mom seeks investment advice
I am a 31-year-old single mom. I gross $35,000
a year currently and have no debt. I bring home $2,076 a month (four
weeks' pay). I have roughly a bit over $60,000 in my savings and
desperately need to invest it. I am renting an apartment and need
a new car -- not necessarily NEW.
But I'm not sure how to invest it. I've been saving
and holding onto this money. Meanwhile, I'm losing every day by
keeping it in an account making about $40 a month. I really need
help. I'm trying to do the best I can, but I know I have lacked
in the responsibility of investing even though I've been saving.
Now with all the costs gone up I won't be saving a lot of money.
I would like to know if I should put some in
a retirement account, and just split up my investments, but I don't
know how to or what's good for my situation. I don't want to depend
on anyone, but I have to be secure for me and my daughter. I'm open
to many suggestions. Please help. Thank you.
It's never easy knowing what to invest in. When
you have a greater return, you also have greater risk. However,
since you're young, you have an investment horizon that will help
overcome any short-term setbacks. For example, if you invest in
stocks, your original investment might decrease in value within
a year or two if the economy doesn't do well, but in 10 to 15 years,
chances are good that those investments will have gained more than
a safe investment such as a certificate of deposit.
One of the safest and lowest-cost investments is a
mutual fund that is tied to major stock fund index such as the Dow
Jones industrial average, Standard & Poor's 500 or Nasdaq. The
costs associated with these funds are usually low, as the fund management
is rather straightforward: They just buy the same stocks that make
up the index.
The worst advice I've seen clients receive with your
level of investment is to buy annuities and managed brokerage accounts.
These investments have high costs or management fees and the clients
have tended to opt out of these accounts as they have underperformed.
Stay clear of anyone trying to sell you on this idea, because they'll
make more money than you will.
Being a single mom, you should also check into some
life insurance in case something happens to you. You may want to
check into a variable life policy, but the costs of these policies
are high and your income is limited. A good alternative would be
a term life insurance policy that insures you until your child is
of majority age.
A retirement account, such as a Roth IRA, is a good
place to put some money for the tax advantage. At your level of
income, there's a tax credit equal to about 10 percent of your retirement
contributions. You can invest these funds in a stock index mutual
However, using some funds to buy a home for you and
your child also makes good sense. If it's your first home, you should
be able to get in to the property with little money down. If you
intend to finance the newer car, I suggest you wait until after
you close on a home purchase so that it is easier to qualify for
To ask a question on Tax Talk, go to the "Ask
the Experts" page, and select "taxes" as the topic.