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Tony Featherstone is a Morningstar contributor and a former managing editor of BRW and Shares magazines.

My last Morningstar column talked about "flying turkeys" - signs that parts of the market are overheating - and the big turkey was small and mid-cap exploration stocks and mining floats, some of which have overly plump valuations. Riots in North Africa are a timely reminder about the concept of sovereign risk for miners with projects in developing nations.

Another concept on my "turkey" watchlist is gearing. Soaring use of margin loans at the market peak in 2007 and interest in risky products, such as CFDs (contracts for difference), were symptoms of an overheated market. I'm glad to report the gearing turkey is still grounded for now. If anything, there is a case for sensible gearing - repeat sensible - in this market.

As always, too many investors gear when markets are overvalued and avoid gearing when valuations are more reasonable, sometimes because they have destroyed their capital through excessive borrowing to buy shares.

A good friend had a portfolio of blue-chip stocks in 2007, half financed by a margin loan, that tumbled during the global financial crisis. He had to take another loan on his house to meet a margin call, then another. His ears are still ringing from the blast his wife gave him.

Gearing still remains out of favour. Reserve Bank statistics show margin lending volumes soared from about $7 billion in 2000 to almost $38 billion in 2007, but have been falling ever since. Total margin loans were $17.5 billion in December 2010. Turnover in instalment warrants - another geared product - is also lower since the 2007 peak and trending down.

Sensible, conservative gearing in this market makes sense for some investors. Economic data points to developed nations, such as the United States, moving from a recovery phase to expansion. That's not saying there aren't plenty of bumps ahead, and lots of volatility, but the data is at least improving. Even so, I believe investors will have to work hard to achieve double-digit returns in what looks a range-bound sharemarket. Gearing is an option.

Let me explain my concept of sensible gearing, and the few simple rules I apply. First, never gear above 30 per cent in you overall portfolio. Better still, 25 per cent or less. Put another way, if you have a $70,000 share portfolio, borrow no more than $30,000 to build a $100,000 portfolio - unless you are aggressive and able to take high risk and still sleep at night. The risk of a dreaded margin call rises substantially once you get past 30 per cent and all the way to 60 per cent or more gearing.

Second, only gear over blue-chip stocks with reasonable dividends. And never borrow to buy speculative shares, which is beyond my risk tolerance. I reinvest dividends for shares I have bought with borrowed money, even though I normally avoid dividend reinvestment plans because they can lead to buying shares at the wrong prices and create headaches around tax time. Reinvesting dividends means at least part of the interest costs from gearing are covered by higher equity.

You can see my gearing approach is conservative - hardened investors might consider it "wussy". But I want sensible gearing over solid companies that can enhance returns in part of my portfolio, and definitely do not want margin calls that may force me to sell shares at the wrong times.