Essentially, a geared investment is where money is borrowed to purchase an investment. This may be the entire amount required or a portion of the total cost of the investment.
Interest on money borrowed for the investment is then generally tax deductible against income from the investment. Other costs of holding the investment are also tax deductible, such as council rates in the case of an investment property.
If the interest and other costs total more than the income then the excess can be claimed as a deduction and reduce tax on other income such as employment income.
You will find an example of a “Geared Investment” (property) in the Negative Gearing section of this site.
One of the main advantages of geared investments is that you gain access to increases in value on a larger asset base than you could if you only invested money you had saved. What this means is that your gains can be multiplied. At the same time, it should be noted, that losses can also be magnified.
A geared investment may be considered as part of an overall investment strategy and tailored to suit your personal circumstances.
Find out how a geared investment fits into your personal circumstances