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Understanding Gearing/Borrowing to Invest

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. That’s why it’s important to discuss your options with a professional financial advisor before making any decisions.

Here’s a snapshot of what you need to know.

Having an informed picture of finances at an earlier age will set you up for a more prosperous and  constructive, financial future.

 

Now is generally the time when you are establishing and growing a career, starting a family and looking at buying your first home. This is an ideal opportunity to lay the foundations to keep you in good financial  stead for the years to come.

18-35 years

Investing regularly, with informed and considered strategies, is a fantastic way of achieving your personal goals. A considerable advantage of beginning your investment strategy earlier in life is the beauty of compounding– generating earnings on earnings.

35-55 years

Considering a variety of strategies including dollar cost averaging, diversification and borrowing to invest are all wise choices during this life stage.

Each of these strategies will help you create wealth to support your ideal lifestyle and set the foundations for you to achieve your financial goals for the next ten to fifty years.

55+ years

For those who are in a reasonable financial position, this is a time of consolidation and considered investment including blue chip stocks, salary sacrifice superannuation and perhaps even a self-managed super fund. However, if your retirement fund isn’t looking as robust as you’d like, then the time from 55 to retirement is a question of balancing risk with reward.

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