Gearing/ Debt management

Gearing is simply borrowing to invest. The borrowed money can be invested in a number of ways – shares, property, managed investments, etc.

Borrowing money to increase your investments can be a way of speeding up your wealth creation, as you have more money working for you. This can have the effect of accelerating your capital gains, but debt also needs to be carefully managed, both to keep costs under control and to avoid excessive risk. That’s because gearing can multiply losses as well as gains.

You need to strike a comfortable balance between the risk you’re prepared to take and your desired level of return. Interest and costs associated with gearing are usually tax deductible. This can make gearing a tax-effective strategy.

We can help you to develop strategies such as the following to more effectively build your wealth:

  • Debt recycling and reduction strategies – this involves the strategic co-ordination of cash flow to achieve home loan reduction, tax minimisation and wealth creation all at the same time. You can use this strategy to maximise wealth creation opportunities and to pay off your home loan sooner.
  • Home equity loans – by using the equity in your home to invest, through a line of credit, means your interest rate will be lower than an investment or margin loan and you won’t have any margin calls to worry about. Before using this strategy you must be comfortable that there will be an increase in the size of your mortgage.
  • Portfolio loans – result in you consolidating all of your borrowings in a single, flexible structure. A portfolio loan can help you reduce your overall borrowing costs and leverage the equity you have built up across your portfolio of assets.
  • Margin lending – allows you to borrow money to invest in securities, such as shares and managed funds. The securities act as security for the loan without tying down other assets. You must be aware that if markets fall and the value of your investment drops, your lender may make a margin call, asking you for additional funds to bring the LVR back below the maximum level.
  • Structured investments – offer geared access to a selected asset class or a diversified portfolio, designed to generate a predictable combination of income and capital gains over a specified time-frame.
  • Capital protected loans – can help you build an instant portfolio without the need to find capital upfront, taking advantage of the power of gearing with less risk.

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