A carefully constructed Gearing Strategy can be used to accelerate the process of wealth accumulation by enabling you to make larger investments than would otherwise be possible.
Gearing simply means there is some type of loan involved in the investment. It is possible to gear, or borrow money, to purchase both shares and property. It is important that investments are affordable and have strong growth potential when geared.
Historical performance of growth based investments such as direct shares, property and managed funds have delivered higher potential returns over the long term than cash based investments, making gearing an effective long term strategy for growing wealth.
Borrowed money can be used in a number of ways including acquisition of direct shares, property and managed investments. Gearing is only effective if the after tax capital gain and income return of the geared investment exceeds the after tax costs of funding the investment.
Gearing can magnify gains but only if the net gains from your investments out weigh the cost of borrowing over the term of the loan.
Gearing Strategies are no different to any other initiative taken to improve your financial position – Requiring careful consideration against the backdrop of all other financial matters relating to your circumstances.
At Nexus we explore a range of gearing strategies for our clients depending on their individual financial circumstances.
| Examples of Gearing Strategies | |
|---|---|
| Negative/Positive Gearing | Instalment Gearing |
| Margin Lending | Internally Geared Funds |
| Double Gearing | Equity Lending |
| Instalment Warrants | Limited Recourse Lending |
In order to benefit from the long-term growth, you must be able to retain your investment (and service the repayments) during any short-term market fluctuations. Thoroughly researched asset selection and implementation of a cash flow management plan can mitigate the risks of prematurely realising losses.
Negative gearing into direct property investments is a popular strategy used by many Australians.
Asset selection
Don’t fall into the ‘YIELD TRAP’! With a back-of-the-envelope calculation, most people assume that if the income covers the holding costs, it must be a good investment. Even if they have calculated a TRUE NET YIELD, this is not the measure of a good investment. The difference between 5% capital growth and 6% capital growth, on a $500,000 investment over 20 years, is a staggering $331,275 in profit. Yield is important as it relates to your ability to afford holding the asset, however, once this requirement has been met, the primary driver for a successful gearing strategy is capital growth.Read our recent article on ‘Yield or Growth: What’s Driving your Investment Decisions‘ here
Failing to crunch the numbers
Accounting for all the expenses including interest paid on mortgage, council rates, body corporate/strata fees (if applicable), insurances (landlords, building), maintenance costs, property management fees, and depreciation allowances, is critical to accurately assess affordability.
Failing to (or not eligible to) claim depreciation expenses
Depreciation is an expense that can be added to the actual expenses of your property, increasing total (nominal) expenses, and therefore increasing total tax deductions. It’s important to understand that depreciation is an ‘Expense on Paper’ and not necessarily a true expense to the investor. Therefore, depreciation claims can have a positive impact on your cash flow.
This information is of a general nature only and neither represents nor is intended to be specific advice on any particular matter. We strongly suggest that you seek professional financial advice before acting.
For many years my husband and I struggled with where to go for financial advice. We wanted somewhere that was a one stop shop and to find an adviser who would look at our whole of life needs now and for the future and be able to tailor solutions accordingly. Someone who would take the reins in some ways, to take the pressure off us, set it all up, monitor and manage it all for us. We wanted someone who would be genuinely interested in what was the best for our family and not just pretend to be ... Read More
I have been a Nexus client for nearly 3 years now. They have always been there for me, even just to touch base when I was unwell. Nothing is too much trouble and the effort they put into finding and giving you the best comprehensive advice is tremendous. They have all been a pleasure to deal with and I feel so comfortable with them I am using them more and more for my wealth management. Super, Insurance, Property, financial planning, mortgage brokering and my accounting now all in one place. I ... Read More
Sonya and I have been a Nexus Client since 2012 and in that time the global economy has been subject to volatile property and share market fluctuations often ending in negative growth for most investors. The investment strategies Nexus have provided us with have improved our financial position during these challenging times whist also positioning us for future growth opportunities when they arise. A combination of having strategies in place and the ongoing coaching by the Nexus staff to better ... Read More
It has been a pleasure working with John. My first contact with him was over the phone when I was really overwhelmed with multiple decisions I needed to make to clean up my finances. He has provided clear and concise guidance to both myself and my partner reducing the stress around changing things for the future. His presentations are clear, he takes his time and really goes above and beyond what he needs to do in order to please his clients. I have since referred several of my close friends and ... Read More
I first went to Nexus about 18 months ago at which time I had just left the army and started my own business. Nexus did something I suspect very few wealth management companies would have done. They advised me to NOT pay them and wait until I was in a better financial position. This instantly tells me they are an ethical and people centric company. They could have taken my money and put me in a position of high risk, but they chose to forgo a commission to give me the most honest response possible. ... Read More
We have been with Nexus right from the beginning. When we decided to start a SMSF we wanted to go with a company that could do it all. Nexus provided us with that. They know everything about us now and look after our SMSF, Trusts, business tax and personal tax. Every member of their staff are knowledgeable and approachable. We are so happy and fortunate to have found Nexus. They have made our life so much easier.
I’ve used Nexus for creating a SMSF, tax, legal and estate planning. Great team, great value and great advice over the last year.
We have had a great experience with Nexus. They were recommended by family and we too would recommend them to anybody. Steve and John took the time to explain everything and never used pressure tactics. They also made sure they really got to know us and our goals before making a plan.
Nexus has helped my wife and I establish a holistic financial plan, including long term financial planning, as well as the recent purchase of an investment property.
Stephen and his team have always gone to the effort to understand our personal priorities, and we trust their views and advice which is informed, balanced and focused on our best interests. We highly recommend Nexus Private Wealth Management to anyone who needs financial advice.
My wife and I have been working with Nexus for a number of years now and outside of the financial advice, we have stayed for two main reasons. Firstly, the customer service is second to none and as the Nexus business grows, they manage to employ staff with the same focus on serving the customer. Secondly, the complete service offering means that we don’t need to find different providers for our super, versus our business needs versus our personal tax.
John has been working with my partner Jarryd and I for roughly six months to one year now, we are both young professionals and were looking to buy our first house. Obviously not knowing anything about the property industry or setting up long term wealth in general we really wanted to set ourselves up for the best chance of success. After meeting with John and the team at Nexus there was no question in our minds that we were going to utilise their services. John has spent copious amounts of hours ... Read More
Nexus are great! The support and tailored advise received has been very beneficial. We now have long term financial goals to set ourselves up for the future. I would highly recommend them to anyone looking for financial advice.
© 2018 Nexus Private Wealth Management | Website by Excite Media
Nexus Private Wealth Management is made up of the following companies: Financial Planning Advice is provided by Nexus Private Financial Planning Pty Ltd – ABN 58 159 649 055. Authorised Representative of Madison Financial Group Pty Ltd (MFG) – ABN 36 002 459 001 (AFSL No. 246679) | Investment Property Advice is provided by Nexus Private Property Servies Pty Ltd – ABN 52 159 828 038 (REA no. 3565454) | Lending services are provided by Nexus Private Lending Services Pty Ltd – ABN 37 169 705 926 (ACL no. 463839) | Accounting and Taxation services are provided by Nexus Private Accounting Services Pty Ltd – ABN 84 169 784 329 (RTA no. 25331778)
Information contained within this website is general advice only. We have not taken into consideration any individual circumstances and suggest that no person act on the basis of this information without obtaining professional advice as to how it applies to their own personal circumstances. All content appearing on this website is proprietary, copyrighted and owned or licensed by Nexus Private. Any unauthorised use of content from this website is strictly prohibited. All rights reserved.
