Successful people have long recognised that, by borrowing money and investing it productively, they can grow their wealth faster than if they relied on income alone.

If considering gearing, an AWS Financial Advisor can discuss your options with you, helping you understand any potential risks involved, how they can be managed effectively, and the tax implications of embarking on a gearing strategy.

Gearing put simply means borrowing money for investment. It entails borrowing money and adding it to your own funds, thereby increasing the total amount invested. A larger investment than would otherwise be possible can be made, so the returns, as a proportion of your original capital are larger.

Gearing can help you achieve larger financial goals more quickly.

Negative gearing happens when your net investment income is less than your interest cost. Once your investment income exceeds your annual net interest costs, then your cashflow is said to be positively geared. The more highly geared you are, positively or negatively, the greater the potential rewards available.

Why Gear?

• Gearing gives you more funds to invest
• Gearing can help you spread your investments more effectively
• Gearing can reduce the costs of investing
• Gearing can be a tax efficient investment strategy

Potential Risks of Gearing

• Financial loss

While gearing can increase the returns from an investment, borrowing to invest can increase the risk of financial loss.

• Short timeframe

Shares and managed share funds produce unpredictable results over the short term. Your timeframe must be long term in order to smooth out short term fluctuations in returns and achieve sound capital gains (7 yrs + is advisable).

• Fluctuations in interest rates

If the interest rates on borrowed funds increase while your income from investments don't change, then you will incur additional costs.

• Falling market

Although gearing has the potential to increase capital gains, it has the potential to compound a capital loss in a falling market.

Some Gearing Options

• Marginal lending
• Home equity loans
• Installment gearing
• Dollar cost averaging
• Protected loans

An AWS Financial Planner will be able to discuss the pros and cons of gearing with you, so that the risks can be effectively managed. We will help formulate a flexible and diversified strategy for you, discussing all the potential options available so that you can enjoy maximum possible gains.