Using the home equity to purchase an investment property or share portfolio are two examples of “gearing into investments”.

Gearing into investments occurs when you borrow to purchase an investment or a number of investments.

It is most common to borrow to invest in growth assets (property and shares), as borrowing to invest in income assets (such as cash or fixed interest) is less likely to produce an overall positive net return due to the difference between the current interest payable and the return on investment. The Tax Office may not allow a full deduction of the interest costs if you borrow to invest in income assets.

Gearing is generally considered to be a more aggressive wealth creation strategy than not gearing at all.

The reason for this is that gearing magnifies the gain or loss you get on your money. In other words, there is a higher risk for you.