The High Stakes of Leveraged Investing: Risks and Rewards Uncovered

Young investors are increasingly eyeing leveraged investing, a high-risk strategy involving borrowed funds to boost returns. Margin lending and geared ETFs are common methods. However, while these strategies can amplify gains, they also magnify losses and carry significant risks. Potential pitfalls include tracking errors, margin calls, and slippage.

In Melbourne, young investors are exploring leveraged investing to climb the difficult housing ladder, but it's not without significant risks. This strategy involves borrowing funds to invest, aiming to capitalize on market returns.

Traditional margin lending, commonly used by corporations, allows individuals to amplify their market exposure. However, this also means potentially facing substantial losses, interest obligations, and margin calls if market values drop.

Geared exchange-traded funds (ETFs) offer another approach, managed by professional fund managers to mitigate some risks. While these can avoid margin calls, they introduce new risks, such as slippage and tracking errors, which investors must consider carefully.

(With inputs from agencies.)