If you spend any time around investing conversations, you have probably heard the term “leverage.” It gets thrown around a lot. Sometimes it sounds like a shortcut to building wealth. Other times it sounds like a fast track to financial disaster.

The truth is, it can be both. And like many things in personal finance, the difference comes down to how you use it.

Let’s walk through what leverage actually is, how it shows up across different investing strategies, and how to use it responsibly if you use it at all.

What Is Leverage?

At its core, leverage is simple: You borrow money at one interest rate and invest it at a (hopefully) higher rate of return.

That spread is your profit.

For example, if you borrow money at 3% and invest it in something that returns 7% after fees and taxes, you keep the 4% difference. That is leverage working in your favor.

Conceptually, it is straightforward. In practice, it requires discipline and risk awareness.

Because the flip side is just as real. If your investment underperforms or loses money, you are still on the hook for the borrowed funds. And the interest that you borrow at is set when you borrow it, but the return on your investment is never guaranteed. You can borrow at 3% and earn just 1% or lose money on your investment. Then you are paying the borrower back. That's not a good strategy to build wealth.

Where You’ll See Leverage

One of the most important points that often gets missed is that leverage is not tied to a single asset class. It shows up across multiple investment types. And it mixes with some asset classes better than others. So let's look at a few…

Direct Real Estate Investing

This is the most common and, in my opinion, most intuitive example.

\When you buy an investment property, you typically do not pay cash. You might put 20–25% down and borrow the remaining 75–80% from a bank in the form of a mortgage. Further, because the debt/mortgage is tied to a physical asset (the property), interest rates tend to be very reasonable. This is, in my opinion, the only really good example of “good debt,” as opposed to the much more common no good, horrible, bad debt.

That means you are controlling a large asset with a relatively small amount of your own capital.

If the property generates rental income and appreciates over time, you are earning returns on the full value of the asset, not just your initial investment. You earn 100% of the returns for putting down money for only 20-25% of the investment.

That is leverage.

It is also why real estate can be such a powerful wealth-building tool when managed well. You are using the bank’s money to amplify your returns. Now, mind you, you need to identify, analyze, buy, and manage these properties the right way to ensure that they cash flow or you can find yourself coming out of pocket for your supposed “investment property.”

But, when done right, leverage in real estate investing is a wealth accelerant and has been a big reason for the jump in my net worth since becoming an attending.

Real Estate Syndications and Funds

In syndications or real estate funds, the same principle applies, just one step removed.

Instead of directly owning and operating the property, you invest passively with a group or sponsor who does it for you. They often use debt to acquire and manage properties, meaning leverage is still at play.

You benefit from it without being the one signing on the loan or managing tenants.

For many physicians with limited time, this can be an appealing way to access leveraged real estate exposure.

Stock Market Investing

Leverage also exists in the stock market, most commonly through margin investing.

This is when you borrow money from a brokerage to invest in stocks, with the expectation that your returns will exceed the interest you are paying.

In theory, it works the same way like real estate. In practice, it is a very different animal.

Unlike real estate, where you can influence outcomes through operations, rent optimization, or cost control, the stock market is largely outside your control. It is objectively highly efficient and difficult (see: impossible) to consistently outperform. Moreover, the debt you take on to invest on margin in the stock market is unsecured. There is no physical asset tied to it; just your hope that your investments will get a higher return. That means higher interest rates for this type of debt and higher future returns will be needed for you to benefit from the leverage. That's a lot more risk.

For that reason, I personally don't use leverage in the stock market. And I would never recommend it. I stick to passive, long-term index fund investing and let time do the heavy lifting.

Why Leverage Works

Leverage amplifies outcomes. That is its entire value proposition.

The numbers don't lie:

• If you invest $100,000 of your own money and earn 10%, you make $10,000.
• If you invest $100,000 to control a $400,000 asset through leverage, and that asset grows at 10%, your return is now based on the larger amount.

That amplification is powerful. Over time, used correctly, it can accelerate your path to financial independence.

But that same amplification works in reverse. Losses are magnified just as quickly as gains.

The Risk of Being Overleveraged

This is where things go wrong.

The biggest mistake I see is overleveraging. That happens when someone takes on so much debt that they cannot support it if things do not go perfectly according to plan.

An investment property sits vacant longer than expected. Expenses rise. The market dips (it always will). Returns fall short. If you are relying entirely on that investment to cover the debt, you are in a fragile position. This was especially apparent post-COVID in the real estate market when tons of investors and deal sponsors funded deals with adjustable rate mortgages (ARMs). The initial rates were low and allowed them to cover their margin, but future rate adjustments upwards from the historical lows sunk the investments, bringing down tons of investors with them.

The safer approach is much more straightforward

Any debt you take on for investment purposes should be serviceable by your primary income if needed.

That way, if the investment underperforms temporarily or even fails, you are not forced into bad decisions. You are not scrambling. You're not selling at the worst possible time.

You have breathing room.

And in investing, breathing room is everything.

How I Use Leverage

Personally, I use leverage exclusively in real estate.

I like the combination of:

• Control over the asset
• Multiple ways to create value
• Predictable income streams

It fits my risk tolerance and aligns with how I think about investing.

On the other hand, I do not use leverage in the stock market. I view my index fund portfolio as my stable, long-term engine for growth. I do not want to introduce additional risk there.

That balance works for me. It may look different for you, and that's okay. But I really caution anyone planning to use leverage in the stock market ever or even in the real estate market without a good deal of self education first.

A Practical Framework for Physicians

If you are considering using leverage, here are a few principles worth keeping in mind.

1. Understand the Math

If you cannot clearly explain how you are making money on the spread between borrowing costs and expected returns, pause.

Complexity often hides risk.

2. Stress Test Your Investments

Ask a simple question: what happens if this investment underperforms?

If the answer creates financial strain, the leverage is too aggressive.

3. Avoid Chasing Returns

Leverage can tempt you to pursue higher-risk opportunities in search of bigger gains. That is often where things unravel.

Steady, consistent returns with manageable risk win over time.

4. Maintain Margin for Error

This is the most important one.

Always leave room in your financial plan for things to go wrong. Because they will.

Final Thoughts on Leverage in Investing

Leverage is a powerful tool in investing. When it works, it can accelerate wealth building and help you reach financial independence sooner. When it doesn't, it can magnify losses and create unnecessary financial stress.

The difference is not intelligence or access. It is discipline. Because there are no guaranteed returns in investing, whether in the stock market or real estate market. When deciding how much leverage to use in any investment (from 0% to 100% leverage), use the framework above. If you have no control over investment outcomes (like in the stock market), leverage introducing undue risk. Even in a less efficient market like real estate, you can only control certain aspects that influence your returns. Leverage here still increases risk compared to no leverage.

As physicians, we are used to making high-stakes decisions in uncertain environments. That skill set translates well here.

Be thoughtful. Be conservative where it matters. And make sure every decision fits within the broader context of your financial plan.

What do you think? Do you use leverage in investing? In what asset classes? How has it worked for you? How do you manage the added risk? Let me know in the comments below!