All gearing refers to is using debt for investment.
Positive, neutral, negative gearing just means whether the total 'cashflow' is +ve, -ve or neutral.
eg, for positive gearing in shares, total dividend income exceeds interest expenses, ie cashflow positive. Neutral gearing is where the income equals the interest expense and negative is where the income is less than the interest expense.
Say if you had a share portfolio valued at $100,000 and then borrowed $50,000 at 9% pa to further invest in shares, your total portfolio would then be $150,000. If this provided a return of 5% pa dividend income (ignoring franking credits), then dividend income would be $7,500 pa. Interest expense would be $50k @ 9%pa or $4,500 pa, so the total portfolio would be positively geared as the income exceeds the expense.
And dividend is not 100% certain..sometimes if they have a bad year they don't pay out dividends or if they want to retain that earning for expansion and various other activities and reduce dividend payout..
Make sure you have enough spare cash to pay your interest and cover the short year.
Thanks for those replies. Yes i understand the concept of gearing vs return but as was indicated DIVIDEND is not 100% certain or a reduction in DIVIDEND is possible.
This is what was throwing me i think that one didn't have a stable return if borrowed to invest.
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