Borrowing to invest means using debt — such as bank loans, margin financing, or structured credit — to increase exposure to investments including equities, funds, structured products or property.

• Returns are amplified if asset prices rise
• Losses are amplified when asset prices fall
• Interest costs continue regardless of performance

As The Straits Times points out, many investors focus on the upside without fully stress-testing the downside.

In the low-interest-rate years, leverage felt manageable. Today, the environment has changed.

• Higher interest rates: Borrowing costs eat directly into returns
• Market volatility: Asset values can fall faster than investors expect
• Tighter liquidity: Banks and brokers may demand additional collateral

The Straits Times cautions that leverage becomes far more dangerous when rates stay elevated for longer than anticipated.

While any investor can be hurt by leverage, certain groups face greater risks:

• Retirees: Limited income and shorter recovery horizons
• Highly geared households: Little room for interest-rate shocks
• Yield-chasers: Investors tempted by higher returns without understanding complexity

Recent cases highlighted by The Straits Times show how borrowing can turn manageable paper losses into long-term financial damage.

Property is often viewed as a “safer” leveraged investment, but The Straits Times notes that the same principles apply.

• Rental income may not always cover loan repayments
• Vacancy and maintenance costs reduce buffers
• Exit sales may coincide with weaker market conditions

Borrowing conservatively and maintaining cash reserves are essential, especially for investors nearing retirement.