With the outlook for the Australian sharemarket becoming a bit more uncertain, IT retail manager Richard Peril wonders if there might be a better place to invest. "I've been following the market and it's just continued to rise and rise," says the 28-year-old. "I'm just a bit wary of investing in the market at this time."

A keen observer of the markets here and overseas, Richard is happy to use gearing to increase his exposure to offshore markets.

His current investment portfolio consists of direct share investments and two managed funds. The latter were set up by Richard's parents when he was 21 and still living at home. Richard stopped regularly contributing to these funds when he was 25 in order to try his hand at direct sharemarket investing.

"I was in a position to take on a margin loan and I wanted more control over what I was buying, and I was also happy to take on more risk."

Although his income is currently below the national average, he has just completed an engineering degree and is confident his earnings will rise towards $50,000 a year in the next few years. "I do intend to change jobs at some stage and possibly even work overseas," he says. He would also like to buy a unit or house in a few years' time and wonders what sort of deposit he will need.

On the super front, Richard is reasonably confident his current contributions of 9 per cent are adequate. "I'm not really interested in making extra contributions to super at the moment," he says. "I'm more interested in finding value in the equities market and taking some control over my investments now. One thing I know I should probably look into is reducing my HECS debt."

In terms of his risk tolerance, Richard has time and youth on his side. "I'm young and single, so I'm certainly prepared to take on some risk," he said.

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Financial Snapshot

Name: Richard Peril.

Age: 28.

Occupation: IT retail manager.

Salary: Above $30,000 plus commission.

> Assets

Property: None.

Super: $9000.

Investments: Managed funds $7200; shares $21,200; cash $500.

> Liabilities

Margin loan: $2700.

HECS: $2500.

> The average week

After tax income: $625.

Expenses: Rent $135; investment loans $250; living expenses $110.

> Insurance: Private health insurance, car insurance.

Cash flow looks good enough to back up tax-effective gearing

Mike Ingham, Godfrey Pembroke Camberwell

As a young single person willing to take some investment risk, Richard, borrowing to build a portfolio ("gearing") is an ideal strategy for you. Gearing will give you more money to invest and enhance your potential to build your wealth, and it can also be a very tax-effective strategy.

The good news is you have sufficient annual surplus cash flow to fund a gearing strategy. You also have several gearing options. First, there are relatively new investment products that package a loan of up to 100 per cent of the value of your investment with managed fund investments in global markets and commodity trusts. These products generally protect your capital against a decline in value if you hold them until maturity in seven to 10 years.

A second option is to invest in an internally geared managed fund where the fund manager has borrowed on behalf of all investors. These funds are typically structured to be positively geared so that the fund income exceeds the loan interest. The level of gearing or leverage is therefore more conservative than through a packaged loan product.

A third option is to borrow more through your existing margin lending facility. Your current investments could be lodged as security for an additional borrowing of, say, $35,000 (gearing 60 per cent of your portfolio value). You would then buy global share and property funds. Ideally, over time you would continue to make regular additional contributions to your margin loan facility, matched by new borrowings and investment purchases.

Don't be too concerned with timing your investment purchases when markets are volatile because you have a long-term investment horizon. Make sure you have adequate income protection insurance to fund your loan repayments.

Start by paying off your personal debt then build a deposit

Canna Campbell, St George Bank

It's great that you're motivated towards building and improving your financial wealth. It's never too early to start building wealth and by starting now, instead of 10 years later, you'll make it a lot easier for yourself.

If saving for a potential home purchase within two to three years is your priority, I'd suggest that you pay your HECS debt first. A HECS debt is considered personal debt and is therefore non-deductible - the worst type of debt to have.

A high-interest cash account is the best structure to hold deposit savings. Because cash is considered to be stable with minimum volatility, it's suitable for short-term requirements.

When investing for shares, normally a minimum time frame of five years should be taken because of short-term volatility. If all of your savings for your home deposit were through your shares, the overall value of your deposit would fluctuate. Potentially, when you sell the shares to place a deposit on a property, your funds could be down due to short-term changes in the market and you may be forced into crystallising a loss, making your deposit smaller and mortgage bigger, which is financially undesirable.

To avoid this risk, consider selling the shares and funds and placing the money in cash until you have your deposit. I'm not saying don't buy any shares or funds at all. You can buy these back if you wish, but with borrowed money so that you minimise your personal debt and maximise your deductible debt - the best type of debt to have.

Once you've established a solid foundation of wealth, continue to buy shares and funds and take a long-term perspective using equity that you create with your home.

Greater risks as well as better rewards in investing offshore

Julie Hall, the Money Managers

Incorporating global shares into your portfolio requires consideration of the proportion of equities you wish to hold. The equity component of your portfolio, which includes Australian and international shares, tends to be greater if you are willing to accept a greater degree of short-term risk or capital volatility.

Overseas equities can form an important part of your portfolio due to increased investment opportunities and enhanced portfolio diversification. The Australian sharemarket represents only 2 per cent of the global market, so 98 per cent of investing opportunities are overseas.

However, investing overseas exposes your portfolio to additional risks such as exchange rate movements, and each country carries risks based on political, economic and legal factors. But these can be managed in part. Hedging reduces the risk of currency movements, while diversifying across countries reduces exposure to country-specific risks. It is important to own enough shares in each country to ensure proper diversification.

Managed trusts are an effective way of ensuring the overseas equity portion of your portfolio is adequately diversified and overseas markets are accessed cost-effectively and efficiently.

The other dimension to risk management is your investment time horizon. Short-term movements are generally smoothed out over time. Ideally, an investment period of around seven years is required for overseas investments, so your objective to purchase a home in a "few years", Richard, may be inconsistent with the time frame appropriate for investing offshore.