donʼt

forget the lost sleep factor: investors with little tolerance for ups and downs should focus on the safer investments.

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Find Diversification at a Glance

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The time horizon is another issue: an older,

The purpose is two fold. First, rebalancing can

investments whereas a younger, more aggres-

asset classes that have dropped. You are buying

more conservative investor might have a retirement asset allocation of mostly fixed income

sive investor might have most of their investments in stocks. The general principle is that if you are investing money you donʼt need for a long time, then consider riskier investments; if

money is needed in a short time span then

increase returns since you are selling asset

classes that have risen in value and buying other

cheap and selling dear. Second, rebalancing helps maintain the original asset allocation and the level of risk that was originally intended.

A final thought. A diversified investment strategy

keep it safe and liquid. The point is to have the

does not eliminate risk or guarantee success.

Rebalancing is also an important diversification

them to the greater risk inherent in one-dimen-

money there when you need it.

tool. Over time, as some assets grow faster than others, the allocation gets out of balance.

A rebalancing resets the proportions of each asset class back to their original percentage.

It does offer investors a way to earn potentially higher returns over time without exposing sional strategies.