What is gearing?
Borrowing to invest using existing investments as security is called 'gearing'. It's a simple tool you can use to build your wealth.
Regular gearing combines a regular investment plan with an investment lending facility. It gives you the advantages of regular saving combined with the advantages of gearing.
It is also a simple and automatic way to drip-feed money into investments, so you can take advantage of 'dollar cost averaging', i.e. buying more when the market is down and less when the market is up.
Benefits of gearing
Gearing can be beneficial if it enables you to:
- Gear your savings to build your wealth faster
- Invest more money for potentially higher returns
- Improve risk management by diversifying your investments
- Take advantage of potential tax deductions.
Benefits of regular gearing
Regular gearing offers all the benefits listed above plus:
- It allows you to invest more money more frequently
- You can double the amount you invest each month
- It provides an automatic and simple approach towards achieving your goals.
Risks of gearing
Gearing can magnify losses as well as gains. The risks you need to consider include:
- A fall in the value of your investments may occur however the loan balance remains
- Interest costs may outweigh investment returns, thereby impacting your cashflow
- Where a margin loan is used, a margin call may occur, requiring you to add more funds or sell your investments.
Gearing options and investment loans
A Westpac Online Investment Loan may suit investors wanting an integrated share trading and investment loan facility.
A Westpac BlueChip20 may be appropriate for investors new to the share market or are looking to increase the diversity in their investment portfolio with shares in the top 20 Australian companies.
Things you should know
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