Need money, lots of it

Can't afford payments on $2m student-loan debt

QUESTION: I am a 23-year-old public-sector worker who earns a basic salary of $55,690.77 per month and allowances of $150,000 per year, which is my only source of income. I live at home with my mother and I do not have a lot of expenses.

I have a loan from the Students' Loan Bureau (SLB) and have to repay more than $2 million over the next seven years. The required amount to repay the SLB for the first six months is more than my salary, and thereafter, more than half of my salary, which I cannot afford. My account is in arrears and an additional $500 each month has been added to my account.

I am interested in investing a small amount of money ($100,000-$120,000) in a short-term, low-risk investment for one year that yields the most competitive interest rate to repay the SLB. I do not have any knowledge about investment and I am very sceptical about the financial institutions with regard to them having the customer's best interests at heart.

I saw an advertisement in The Sunday Gleaner where a contestant in the Caribbean Masters competition invested J$100,000 and generated J$1.2 million in one year. Is this possible? If so, I am seeking your advice on such a portfolio management.

- Colleen

PFA: Borrowing to fund education is a good investment. A good education does give you an advantage in the market. But servicing the debt can be a real nightmare if you are not able to earn a reasonable income in the short term to meet your commitments.

From the information you have provided, it seems that you will be paying more than $300,000 on average per year to the SLB for the next seven years.

Investing $120,000 "in a short-term low-risk investment" would yield you about $13,200 per annum, before tax, if the investment is for a one-year term.

That 11 per cent rate would fall to around 7.50 per cent per annum if the funds are invested for 90 days at a time, and assuming current rates hold.

This approach is not going to solve your problem.

I cannot promise you I can help you make the kind of returns - 1,000 per cent - Donette Johnson made in the 2009 Caribbean Masters competition in which financial analysts are given specified sums to invest with the objective of maximising their returns while maintaining their capital.

Johnson is the senior equity trader of JMMB Securities and has been in the business of equity trading for many years. She has been in the competition before and has won it once previously. She is an experienced and astute invest-ment professional.

It is true she was able to convert $100,000 to $1.2 million in one year by trading in the markets of Jamaica, Barbados and Trinidad and Tobago.

She did not invest with JMMB.

The winner in the 2008 season of the competition made gains of $46,076.22 in different market conditions.

Last year's winner relied very heavily on arbitrage and took a very aggressive stance in the competition. She maintained $20,000 in fixed-income securities, the barest minimum by the rules of the competition.

Arbitrage opportunities

She was able to use arbitrage because of her experience and skill developed over an extensive period of trading equities as a professional. Arbitrage opportunities exist when the price of an asset in one market is out of sync with its price in another market.

The price difference allows the trader to buy the asset in the market where it is lower and sell in the market where it is higher, thereby making a profit.

Though they used to be real in the earlier days of the competition, trades nowadays are simulated.

As such, the competitors treat their 'trades' as having been executed if there is activity in their 'selections' at the prices they have set. In the real world, though, there is no certainty that an order will be executed, even if there are trades at that price.

I am sorry to advise that the two approaches you mentioned will not help your situation. Fortunately, you are at home with your mother, thereby making your situation less difficult than it would have been otherwise.

Jobs are hard to come by in the current environment, but you should not rule out seeking one that pays better than your current employer. Hold on.

Oran A. Hall is the principal author of "The Handbook of Personal Financial Planning". Email: finviser.jm@gmail.com.