Opinion

Overview of gearing

FINANCES: Ways to grow your retirement fund
FINANCES: Ways to grow your retirement fund kenteegardin

GEARING is when borrowed money is used to buy growth investments such as property or shares. Gearing can increase investment returns but can also magnify investment losses.

Generally, gearing is most suited to clients who are still working and earning an income. Therefore, a gearing strategy is most commonly used by people in the wealth accumulation to increase wealth over the longer term. 

A gearing strategy can be set at three levels - negative, neutral or positive.

In assessing your suitability to a gearing strategy, you should consider, among other things:

  • The appropriate risk profile required for gearing
  • The cash flow needed to service the loans or make additional payments if and when required.   

If gearing is appropriate, the next step is to review the gearing facilities available and to determine which option is most appropriate. Consideration should be given to the choice of collateral, the type of repayments required, the frequency of additional investments and the investment choices allowed.  

There are also different interest rate options available on different loans.   

The choice of fixed and/or variable interest rates is important.

The choice may depend on the type of gearing facility and the product provider. 

There needs to be a direct link between the interest and the investment because for interest costs to be tax deductible, the purpose of the underlying investment must be to produce assessable income.    

You should also consider and compare other forms of wealth accumulation such as investing into superannuation.  

One advantage gearing outside of superannuation is it's flexibility and access to money when needed.

 



Coffs enhances reputation as Australia's rallying capital

Guarav Gill is the current driver's championship leader in the Asia-Pacific Rally Championship.

Thrilling news of another top line rally possibly coming to Coffs.

UPDATE: Council responds to uproar after trees get chopped

Social media is in meltdown over the trees being chopped down.

Council clarifies circumstances behind tree removal in Woolgoolga.

Is this your new job?

Do you have a clean driving record? Like spending time in the car? This could be your new job.

Do you like spending time in the car? Have a clean driving record?

Local Partners