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• Tuesday, February 09th, 2016
Business News Perth

Borrowing to invest

Many individuals and most business organisations borrow money at some stage to make a purchase or to invest. Borrowing to invest is known as gearing.

Gearing includes any type of borrowing to invest, whether it is cash loans for purchasing shares, or a large loan for an investment property or a new business. Gearing may be often considered to be highly risky. However, there is good debt as well as bad debt and the association of high risk with gearing only applies if the borrower has failed to plan for their gearing.

One advantage of borrowing to invest is that it allows investors to almost instantaneously access more funds allowing them to reap larger returns on investment. One of the most common ways of gearing is by leveraging your house to borrow. Most people already have a mortgage and you may use this to secure a loan to invest in other assets such as shares, or even another property if you have built up some equity.

On the other hand, there are also risks and disadvantages associated with borrowing to invest. It can increase your returns when markets are rising but losses can be devastating when the markets fall.

To learn more about borrowing to invest, read this article from Australian Securities & Investments Commission’s official website: https://www.moneysmart.gov.au/investing/borrowing-to-invest

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