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GoWealth
12 Oct 2026

Leveraged Investing: Potential Benefits, Risks and Key Considerations

Leveraged Investing: Potential Benefits, Risks and Key Considerations

Many investors have wondered: “If I can borrow money at 5% and invest in something with expected return rate higher than the borrowing rate, wouldn’t it offer the potential for a higher return?”


This strategy, commonly known as leveraged investing, involves borrowing money to increase the amount available for investment. When investments perform well, leverage may magnify returns. However, expected returns are not guaranteed. When actual returns are lower than expected, losses may also be magnified.


In other words, borrowing to invest increases both potential returns and risks.


How Does Leveraged Investing Work?

Leveraged investing means using borrowed money in addition to your own funds to increase the amount invested. This can increase market exposure, but it can also magnify both investment gains and losses.


Illustrative Example: Leveraged Investing in a Fund

Assume that an investor plans to use investor’s own funds HKD 100,000 to invest in an investment fund and that the annual loan interest rate is 5%. The following examples compare the potential outcomes of investing with financing and without financing under different market scenarios. Except for interest expenses, no other fees or charges are included in the examples.


Scenario 1: Fund’s price increases by 10% after one year


Scenario 2: Fund’s price decreases by 10% after one year


The above examples illustrate how leveraged investing can magnify both gains and losses.


Questions to Consider Before Leveraged Investing

  • What are the interest rate, fee, total borrowing costs and repayment obligations?
  • How would my finances be affected if returns are lower than expected?
  • Am I comfortable with larger fluctuations in portfolio value?
  • Do I have sufficient liquidity and emergency savings?
  • Does the duration and liquidity of my investment income stream match or exceed the maturity and refinancing schedule of my borrowed funds?


Bottom Line

Leveraged investing can increase investment exposure and may enhance potential returns in certain market conditions. However, it also increases investment risk, financing costs and the potential magnitude of losses.


Leverage should not be viewed as a guarantee of higher returns or a shortcut to wealth creation. Before borrowing to invest, investors should understand the risks, costs and obligations involved, and carefully consider whether the strategy is appropriate for their financial circumstances, investment objectives and risk tolerance.


To borrow or not to borrow? Borrow only if you can repay!


Important Notes:

The above examples are provided for illustrative purposes only. They are not based on the performance of any actual fund and do not represent or predict any future investment returns. The calculations assume a loan interest rate of 5% per annum and do not take into account fund management fees, subscription fees, redemption fees, loan arrangement fees, taxes or any other related charges. Actual investment outcomes and borrowing costs may vary depending on market conditions and individual circumstances.


This article is for information and educational purposes only and does not constitute any investment or borrowing advice, offer, solicitation or invitation to invest or borrow, or any recommendation, comment or guarantee in relation to any investment products, borrowing arrangement or related services. The investment products or services mentioned in this article are not equivalent to, nor should it be treated as a substitute for, time deposit.


Investment involves risk. The price of an investment fund unit may go up as well as down and the investment funds may become valueless. Part of your investment may not be able to liquidate immediately under certain market situation. Please refer to our Wealth Management Services Terms (including relevant risk disclosures) and relevant fund offering documents for more details of our wealth management services as well as the nature and risks of the relevant products.


Leveraged investing involves additional risks. While investing with borrowed funds may increase potential returns, it may also magnify potential losses. Under adverse market conditions, investors may incur greater losses than they would have incurred without borrowing. Such losses may affect their ability to meet repayment obligations, including repayment of the loan principal, interest and other related charges. Investment returns are not guaranteed, and past performance is not indicative of future performance. The investment decision is yours but you should not invest in these products nor services unless the intermediary who sells them to you has explained to you that these products or services are suitable for you having regard to your financial situation, investment experience and investment objectives.


Before making any investment decisions, you should consider your own financial situation, investment objectives and experiences, risk acceptance and ability to understand the nature and risks of the relevant products.


If you have any inquiries on the nature and risks of any investment products or services, trading or investment funds transaction, you should seek advice from independent financial adviser.


The information contained in this article should not be construed as a distribution, an offer to sell, or a solicitation to buy any securities or investment products in any jurisdiction where such activities would be unlawful under the laws of such jurisdiction. If you are outside of Hong Kong, please inform yourself about and observe any relevant restrictions. By proceeding with a purchase, you are representing and warranting that you are either resident in Hong Kong or the applicable laws and regulations of your jurisdiction allow you to access the information in this article or our App and make the purchase.


This article is issued by Welab Bank Limited. The contents of this article have not been reviewed by the Securities and Futures Commission in Hong Kong.


In case of any discrepancy between the English and the Chinese versions of this article, the English version shall prevail.