Understanding Gearing: Borrowing to InvestYour Sunshine Coast Financial Planning Specialists
The advantage of borrowing to invest, or gearing, is that if the return on the asset exceeds the cost of borrowing then you can grow your wealth more quickly. The interest payable on investment loans is normally tax-deductible.
A common gearing strategy is using the equity in your home, even if you don’t own it yet, and investing in other assets including property, shares or managed funds.
It’s important to remember, however, that while gearing can help you build more wealth there is also the risk that any losses you incur will hit harder.