Gearing refers to the process of borrowing money to invest. This is a strategy that can be effective over the long term, but the risks involved in such a strategy must be fully understood before entering into any gearing arrangement.
Gearing magnifies the gains and losses produced by growth investments such as shares and property. Any form of gearing strategy should take into account your entire financial position, needs and objectives.
Often individuals who commence gearing strategies either do not need to take on the additional risk to achieve their long term financial objectives, or cannot afford to take on the risk whether it be because of cash flow constraints or insufficient equity.
A well considered and thought out gearing strategy can be effective in creating wealth over the long term as part of a broader financial plan.