Whether you’re borrowing to invest in property, shares or a diversified portfolio of ETFs, the principles of borrowing to invest (also known as leverage or gearing) are similar.
Why would I borrow to invest?
Borrowing gives you the ability to invest more money than you currently have saved.
The basic idea is you can benefit if the value of what you’ve invested in rises more than the the interest you pay on the borrowed money.
People usually consider borrowing to invest for a couple of reasons:
To access the increase in the value of an investment over time without needing to pay for it entirely upfront, ie a house.
To access tax benefits – sometimes you can get a tax deduction for interest payments on the loaned amount when the interest is larger than any income earned. This is known as negative gearing.