Gearing

Gearing

Gearing, or borrowing to invest as it is also known as, is a tactical approach to increasing your wealth. While it does come with inherent risks, when done correctly, it can be a very lucrative wealth creation option.

Amongst other things, gearing can give you access to investments now that you otherwise would not have the money to access.

Much of the wealth of Australia has been built on borrowed money. Many people have long recognised that by borrowing money and investing it productively, they can grow their wealth faster than if they relied on cashflow alone.

By borrowing to invest and adding it to your existing funds, you create:

  • a larger portfolio,
  • a better spread of investments,
  • lower average transaction costs and
  • some potential tax efficiencies.

But be aware, as much as gearing magnifies your gains, it has the same effect on your losses.

How can we help you?

Our advisers offer gearing advice, including margin lending and home equity loans, appropriate to our clients’ experience, needs and capacity for investment into both direct shares and managed funds.

There are three main styles of gearing: the first is a single lump sum amount or using an existing portfolio as security; the second is installment gearing where regular amounts are advanced every month, and the third is establishing a facility which you can trade through, increasing and decreasing your balance as you go (similar to a line of credit).

Finding the right product is important. While interest rates are generally the first thing people look at, other features to consider are:

  • The Loan to Value Ratio (LVR)
  • Buffer amount
  • Range of stocks and managed funds available
  • Minimum required loan balance
  • Margin call conditions
  • Interest repayment conditions

It is no secret that gearing offers large wealth creation potential but it can also be a complex process. We can help you prepare for the capital and cash flow risks of strategies involved in gearing.