Mary Holm: Risks take shine off gold investment

Gold is a risky investment. Its value rises fast sometimes. But any investment that does that also goes down fast sometimes. Photo / Thinkstock

I came across your website, www.maryholm.com, which is why I am reaching out to you because I respect you as an authority in the field of finance and investments.

You see six weeks ago I was reading one of your insightful articles about gold on your website and after reading that article I was introduced to a 12-week gold saving plan, and since that day I have been quietly taking a portion of my income and using this to buy gold.

I share this with you because six weeks ago, my life was in a different space to where it is today.

I am now an evangelist on a mission to share this 12-week plan with as many people, friends and family as I can, because I would like to see this message reach one million lives, and I hope their lives would be changed in the same way that mine and my family's have been changed.

This Gold Savings plan is not multi-level marketing ... All I have done is follow the four steps below in order, which is now earning me an income where I am still pinching myself each week I get paid. And thanks to my new income stream I now purchase my gold for free, and I have achieved this income within six weeks by simply following these four steps below in order:

Step 1: Register for your free Gold Savings account here (link given) and become KYC "Know Your Customer" certified.

Step 2: Attend the free Online 12-week Gold Saving Plan webinar.

Step 3: Purchase at the very minimum a silver business package for only US$323.

Step 4: Transfer a minimum of $65 paper money into your gold money account per week.

I don't want this to sound like another hype story, and your results may be different to mine. But if you or your customers follow the four steps in order and don't try to be smart you can't miss this goal.

In closing I want you to think about this quote from Warren Buffett, "someone somewhere is sitting under the shade of a tree because someone planted a seed a long time ago".

I am reaching out to you to offer you another point of view regarding gold as a saving plan, and if you have any investors looking for gold and you introduce them to the four steps above your potential income could be an easy 6-7 figures per year. If you have any questions please feel free to contact me.

My Warmest Regards to you, your team and family.

Thanks for the regards. And yes, I do have a few questions for you. The first is: how on earth did you progress from reading my "insightful articles about gold" to the 12-week gold saving plan?

My main messages about gold have always been along these lines:

Gold is a risky investment. Sure its value rises fast sometimes. But any investment that does that also goes down fast sometimes, and gold is no exception. And nobody can predict the rises or falls.

If you can tolerate risk and want to hold a bit of gold, it will give you some diversification. But I would suggest no more than 5 per cent of all your investments.

One downside of gold is that it produces no income - no interest, dividends, or rent. So you're fully reliant on a price gain to get any return.

Sorry, but I can't see how these points fit in with your plan.

My second question: do you really think this plan is making you rich, or are you just trying to get others involved because you'll somehow profit from signing them up? Your second-to-last paragraph certainly implies that. If I can earn 6-7 figures, perhaps you can get 8-9 figures?

My third question: if you genuinely believe in this plan, how will it make you rich? You say you're earning an income, but where is that money coming from? Maybe someone is just feeding you back the money you've spent on the business package and weekly contributions, to suck you in. Or maybe this is an "affinity fraud", in which the fraudsters are feeding cash to you so you'll tell all your friends and family - which you say you're doing - and they will then sign up and be ripped off.

With any get-rich idea, it's essential that you understand how the wealth is being generated. With shares, wealth comes from business profits and selling the shares at a gain. With property it comes from rent and gains. With your scheme, who knows?

Thanks for thinking of me, but I'll give this opportunity a miss. And I strongly suggest readers do likewise.

One last point: your choice of an expert to quote, Warren Buffett, was an unfortunate one from your point of view. The hugely successful share investor - one of the world's richest people - is hardly a fan of investing in gold.

Here are a couple of his many quotes on the subject:

Gold "gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

"You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what it's worth at current gold prices, you could buy - not some - all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?"

Chinese whispers

I was reading April's Metro magazine when a comment in an article, "The house of your dreams", made me think. To summarise, the article said a gentleman from China had purchased 17 houses in New Zealand in three months and was borrowing money in a market we can't compete with at 3 per cent. (I'm assuming this is the Chinese money market.)

