The GFC Made Australians Scared of Shares. Here's Why a Geared ETF Is Different.

In 2008, the ASX 200 fell 40.4%. That same year, Australian property values rose 7.5%.

If you were invested in shares during the Global Financial Crisis — or watched someone you know lose half their portfolio in a matter of months — that experience left a mark. The numbers are burned into the memory of an entire generation of Australian investors. Shares went down. Property held up. The lesson seemed obvious.

That lesson is understandable. It's also incomplete. And if it has kept you out of shares — or out of leveraged shares specifically — it's worth examining exactly what the GFC was and what it wasn't.

What the GFC actually was

The Global Financial Crisis was not a generic "shares fell" event. It was a specific crisis with specific causes: highly leveraged positions in concentrated assets, primarily in financial stocks and US mortgage-backed securities, unwinding simultaneously.

In Australia, the ASX's most severe losses were concentrated in financial stocks and companies with high debt loads. The broader diversified market fell sharply, but the mechanism was margin calls and forced selling — investors and institutions that had borrowed heavily to hold shares were forced to sell at any price when their LVRs were breached. This selling pressure compounded the decline.

The investors who were hurt worst were:

• Holders of individual financial and resource stocks on margin
• Self-managed superannuation funds that used limited recourse borrowing arrangements in single-stock positions
• Investors who panicked and sold their portfolios at or near the bottom

The investors who recovered fully — and then some — were the ones who held diversified portfolios, had no margin calls forcing them to sell, and stayed the course.

The ASX 200 fell from approximately 6,700 in November 2007 to 3,100 in March 2009. It recovered to 6,700 by April 2019 — a full decade of patience required for total recovery including the dividends reinvested. Without dividends, the capital recovery took longer. But investors who reinvested dividends throughout the decline saw their long-term returns remain solidly positive.

Why property looked safe and shares looked dangerous

Property appeared stable during the GFC for a specific set of reasons that are worth understanding, not assuming.

You couldn't see the price. There is no daily ticker for residential property. Your house was not valued on 15 September 2008 when Lehman Brothers collapsed. Residential property is appraised infrequently — typically when sold or refinanced. Prices in some Australian markets did fall 5–15% in 2008–2009. You just didn't have a number updating every second to watch.

This is not a protection — it's a perception filter. The volatility was there. It was invisible.

Government intervention was swift and significant. In response to the GFC, Australia's government deployed the First Home Owner Boost (doubling the first home buyer grant), the RBA cut rates aggressively, and the government injected $42 billion in stimulus. These measures specifically supported residential property demand. That support is not guaranteed to recur in the same form in a future downturn.

Australia's economy avoided recession. Thanks to China's stimulus-driven commodity demand and Australia's financial sector stability, Australia was one of the only developed economies that avoided two consecutive quarters of negative GDP growth. This structural circumstance protected Australian property in a way that was specific to that event — not a guaranteed feature of property as an asset class.

What is actually different about a long-term geared ETF

The GFC experience — specifically the fear of leveraged shares — is the most common reason property investors give for avoiding geared ETFs. Here is a precise comparison of what caused the GFC damage and how a long-term geared ETF differs from each of those causes.

GFC risk factor	What happened	How a long-term geared ETF differs
Concentrated positions	Single stocks, single sectors lost 60–80%	G200/GHHF hold 200+ companies across all sectors
Extreme leverage	Some positions at 5–10× leverage	Geared ETF at 30–40% LVR = 1.43–1.67× exposure
Margin calls	Forced selling at the worst prices	No margin calls — the fund manages its own LVR internally
Short-term trading mentality	Investors trying to time the market	Designed for 10+ year buy-and-hold
Interest-only margin debt	High interest costs eroding returns	Institutional borrowing rates embedded in a 0.35% management fee

The 30–40% LVR of a geared ETF is specifically designed to be moderate. It is not trying to replicate the extreme leverage that caused the GFC's worst outcomes. It is trying to apply a measured boost to long-term returns — approximately 1.5× exposure — in a diversified, no-margin-call structure.

At 40% LVR, if the underlying market falls 30%, the portfolio falls approximately 45% — painful, but recoverable. The fund de-gears slightly as markets fall (selling a small amount to maintain its LVR range), which acts as an internal buffer against catastrophic loss. You are not wiped out. You hold and recover.

The internal rebalancing mechanism

Understanding how geared ETFs avoid the margin call problem is important for evaluating whether they are genuinely different from GFC-style leveraged investing.

A traditional margin loan has a fixed LVR threshold. If your portfolio falls enough to breach that threshold, the lender calls you and demands you either contribute cash or sell holdings — immediately, at current prices. In a falling market, this forced selling happens at the worst possible time, locks in losses, and removes your ability to participate in the recovery.

