Equity gearing in super gets the thumbs up

New research shows Protected Equity Loans boosted share returns, while avoiding the problems of other forms of share gearing.

Summary: Despite concerns about gearing by SMSF investors, new research shows Protected Equity Loans boosted the performance of a range of share portfolios. These loans allow investors to hand back shares to a lender if any stock falls during the term of the loan, rather than making top-up payments. Research found PELs perform well when share prices rise or when they fall heavily, but unprotected portfolios score better when stocks rise or fall by small amounts as loan costs eat into relative returns.

Key take-out: Share portfolios investing using Protected Equity Loans outperformed the same portfolio purchased without gearing by more than 7% per annum between 1994 and 2014.

Key beneficiaries: General investors. Category: Strategy.



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