The concept of ‘gearing’ simply means borrowing money to invest. When managed correctly, geared investments can amplify potential returns and provide tax benefits for the investor.
A gearing strategy can be applied to asset classes such as managed funds, direct equities (shares) and direct property. The asset class used for gearing investments depends on your goals and the lender’s criteria. To give you an idea, managed funds and equities can usually be leveraged up to 65% of the total value, while direct property can be leveraged to 90% of the loan-to-ratio value.
Geared investments tend to be more suited to aggressive, long-term investors. A financial adviser can help you determine if gearing is appropriate and beneficial to you.