Step 1: Six Keys To Designing a Better Plan

Before you begin to think about specific investment choices, there are some basic investment fundamentals that most investment experts would agree are the keys to a sound investment plan:

Design An Investment Plan		Allocate Your Assets Effectively

Taxable vs. Tax-Free

Evaluating Investment Performance

	1. Know Your Goals, Time Frame, And Risk Tolerance
		Decide and Prioritize Your Financial Goals Before you begin to save and invest, write down your financial goals. Do you need to save for retirement? Plan to pay for a college education for yourself or your children? Want to set something aside for a special trip? Once you’ve written them down, prioritize your goals.
		Determine Your Time Frame How soon do you need to achieve your goals? Is retirement 30 years away or just around the corner? Is your child a newborn or in the teenage years? Estimate a time frame for each of your financial goals.
		Evaluate Your Risk Tolerance Finally, you need to consider your risk tolerance. How much fluctuation in the value will you be able to tolerate as you invest to reach your goals? Our Risk Tolerance Calculator may help you figure it out.

	2. Determine How Much To Save
		After listing and prioritizing your goals, and determining your tolerance for risk, you’ll be able to use Armada’s Calculators to help estimate how much you should be saving toward each of your goals. If you find that the amount you need to save is greater than the amount you can afford to save, you may need to: Spend less today to save for tomorrow Reevaluate your financial goals Take more time to reach your goals Choose to accept greater risk to increase your return potential

	3. Invest Early
		The earlier you invest; the longer your money has to grow. This means that you can invest less money today and potentially have more down the road than you would if you waited a few years before investing. Consider the example highlighted in the table below: Two friends, Mary and Matt, each plan to invest $2,000 a year. Mary starts early, investing $2,000 each year for eight years and reinvesting all her earnings. After that, she never adds another dollar. Matt decides to wait and doesn't begin to invest for eight more years. When he finally starts, he invests $2,000 each year for 32 years. He invests $64,000 in total, while Mary invested only $16,000. They both earned a hypothetical 10% each year yet, after 40 years, Mary’s investment is valued at $531,201, while Matt’s is worth only $442, 503. How did this happen? It’s the power of compounding – Key 4. Starting Early Makes A Big Difference

	4. Let Compounding Do The Work For You
		Compounding is reinvesting the money your investments earn. Here’s how it works: If you invest $100 in an account that earns 8% each year, after the first year you have $108. At the end of the second year, you have $117 because you earned interest on your original investment of $100, as well as the $8 you earned during the first year. The longer your money compounds, the more powerful the results, as you can see in the table below.

	5. Invest Regularly
		Making regular investments on a periodic basis is known as dollar-cost averaging. It can be a good investment strategy. Since the price of investments change daily, investing regularly means that you buy shares at a variety of different prices. Sometimes the price is higher and sometimes lower. When the price is low, you buy more shares than you would by investing the same amount when the price is high. By dollar-cost averaging your investments, you may lower your cost per share over time. Table 3 demonstrates how dollar cost averaging works. The Value of Dollar Cost Averaging

	6. Remember The Value Of Diversification
		It’s a simple fact that different securities and market sectors do well at different times. By diversifying, or spreading your dollars over several investments instead of just one, you can help reduce the overall risk exposure of your portfolio and help boost its long-term, total return potential. Reducing Risk Through Diversification