The Basics of Internal Gearing


Are you feeling overwhelmed by the choices available when it comes to investing? Or are you interested in learning more about effective ways to grow and manage your wealth? If so, internal gearing might be the right financial strategy for you.

Internal gearing involves taking on a variable amount of debt to purchase investments, and at first glance can appear complicated and overwhelming. In this article, we’ll break down what internal gearing is, how it works, and help you understand how to use internal gearing as a strategy for boosting returns on your investments without engaging in any leveraged or speculative activity. So read on to find out if it could work for you!


What is Internal Gearing and Why Should You Care About It?

Internal gearing is a financial strategy that many investors utilise in order to maximise their profits. Simply put, internal gearing allows investors to use borrowed funds to amplify the returns on their investments. By managing borrowing and the security of funds within the fund itself, investors have the opportunity to capitalise on fast-moving trends that they might not otherwise be able to participate in due to capital limitations. As such, internal gearing can be a game changer in achieving one’s financial goals. Whether you are looking to build wealth for your future or simply trying to secure a comfortable retirement, internal gearing may be able to help you get there faster and more efficiently.


Is this investment strategy suitable for you?

Typically, investors seeking a long-term investment approach gravitate towards internal gearing. As such, internal gearing is commonly embraced by young investors or those with surplus cash flow. It is important to note that internal gearing entails a higher level of risk. Consequently, investors who are more inclined to take risk or possess the capacity to withstand market fluctuations tend to favour this strategy. Internal gearing tends to be preferred by individuals with a longer-term outlook, who are comfortable holding the investment for around a minimum of 7 years.


What are the advantages of internal gearing?

Investing in an internally geared fund can offer a range of advantages that can help you build wealth over time. One of the key benefits is that it allows you to expand your investment exposure beyond what you already own. By leveraging your existing assets, you can access more funds or property that you may not be able to acquire otherwise. This can help you diversify your portfolio, and potentially enhance returns. Over the long term, internal gearing can be an effective tool to grow your wealth, particularly if you make informed investment decisions and manage risk effectively. Ultimately, internal gearing can offer a valuable way to increase your investment potential and achieve your financial goals.


Considerations and risks involved with investing in internally geared funds

Investing in internally geared funds can be a complex and risky endeavour that requires careful consideration. These funds can provide investors with a unique opportunity to diversify their portfolios and potentially earn higher returns, but also come with a number of risks. For instance, some internally geared funds may invest in derivatives or complex financial instruments that can be difficult to understand or value accurately. Additionally, these funds may be subject to higher fees and expenses than other types of investments, which can eat into returns. Furthermore, if the market experiences a downturn, the value of your investments could plummet, leaving you with significant losses. It’s important to understand that even though internally geared funds can provide you with inflated returns, equally downturns experienced are also amplified. Despite these challenges, many investors find that internally geared funds can be a worthwhile addition to their investment strategy, provided they take the time to do their research and fully understand the associated risks.


Internal gearing is a great tool when it comes to investing and does come with great benefits. It is important to remember that it also carries risk involved and to consider this when investing in internally geared strategies. Knowing the types of strategies available, and the potential risks associated with internal gearing can help you make an informed investment decision.

If you would like to improve your current investment strategies or are looking to start your investment journey, click here to organise a complimentary 20-minute phone call with an EPG Wealth adviser. EPG Wealth is a self-licensed, boutique financial planning firm that is here to help. Whether you’re looking to retire, grow your wealth, or just need help managing your finances, our financial advisors can help you accomplish your goals.


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