What Is Leveraging?

Leveraging means using borrowed funds to invest. Think of it like using a ladder: it lets you reach higher, but you need to make sure it’s sturdy. If your investments grow faster than the cost of borrowing, you can make more money. But if they drop in value, your losses are bigger too.

Example:
You borrow $25,000 at 6% interest.
You pay $1,500 in interest for the year.

You invest the borrowed money and it grows 10% in a year.
That means you make $2,500.
Your spread (profit after interest) is $1,000.

If your investment instead drops 10% in a year, you lose $2,500, plus you still owe the $1,500 interest — a total loss of $4,000.

This example shows why leveraging can amplify both gains and losses — it’s a powerful strategy, but it comes with risk.

Where Can You Use Leveraging?

Leveraging can be applied to many types of investments, such as:

• Stocks and ETFs — quick to buy and sell, but market prices go up and down.

• Real estate — using a mortgage to buy property that can appreciate over time.

• Segregated Funds (Seg Funds) — a type of investment that comes with extra protection, like death benefit guarantees and creditor protection. Seg Funds combine the growth potential of mutual funds with safeguards that make them attractive for some leveraged strategies.

Why Would You Consider Leveraging?

Here’s why some investors use leveraging:

• Faster growth potential — more money invested means more opportunity for returns.

• Diversification — you can spread your money across different investments.

• Keeping personal capital free — you don’t have to use all your own cash to invest.

Example:
Let’s say you want to invest in both stocks and a real estate project but only have enough cash for one. Leveraging lets you do both at once.

The Risks You Should Know

Leveraging can increase both gains and losses. Here are some important risks:

• Bigger losses — if your investment drops, the loss is magnified.

• Higher costs — borrowing comes with interest, which can rise over time.

• Loan repayment obligations — you must repay borrowed money regardless of investment performance.

• Timing risk — markets don’t always go up on schedule, and you may be forced to sell at the wrong time.

Is Leveraging Right for You?

Leveraging is not for everyone. You should only consider it if you:

• Can handle risk and the possibility of losses.

• Have stable income and finances to cover repayments.

• Understand the investments you choose and how leveraging works.

Final Thoughts

Leveraging can be a powerful way to grow your wealth, but it’s not a “set-and-forget” strategy. You need to plan carefully, understand the risks, and choose investments wisely. Segregated Funds are one option worth exploring if you want investment growth with extra protection.

At Zemaa Neguy, we help you figure out if leveraging makes sense for your goals and your financial situation. The right plan can help you use leverage smartly and protect your future. 

Let’s have a quick chat.