Geared ETFs work differently. The fund itself manages the gearing. When markets fall and the gearing ratio rises above the target band (30–40%), the fund automatically sells a small amount of holdings to bring the ratio back within range. This deleveraging happens gradually and at the fund's discretion — not as a forced immediate sale demanded by a lender at the moment of maximum fear.

The result: your investment cannot go to zero from leverage alone. In a severe market decline, the fund de-gears — it becomes less leveraged, not more. You retain a smaller position, but you retain a position. And you recover when markets recover.

Use our Compound Interest Calculator to model what a 10-year investment in a geared ETF looks like — including the impact of a market drawdown in year 2 or 3.

The time horizon is everything

The GFC taught investors that shares can fall 40% in a year. What the GFC also demonstrated — and what is often forgotten — is that Australian shares had never, over any rolling 10-year period in the 20th century, produced a negative real return for investors who stayed fully invested.

If you have a 10-year horizon — the same horizon that makes property investment viable — the GFC is a historical event, not a permanent condition. The question is not "can shares fall?" They can and do. The question is "over my investment horizon, what is the likely outcome?" At 10 years and beyond, diversified Australian shares have an exceptional track record.

A geared ETF at 1.5× leverage on that track record is not a speculative instrument. It is a measured application of leverage to an asset class with a strong long-run record, in a structure specifically designed to avoid the margin call mechanics that made the GFC so damaging.

The GFC was real. The fear it created is understandable. But the product that fear is being applied to — a diversified, moderately-leveraged, no-margin-call ETF held for a decade — is not the same thing that caused the fear.

What property investors already accept that share investors fear

Here is the irony that is worth sitting with.

Property investors routinely accept:

• 80% LVR — four times more leverage than a geared ETF's 40%
• A single undiversified asset in one suburb
• Illiquidity — you cannot exit in a week
• Forced holding — you can't sell 10% of your property in a crisis to raise cash
• Genuine risk of vacancy, tenant damage, and forced sale in extreme circumstances

Share investors fear:

• 30–40% LVR in a fund holding 200 companies
• Full liquidity — can sell any amount in seconds
• Diversification across industries and geographies
• No margin calls

The risk profile of a long-term geared ETF is, by almost every measure, lower than the risk profile of a leveraged investment property — except that the price of the ETF updates daily and the price of the property does not. That visibility difference creates a psychological sense of risk that is inverted from the financial reality.

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Frequently asked questions

Did shares really fall 40% in the GFC in Australia?

Yes. The ASX 200 fell approximately 54% from its peak of around 6,700 in November 2007 to its trough of approximately 3,100 in March 2009. The 40% figure commonly cited refers to the calendar year 2008 decline. Including dividends reinvested, the total return over the full GFC period was better than the capital-only figures suggest, and investors who remained invested recovered the full loss over the following years.

Did Australian property really rise during the GFC?

Australian property prices broadly held up in 2008 and rose modestly in many markets, supported by the First Home Owner Boost, RBA rate cuts, and Australia's economic resilience due to commodity exports to China. Some markets did experience modest price falls of 5–15%. The key point is that property prices are not marked to market daily — the volatility existed but was not visible in real time the way sharemarket falls were.

How does a geared ETF avoid margin calls when markets fall?

Geared ETFs manage leverage internally. When markets fall and the fund's gearing ratio rises above its target range (30–40% for the BetaShares Wealth Builder range), the fund automatically sells a small amount of holdings to bring the ratio back within range. This gradual de-gearing is managed by the fund itself — there is no lender calling you to deposit more capital or sell immediately. Investors cannot lose more than their initial investment (the fund cannot go negative), and they maintain their position to participate in any recovery.

What is the maximum loss on a geared ETF?

The maximum loss is 100% of your invested capital — the fund cannot go below zero. In practice, the fund's internal LVR management means that as markets fall, the fund de-gears, reducing the amplification effect and limiting the speed of loss. The 1.43–1.67× leverage multiple means a 30% market fall produces approximately a 43–50% portfolio fall before the de-gearing mechanism activates. A severe sustained bear market (like the GFC) would reduce a geared ETF portfolio significantly — this risk is real and investors should only invest with a 10+ year horizon they can commit to.

How long did it take for the Australian sharemarket to recover after the GFC?

The ASX 200 capital return (price only) returned to its November 2007 peak in approximately April 2019 — about 11 years. However, investors who reinvested dividends throughout the period recovered much faster, as dividends during the downturn bought additional units at depressed prices. The total return index (including reinvested dividends) recovered the GFC losses within approximately 5 years. This reinforces why long time horizons and dividend reinvestment are essential for leveraged share investing.

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This article is for general information only and does not constitute financial, tax or legal advice. Individual circumstances vary. Consult a registered tax agent or licensed financial adviser before making decisions based on this information.