What does "gearing" refer to in investment terms?

Gearing in investment refers to the use of borrowed funds, or leverage, to increase potential investment returns. When an investor uses borrowed money to invest, they are essentially amplifying their exposure to the market. This can lead to higher returns if the investment performs well, as the profits are generated not just from the investor's own capital, but also from the borrowed funds. However, it’s crucial to note that while gearing can enhance profits, it also increases the risk of losses, as the investor must still repay the borrowed amount regardless of investment performance.

In contrast, the other choices address different concepts in investing. Investing in low-risk assets pertains to conservative strategies, diversifying a portfolio refers to spreading investments across various assets to mitigate risk, and reducing overall investment expenses is related to cost efficiency in investing. These concepts do not encapsulate the idea of using borrowed funds, which is central to the definition of gearing.