It has made me quite upset as the Reserve Bank has said it will happily raise our rates by 2 per cent to around 8 per cent. Then how do we compete with the Chinese buyer with his ability to borrow at 3 per cent? On a $400,000 mortgage the Chinese investor pays just $12,000 a year interest and the Kiwi family will have to pay $32,000.

I thought surely this can't be true, surely the Government wouldn't let Kiwi buyers be at such an incredible disadvantage when buying property in their own country! So I thought, I know, I'll ask Mary.

So Mary: can Chinese people really borrow money at 3 per cent to buy our houses? And if so - if we have such a fantastic "open market" - how do Kiwis access these borrowing facilities?

Firstly, Metro editor Simon Wilson says your summary isn't quite accurate. The article "quotes an angry observer saying those things", he says. "There's an important difference. It then asks, 'What if it's not true?' and has the observer suggesting that 'Even if it's half-true ...'."

Wilson continues, "I think it's clear we were not presenting the man's statement as fact, but as indicative of a general concern about a competitive advantage Chinese investors might get. It's legitimate for people to voice that concern." Fair enough. But let's look further into whether it's likely Chinese people are in fact getting 3 per cent mortgages.

"We suggest 3 per cent seems too low for someone borrowing in Chinese currency," says a Reserve Bank spokeswoman. "China's Government currently pays 3.5 per cent for 2-3 year funds. The 12-month interbank rate is 5 per cent and lending rates are closer to 6 per cent or above."

She adds that there would be additional costs in swapping a loan in renminbi - the Chinese currency - into New Zealand dollars. And a borrower also might want to hedge their currency risk.

That means insuring against future adverse currency movements. In this case, the Chinese borrower might be making mortgage payments in China using rent money received in New Zealand. If the Kiwi dollar falls against the renminbi, the borrower would have to make up the difference, unless he or she were hedged. But it costs money to hedge.

All of this makes your second question - about whether New Zealanders could get low-interest Chinese mortgages - a bit academic. But the Reserve Bank has answered it anyway: "An overseas bank would not typically lend to New Zealanders for house purchases here in New Zealand. A bank would need to be satisfied with the credit risk of the borrower and the collateral for the lending."

The spokeswoman adds that "since the borrower takes on a very large foreign exchange risk when borrowing in another currency, the bank would probably only lend to a very credit-worthy borrower with significant financial backing. Such a borrower would usually have no trouble accessing the funds locally." And, apparently, the interest rate might not be very different.

Perhaps in response to your comment that the Reserve Bank will "happily" raise New Zealand mortgage rates, it says, "Our assessment is that the Official Cash Rate will need to rise by about 2 percentage points over the next two years for inflation to settle around the middle of our target band, to ensure that the economic expansion can be sustained." Note the absence of glee.

So where does that leave us? If the house buyer discussed in the article did, in fact, borrow at 3 per cent, maybe it was a loan from family or friends. It sounds as if such loans wouldn't be widespread.

Of course there's another question here: should New Zealand let foreign residents buy property here? But that's one for the political experts.

Contractor's KiwiSaver

I'm a contractor in my mid-40s and would like some advice on retirement saving, particularly around a KiwiSaver fund.

Obviously, I pay my own tax, GST, ACC etc, but am slightly unsure what happens in respect of employer contributions if I were to join KiwiSaver. Do I also pay the employer contribution or is there another approach for the self-employed?

If you're self-employed, there are no employer contributions to KiwiSaver. You get the $1000 kick-start, and then each year you put in any amount you like, and the Government puts in the usual tax credit - 50c for every dollar you contribute up to a maximum tax credit of $521 a year.

I recommend contributing $1043 a year or $87 a month, which will get you that maximum tax credit. Why not more? You're tying up the money until you buy your first home or reach NZ Super age. So you might prefer to make further savings somewhere else so you maintain access to the money.

• Mary Holm is a freelance journalist, member of the Financial Markets Authority board, director of the Banking Ombudsman Scheme, seminar presenter and bestselling author on personal finance. Her website is www.maryholm.com. 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 mary@maryholm.com or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.