Gearing or margin lending involves borrowing to invest in a new investment portfolio, to increase an existing portfolio or to free up existing capital. By adding borrowed funds to your own funds, you increase the total amount invested. Gearing increases financial leverage by providing you with an investment loan which can be used to buy managed funds and shares or other eligible securities. By utilising a gearing strategy, an investor is often able to use the increased funds to better diversify their portfolio.

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 cash flow 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. Adopting a disciplined approach, by investing in a diversified portfolio of quality assets and selecting a suitable time frame to ride out inevitable market volatility is advisable.

There is a common misconception that gearing automatically means ‘negative gearing’ when in fact, an investment can also be neutrally or positively geared. This depends on how much you borrow, how much interest you pay, and how much income you receive from the investment.

The degree of gearing you choose will depend on your objectives and your own financial circumstances.

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

We 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.

To find out more about gearing and if it is suitable for your personal, financial circumstances, please contact Investment Options (Aust) on Ph. 4775 5199.

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