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Utilising gearing strategies

Gearing relates to the use of borrowed money to purchase an investment. Since gearing allows an investor to make a larger investment than would be possible using their own funds, it provides the opportunity to significantly magnify the returns from investment and is therefore a common ‘wealth creation’ strategy. It’s important to note however that this ‘leverage’ works both ways - if the investment performs well it can enhance the return, but if the investment is a poor one it can worsen the loss.

Good to know

There are three levels of gearing:

  • Negative Gearing: The interest payments on the borrowed money exceed the net investment income.
  • Neutral Gearing: The interest repayments on the borrowed money equal the net investment income.
  • Positive Gearing: The net investment income exceeds the interest payments on the borrowed money.

  • More information about the different gearing strategies
  • The risks associated with gearing
  • How to make suitable gearing investments
  • The tax benefits of gearing
  • The key benefits of using a Line of Credit facility
  • An explanation of Margin Lending and Margin Calls

Click here to download our Gearing factsheet

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