Debt Management and Leverage

Gearing into investments

Neutral gearing

Gearing is typically used as a long term strategy because the value of investments such as shares and property can be volatile over the short term.

Any short term losses, made bigger through gearing, need time to bounce back.

While you are riding out your investment timeframe, you may experience three different cash flow scenarios. These three scenarios relate to:

  • Neutral Gearing
  • Negative Gearing
  • Positive Gearing

Neutral Gearing

In reality this is a rare occurrence.

Neutral gearing occurs when the income from an investment equals the expense for the investment. So in this case there is no positive or negative cash flow, it is neutral.