Definition
Using borrowed money to invest, which can amplify your gains but also increases your risk if investments don’t perform well.
What to consider
- Use borrowed money with caution—it can magnify both gains and losses.
- Have a clear plan for managing any debt you take on.
- Monitor your investments closely if you use leverage.
Real world scenarios
- Sharon invests in real estate using a small down payment and a mortgage to amplify potential returns, though it raises her monthly liability.
- Colin’s brokerage account includes margin trading, doubling his buying power but also increasing the risk of losses if the market drops.
- When used cautiously, leverage can accelerate wealth building, yet excessive borrowing could lead to serious financial setbacks.
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