Gearing explained

What is gearing?

Gearing is simply borrowing money to invest. By adding borrowed funds to your own funds, you increase the total amount invested. So the returns, as a proportion of your original capital, are 'geared up', or magnified.

Australians have generally geared into property via their home or an investment property. But increasingly, more people are realising the benefits of gearing into the sharemarket. Not only is there an increased opportunity to create wealth, gearing also offers greater portfolio diversification and potential tax efficiencies.

Read more about the benefits of gearing here.

Degrees of gearing - negative, neutral and positive

There is a common misconception that gearing automatically means negative gearing. In fact, an investment can also be neutrally or positively geared. It all 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. The more highly geared you are, the greater the potential rewards.

Find out more