This article was published on 8 April 2006. Some information may be out of date.

Q&As

  • Buying a share on a rumour.
  • Retiring at 40 (2 Q&As).
  • Investing student loan money.

QMy mate was talking to one of the directors of Beaconsfield Gold, and was saying the company has had a big exploration programme and has discovered massive deposits of gold and other minerals.

The company made a loss of $900,000 last year using the money for exploration. The findings will be published in early April.

Can you tell me if it is safe to borrow money and invest in the company?

AI certainly wouldn’t advise it.

Let me say, firstly, that I almost didn’t answer your question. In the last seven days, I’ve received more responses to last week’s column than ever before — enough to fill the column for more than a month if I published them all.

But I’m worried about you, especially when you talk of borrowing to buy a single share. That’s how people got into big trouble in the 1987 share market crash.

As far as I know, there’s nothing wrong with Beaconsfield Gold. It’s based in Melbourne, mines gold in Tasmania and is listed on the Australian stock exchange.

Its $900,000 loss was for the six months ending last December, largely because mining was severely affected by an earthquake in October. That saw the share price plunge. However, the price then rose rapidly until mid-February, and has fallen since. In other words, it is volatile.

Maybe Beaconsfield shares are about to soar again because of new discoveries. But if so, would a director be likely to tell your mate — probably breaking insider trading laws and stock exchange rules about disclosing new information to all of the market at once?

And if he (all the directors are male) did tell your mate some significant new info, isn’t it likely he also told other people, who would rush out to buy the shares, thus pushing the price up already? The Aussie stock exchange’s Beaconsfield graph shows no such activity.

I’m not saying your friend is lying, just that the story might have got a bit embroidered.

Put it this way: I would never invest in a share on the strength of a rumour. As for borrowing to invest in a single share, that’s for gamblers only — especially in a volatile industry like gold mining. Somewhere down the track you could find that you owe way more than your investment is worth.

Feel free to send me a nasty letter a few months from now, telling me I talked you out of making a fortune. That might happen. But I will be amazed.

QMary, you are clearly too young to give advice, in last week’s column, on retirement at 40! Clinically, economically, you give good guidance, but you lack a little in understanding the nature of man. Man first, economics way back.

Man needs a focus throughout his three score years plus whatever may be available — even in his eighties and nineties.

To retire is “to die”. The word retirement is grossly misunderstood. Work, for most, is the focus, and knocking off work merely ends compulsory attendance etc. But then the challenge for most is: “What is my next goal, interest, objective or purpose in life?”

Last week’s 40-year-old ‘lad’ has a massive “what shall I do?” challenge, for an unusual length of time if he retires.

And his $26,000 income will hardly allow him to partake in many of the pleasures of the elderly, e.g. golf and travel to name just two.

Your column is fiscally sound and your opinions valued, but get a life — not just money. Enjoy! I am 80 odd — or just odd.

AYou sound oddly delightful. I like your priorities, and I promise to try to get myself a life!

This column, though, does have a certain fiver-letter word in large letters above it. And it seemed to me that last week’s correspondent was asking me about the financial aspects only.

Anyway, you have now raised some non-financial issues, so thanks for doing that. Other readers made similar points. For one example, read on.

QI have a piece of advice for your correspondent who plans to retire at 40 and that is DON’T!

My wife and I “retired” when I was 44 and she was 40. We soon discovered that there was nobody to play with as all our friends were still working. Having the launching ramp all to one’s self midweek sounds great, but who wants to go fishing on their own all the time?

Before we knew it we were working just as hard doing community work but without pay and in most cases without recognition. In fact there was almost an expectation that we would fill in more or less anywhere any time. After all we had the time and the money so why should anybody else put themselves out?

I congratulate your correspondent on achieving financial independence but suggest that rather than retiring he/she should use the opportunity to just do the sort of work they enjoy, knowing there’s no need to get stressed about it and they can schedule as much or as little as they like.

It will be much better for their mental and physical health in the long run. This could be called “working at leisure.”

AIf nothing else, you’ve helped to make the rest of us feel a little less envious.

Actually, last week’s writer sent me a thank you note that included the following: “I have started a part-time business where I can work my own hours and which should bring me some extra income in the future. The start-up costs and overheads are very low.”

He is clearly keeping himself occupied. He also says he is starting to write a book about “how to retire early on an average income.” If the experience of those who start small part-time businesses — to say nothing of those who write books — is anything to go by, he may well find himself busier than he ever was in employment.

QJust a bit worried that your answer to the student loan question last week seemed ill-informed and at least a decade out of date.

Since at least the early 1990s, the study part of a loan has been paid directly to the institution, so the student had no access to it. This was done partly to avoid abuse of the system such as you are suggesting.

The living amount, which went to the student, was capped at $300 a fortnight and as most students who live in Auckland well know, it is well nigh impossible to live here on $300 a fortnight. So if you can save anything of that for investing, good on you.

You merely continue a misconception that the scheme has not changed since it was first implemented.

ANot this issue again! You’re quite right that the government did make it harder for students to borrow for uses other than studying — whether it be investing or going on overseas holidays. But they couldn’t prevent it.

Perhaps I should have made it clearer last week that when we discuss investing student loan money, we’re not talking about students who need the loan money for their study, we’re talking about those who have enough money from other sources.

If they feel so inclined, there’s nothing to stop them:

  • borrowing and investing $150 a week that is meant to cover living costs.
  • borrowing and investing money for course-related expenses. To get this money, they have to present a quote for, say, a computer that they say they need for a course. But some people then don’t buy the computer.
  • borrowing course fee money, which goes straight to the institution, and then investing the money they would otherwise have spent on fees. In this case, they are not investing the actual dollars lent to them, but the effect is the same.

As far as I know, nobody knows how many students do this. I don’t see how anyone could find out.

Probably only a few can invest all of the money listed above. But quite a number have savings, generous parents or other income sources they would draw on if student loans didn’t exist. Many of them take out student loans and then invest their excess funds. It’s certainly arguable that they would be fools not to take advantage of interest-free money.

One detail I got wrong last week was the income threshold above which students must repay 10c in the dollar earned. I said it was $16,588, but it was raised on April 1 to $17,160.

So if you earn $30,000 you will have repay at least $1284 a year, and if you earn $60,000 it will be at least $4,284 a year.

Some other readers have raised interesting points about student loans. I hope to go into that next week, as well as running some letters on how the costs of living in retirement change as you get older.

Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.