What is instalment gearing and why do we love it? Think of a savings plan on steroids where your contributions are matched by a third party. This means that you have at least twice the participation in the market although you will also have an interest cost because the third party contributing is borrowing money.
Why do we love it? Because it is flexible. We make plans but plans sometimes need to change due to changing personal circumstances, changing legislation or changing investment conditions. With Instalment gearing you can; start it, stop it, sell part of it, sell all of it, change the amount of borrowing, suspend contributions or even just suspend the borrowed contributions and keep your contributions going.
Instalment gearing is generally set up with a monthly contribution. These regular contributions provide a Dollar Cost Averaging effect (visit Dollar Cost Averaging) which gives a way to enter the market and shield your investment from some of the downside.
An example of the minimum instalment gearing plan is as follows:
You initially contribute $1,000, this contribution is matched with debt giving an initial investment of $2,000. Each month you contribute $200 and this contribution is also matched by $200 of debt giving a monthly investment of $400. After year 1 you will have contributions of $4,800 plus the initial contribution of $2,000 and you will have a loan balance of $3,400