Gearing is the strategy of using borrowed money to purchase additional investments. The main benefit is that the size of your investment portfolio can be increased, as well as allowing greater diversification of you investment portfolio, by using third party capital. Gearing may also reduce tax as the costs of investing including interest, are generally deductible.
However, while gearing has the potential to magnify gains, it can also magnify any losses suffered if the value of your investments falls. Therefore, you should consider getting professional advice before borrowing money to invest, to confirm (or otherwise) that this is suitable investment strategy for your individual circumstances.
