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Gearing Plan & Advice


Advice on borrowing to invest

Borrowing to invest (also called gearing), may help accelerate your wealth creation. Gearing can allow you to access investments now that you wouldn't otherwise have the money to access. It can also give you the potential to spread money across different investment types, which can help to counter risk.

With a larger investment you have the potential to magnify your returns, but gearing can also magnify your losses.

Because what you earn from your investments is assessable income, you may be able to claim interest on your investment loans as a tax deduction. Some people use equity in their home such as through a line of credit.

You can consider borrowing against this equity to start or increase an existing investment with the objective of achieving increased returns on your investment. Others take out a special investment loan - often called margin lending. While this type of gearing can result in increased returns in a rising market, it may also lead to a greater loss in a falling market. You need to strike a comfortable balance between the level of risk you are prepared to accept and your desired level of return.

You might borrow to access a lump sum to invest. Alternatively, you could borrow a lump sum as well as regular amounts to add to your investment - known as instalment gearing.

Since the interest costs associated with borrowings for investment purposes are usually tax deductible, gearing can be a tax-effective strategy.

In the case of margin loans, lenders allow a maximum gearing level known as the debt to assets ratio (or loan value ratio - LVR). If markets fall and the value of your investment drops, a margin lender may make a 'margin call', requiring you to put up more money at short notice. You might have to offer more security or even sell some of your investment holding at the current prices as a result to bring your gearing back down to the appropriate level.

Think about it

We can help prepare you for the capital and cash flow risks of strategies involving gearing. Gearing can be a complex strategy so you should speak to a financial planner before making any investment decision.

Buying an investment property

For many, once the family home is paid off - or a reasonable amount of it - they start to look at other ways of building wealth. Often their first thought is an investment property.

Common questions to consider:

  • Is it better to put all my spare money into paying off my mortgage or should I consider other investments?
  • Am I better to invest my extra money in property or shares?
  • Are there tax advantages to owning an investment property?
  • Do I have to pay tax on an investment property?
  • Are there other ways I can invest in property, apart from directly buying a property myself?
  • Am I better off investing directly in property or managed funds?

How we can help:

  • Identify options to fund an investment property.
  • Look at realistic amounts you can borrow based on your current financial commitments and plans.
  • Set a budget to cover your mortgage commitments.
  • Advise on strategies to minimise tax.
  • Review, recommend and organise appropriate insurance.
  • Recommend if you need to create or review your Will.

What to do next:

If you want us to help you decide how to invest contact us today.