What is the risk?

By gearing your investment, you have more to invest - so you increase your potential returns. At the same time, you also increase your potential losses, because borrowing to invest in shares and managed funds can magnify risk.

Gearing can magnify both the gains and the losses

Borrowing to invest may increase returns...
Portfolio	Un-geared	Geared
Own funds	$100,000.00	$100,000.00
Borrowed funds	Nil	$100,000.00
Total Invested	$100,000.00	$200,000.00

10% increase in investment	$10,000.00	$20,000.00
Value of investment	$110,000.00	$220,000.00
Borrowed funds	Nil	$100,000.00
Value (net of loan)	$110,000.00	$120,000.00
Return on investment (before tax)	10%	20%

... but may also increase losses
10% decrease in investment	-$10,000.00	-$20,000.00
Value of investment	$90,000.00	$180,000.00
Borrowed funds	Nil	$100,000.00
Value (net of loan)	$90,000.00	$80,000.00
Return on investment (before tax)	-10%	-20%

Consider the risks

Whenever you use borrowed funds to achieve financial objectives, there are risks to consider.

You have to pay interest on any borrowed funds, regardless of the investment performance of your portfolio.

If losses occur, they will be bigger for a geared portfolio simply because you have spent more money on your investments.

Find out ways to minimise the risks.

Find out more about BT's margin lending.

Download a copy of 'Margin lending made easy' (PDF, 557 KB).
Read BT's margin lending case studies.
Find a financial adviser using BT's Adviser Referral Program.
Learn about BT's margin loans.