History shows gearing works
Gearing is successful in a “majority of occasions” as an investor strategy to add value to a portfolio, according to new research by MLC.
MLC’s research also found that the longer the time period of a gearing strategy the greater the likelihood of the gearing’s success.
The research methodology involved modelling lump sum gearing strategies over various rolling time periods, using Australian sharemarket data since 1910.
The performance of a 50 per cent gearing strategy was compared with a non-geared investment, assuming an individual invested $100,000 of their own money plus $100,000 of borrowed money.
MLC technical services manager Andrew Lawless said the research “provides sufficient evidence that gearing justifies the risks when used by investors with a suitable time horizon and risk profile”.
Lawless said gearing was found to add value in 81 per cent of occasions over a 10 year time period, and 90 per cent of occasions over a 20 year time period.
Calculations on how often a geared portfolio outperformed a non-geared portfolio by 20 per cent or more also worked out favourably for investors, he said.
These results revealed that a 50 per cent gearing strategy over 20 years not only beat no gearing on 90 per cent of occasions, it also beat no gearing by 20 per cent or more on 72 per cent of occasions.
Recommended for you
The central bank has released its decision on the official cash rate following its November monetary policy meeting.
ASIC has cancelled the AFSL of a Melbourne-based managed investment scheme operator over a failure to pay industry levies and meet its statutory audit and financial reporting lodgement obligations.
Melbourne advice firm Hewison Private Wealth has marked four decades of service after making its start in 1985 as a “truly independent advice business” in a largely product-led market.
HLB Mann Judd Perth has announced its acquisition of a WA business advisory firm, growing its presence in the region, along with 10 appointments across the firm’s national network.
