You may be wanting to invest your money, but unsure what investment vehicle to use. There is, after all, a very wide range of investment vehicles on the market for building wealth as a single mom. The form of investment that is appropriate for your circumstance depends upon a variety of factors, including but not limited to; your acceptable level of risk, the time duration for the investment, and the purpose of the investment.

Financial tips for single mothers

We have set out below a few financial tips for single mothers and general rules of investing, outlining several basic investment vehicles. However, the information below is the opinion of one individual, and ultimately, you must make a decision based upon your own judgment and research.

A starting point for investment is to ascertain your acceptable level of risk. Usually, there is an inverse correlation between risk and return. In other words, riskier investments produce higher potential returns, but of course, there is also a higher chance of not making any profit or losing your investment altogether. If you have a large surplus of monies to invest, it may be that you can afford to place a certain percentage in riskier investments. However, if you “can’t afford to lose”, then it’s preferable to be conservative in the entire investment.

A second rule of investment involves the concept of diversification. Basically, diversification is the practice of spreading your investment monies into different items. If you are not diversifying, you are “putting all your eggs in one basket”- this can be a disaster. If you diversify, you are lessening your level of risk.

A third rule for investing is the consideration of the duration of time for which you want to invest your monies. For example, you may have a surplus of $5,000; however, you are aware that this $5,000 will be necessary in 6 months. In contrast, consider the situation in which you simply want to invest the $5,000 for your own retirement, in 15 years. In the first example, you should be more prudent with the level of risk, as you will require the monies in a short time frame. Accordingly, a GIC or CD may be appropriate. In the second scenario, you can afford to invest in vehicles that, while conservative, is riskier, but will carry a greater return.

Take advantage of all options. For example, if you can transfer monies from your chequing account to a savings account to earn greater interest, do so! hop around; compare interest rates on savings accounts at different financial institutions. Note, however, that because the interest rates in a bank savings account is so low compared with other investment options, you should keep as little money as possible in your savings account and invest the remainder into, for example, a GIC (Cdn.), CD (U.S.), money market, and so on.

If you are investing a significant amount, and depending upon whether the monies are being funnelled to a retirement vehicle (for example, in Canada, an RRSP), you may also want to consider the accounting repercussions. For example, mutual funds will cause gain by way of capital appreciation or gain (i.e. You sell the fund and make a profit) whereas bonds will generally cause you to profit only by way of dividend (i.e. the bond pays income of $X every 6 months). Capital gain and dividend income are taxed differently.

If you are looking to invest in a mutual fund, a popular choice, give preference to no-load funds. A no-load fund has no front-end or back-end sales charge. Look at the fund’s track record – look for a solid performance record with a consistent performance manager. If the fund has a new manager, you may want to defer investment in it, until the new manager has proven his abilities. You might also be wary of a fund which is new because there is insufficient data to fully evaluate it. As well, be wary of funds that have low total assets. Finally, walk away if you are solicited by telephone or e-mail for investment in a high-yield fund, as the “high-yield” fund might be extremely speculative or completely bogus.