Borrowing to invest is more attractive when interest rates are low. Is now a good time to do it?

“Get your cheap investment debt here!” When said like that, it almost sounds alluring, like “shoe sale”, or “golf club clearance”.

But the cost of borrowing money for investment isn’t the most important factor in whether you should or not.

It’s well down the list of the “rules for gearing”.

First: You only ever gear into growth assets – meaning shares and property. And only then when those asset prices are likely (remember, there are no crystal balls) to increase in value. Gearing into falling assets can kill you.

Second: You need time. If investments do fall, you need to have time on your side to allow them to recover. And they will fall, regularly. Gearing should be for an absolute minimum of seven years, but preferably decades.

Third: You, personally, need to be able to withstand some heat. If you’re the sort of person who sweats and panics if there’s a sniff of losing money, gearing could make you soil your pants, as it can magnify your losses by 10 times or more.

Perhaps coming in fourth is the cost of borrowing. If the price of renting money is too expensive, then it’s less likely that it’s going to make sense. (Though it still can, if asset prices are really moving.)

Should Gen Xers borrow to invest? More so than any other generation on this page, it can be appropriate for Xers.

Why? We’ve got rising incomes and youth on our side.

And, yes, the cost of money is cheap now. If you can handle the risk, happy gearing to you.

Bruce Brammall is the principal adviser with Castellan Financial Consulting (www.castellanfinancial.com.au) and author of Debt Man Walking.