Geared Share Funds Explained: Risks, Returns and Long Term Impact

Geared share funds are one of those investment options that tend to divide opinion.

Some see them as too risky. Others see them as a way to enhance long term returns.

The reality sits somewhere in the middle.

Used appropriately, they can be a powerful tool within a long term strategy. Used incorrectly, they can increase volatility beyond what someone is comfortable with.

What Are Geared Share Funds?

Geared share funds use borrowing to increase exposure to the share market.

Instead of investing $1 and getting $1 of market exposure, the fund may borrow additional capital to increase that exposure.

This means:

• returns can be higher when markets are rising
• losses can be larger when markets are falling

It is important to understand that this is not about trying to time markets.

It is about increasing exposure over the long term, where markets have historically trended upward.

If you want to explore how different providers structure these funds, Betashares has a useful overview here:
Geared funds

The Potential Benefit Over Time

The reason geared share funds are considered is simple.

A relatively small increase in return can have a significant impact over long periods of time.

For example, an additional 0.5% to 1% return per year over 15 to 20 years can materially increase your final balance.

This is where compounding becomes powerful.

It is not about short term performance.

It is about how consistent, slightly higher returns can build over time when left to compound.

Where They Fit in a Strategy

Geared share funds are not typically something that should be used in isolation.

They are usually part of a broader portfolio and, importantly, used in the right environment.

For many clients, this tends to be:

• within superannuation
• over a long time horizon
• alongside regular contributions
• as part of a high growth strategy

This is where the concept of a more “supercharged” investment approach comes into play.

When you combine:

• a long term timeframe
• consistent contributions
• and slightly higher expected returns

the impact can be meaningful.

The Risks to Be Aware Of

It is important not to overlook the risks.

Geared share funds will experience:

• higher volatility
• larger drawdowns during market downturns
• periods where they underperform

This is not a strategy for short term investing.

It requires:

• a strong understanding of risk
• the ability to stay invested during market movements
• a structure that supports long term investing

For a balanced perspective on the pros and cons, Colonial First State has a helpful summary here:
The ins and outs of geared share funds

Experience Matters

We have been working with geared strategies for over 10 years.

What we have seen consistently is that outcomes are less about the product itself and more about:

• how it is used
• where it sits within a broader plan
• and whether it aligns with the client’s timeframe and risk tolerance

When these elements are right, geared exposure can enhance long term outcomes.

When they are not, it can create unnecessary stress.

Bringing It Back to Your Plan

Geared share funds are not for everyone.

But for the right person, in the right structure, and over the right timeframe, they can play a role in improving long term results.

The key is understanding not just the potential upside, but how it fits within your overall strategy.

General Advice Warning

The information above is general in nature and does not take into account your personal objectives, financial situation or needs. Before acting on any strategy, you should consider whether it is appropriate for you and seek personalised advice.