Using Leverage to Invest: How to Think About It
Why do some investors consider leverage, and some do not? Simply put, here is the math: if the expected return on a portfolio with leverage would be greater than the cost of borrowing against it with a line of credit, leverage could make sense as part of a long-term investment plan.
Using leverage is both a financial and a personal decision. Here are four fundamental principles to help guide the decision-making process. Leverage generally should:
1. Align with and support an investor’s financial objectives, and be thoughtfully integrated with a wealth plan
2. Be applied in the appropriate wealth buckets, such as for long-term growth
3. Be implemented at a level designed to help achieve your broader ambitions
4. Result in a level of portfolio risk and potential return that closely matches the time frame of investor’s goals
For most clients, we don’t recommend using leverage on the liquidity portion of their portfolios. That should remain lower risk, since preserving these assets is usually a top priority. We suggest considering leverage for longer-term assets allocated to long-term purposes, like building a legacy or pursuing ongoing growth, because that part of a portfolio is typically better positioned to weather fluctuations. Those assets generally may have more time to recover from any drawdown.
Employing leverage increases the volatility of a portfolio’s returns – on the up and downside.
An investor may ask, if the goal is higher expected returns, why not change a portfolio allocation from, for example, a 60/40 to an 80/20? It’s true, that could lift expected returns with a higher degree of equity exposure (and volatility). But changing allocations wouldn’t provide another aspect of leverage that we haven’t discussed yet: deducting interest.
When a taxable investor with non-tax-exempt securities in their portfolio uses the proceeds of a line of credit to invest in taxable securities, the interest they would pay as a borrower may be deductible. That deductibility could have a meaningful impact – and often may be more advantageous than adjusting portfolio allocations. The interest expense they pay may offset the taxable income the investments generated (and possibly reduce other taxes that might need to be paid). Over time, tax savings may improve after-tax returns. Tax considerations vary based on each investor’s individual circumstances, and investors should consult their tax adviser.
Prudent levels of leverage may have a place on one’s balance sheet. When an investor carefully considers portfolio risk allocation, tax implications and risk tolerance, leverage can be a powerful tool to consider in how they plan for achieving long term portfolio goals.
Rick Barragan is the Managing Director,
Los Angeles Market Manager, for
J.P. Morgan Private Bank.
[email protected] | (310) 860-3658
privatebank.jpmorgan.com/los-angeles
Source: “Beyond the headlines: Planning for a successful retirement,” Joe Bakalian, executive director, head of mid-Atlantic and Ohio lending, philanthropy adviser, April 17, 2026
