Homemade Leverage: How Australians Can Customise Investment Risk in 2026

Homemade leverage refers to the practice of increasing your investment exposure by borrowing money independently, rather than purchasing financial products that come with built-in leverage. Instead of buying a leveraged exchange-traded fund (ETF) or using a margin loan product, you might take out a personal loan, use a redraw facility from your mortgage, or access other forms of credit to invest more than your available cash.

This approach gives you direct control over how much you borrow, what you invest in, and how you manage repayments. It also means you’re responsible for monitoring your risk and ensuring you can meet your obligations if markets move against you.

Example of Homemade Leverage

Suppose you have $40,000 invested in Australian shares. You decide to borrow an additional $20,000 using a redraw from your home loan to buy more shares. Your total investment exposure is now $60,000, and any gains or losses will be magnified compared to investing only your own funds. The interest you pay on the borrowed amount becomes an important factor in your overall returns.

Implementing homemade leverage involves several steps:

1. Assessing Borrowing Options

Australians can access leverage through various means, including:

• Margin loans: These allow you to borrow against the value of your existing investments, but come with the risk of margin calls if asset values fall.
• Redraw or offset from a mortgage: If you have equity in your home, you may be able to borrow at home loan rates, which are often lower than unsecured loans.
• Personal loans: These are typically unsecured and may have higher interest rates, but can be used for investment purposes.

Each borrowing method has its own terms, interest rates, and potential tax implications. It’s important to compare options carefully and consider how each fits your financial situation. For more information on borrowing options, you can refer to finance and mortgage brokers.

2. Deploying Borrowed Funds

Once you’ve secured funding, you can use the borrowed money to purchase additional investments, such as shares, ETFs, or managed funds. The goal is to increase your exposure to potential returns, but this also means your losses can be larger if markets decline.

3. Ongoing Risk Management

Unlike managed leveraged products, homemade leverage requires you to monitor your portfolio and manage risk yourself. There are no automatic stop-loss mechanisms or rebalancing features. You’ll need to:

• Track your loan balance and repayments
• Monitor investment performance
• Be prepared for changes in interest rates or market conditions

If your investments fall in value, you may need to provide additional funds or sell assets to cover your loan. This can be particularly challenging during periods of market volatility.

Several factors are driving interest in homemade leverage this year:

• Control: Investors can set their own leverage levels, choose specific investments, and decide when to adjust their positions.
• Transparency: Borrowing independently means you know exactly how much you’ve borrowed and what you’re investing in, without hidden fees or complex product structures.
• Potential tax benefits: Interest on loans used for income-producing investments may be tax-deductible, depending on your circumstances and current tax rules. It’s important to seek professional advice to understand your eligibility.
• Market conditions: With ongoing market uncertainty, some investors prefer to actively manage their risk rather than rely on off-the-shelf leveraged products.

However, homemade leverage is not suitable for everyone. The risks are significant, and it’s important to understand both the potential rewards and the possible downsides.

Before using homemade leverage, consider the following factors:

Interest Rate Risk

Borrowing costs can change over time. If you use a variable-rate loan, your interest payments may increase if rates rise. This can reduce your net returns or even turn a profitable investment into a loss.

Loan Structure

Different borrowing options come with different terms. Fixed-rate loans offer certainty over repayments, but may have less flexibility if you want to repay early or adjust your borrowing. Variable-rate loans can be cheaper initially, but expose you to the risk of rising rates.

Risk Tolerance

Leverage amplifies both gains and losses. Only borrow what you can afford to lose, and consider how you would cope if your investments fell sharply in value. Stress-test your portfolio to understand the impact of adverse market movements.

Tax Implications

Interest on loans used for investment purposes may be tax-deductible, but the rules can be complex and subject to change. The Australian Taxation Office (ATO) reviews deductions for investment loan interest, so it’s important to keep thorough records and seek advice if needed. For more on this, you may wish to consult insurance brokers who can help with financial planning.

Exit Strategy

Have a clear plan for repaying your loan and unwinding leveraged positions if markets move against you. Consider how you would manage repayments if your investment income drops or if you need to sell assets at a loss.

If you decide to use homemade leverage, keep these practical tips in mind:

• Start small: Begin with a modest amount of leverage and increase only if you’re comfortable managing the risks.
• Monitor regularly: Review your portfolio and loan balance frequently, especially during periods of market volatility.
• Maintain liquidity: Keep some cash or easily accessible funds in reserve to cover loan repayments or unexpected expenses.
• Set limits: Decide in advance how much you’re willing to lose and stick to your plan. Avoid chasing losses by increasing your leverage in response to market downturns.
• Seek professional advice: Consider consulting a financial adviser or mortgage broker to ensure your strategy aligns with your goals and risk tolerance.

Homemade leverage offers Australians a way to customise their investment risk and potentially enhance returns in 2026. By borrowing independently, you gain control over your leverage and investment choices. However, this approach also increases your responsibility for managing risk, monitoring your portfolio, and ensuring you can meet your obligations if markets move against you.

Before proceeding, carefully weigh the benefits and risks, consider your financial situation, and seek professional advice if needed. Homemade leverage can be a powerful tool for experienced investors, but it’s not without significant challenges. Make sure you understand what’s involved and have a clear plan in place before taking on additional risk.