Homemade Leverage: How Australians Can Customise Investment Risk in 2025

In a world where financial products seem to multiply by the day, the concept of ‘homemade leverage’ stands out for its simplicity and empowerment. Instead of relying solely on leveraged investment products, Australians are increasingly turning to DIY strategies to tailor their exposure to risk and potential returns. But what does homemade leverage really mean in 2025, and how can savvy investors make it work for them?

What Is Homemade Leverage?

Homemade leverage is a strategy where investors manually adjust the risk profile of their investment portfolio by borrowing funds independently—rather than buying pre-packaged leveraged products like margin loans or leveraged ETFs. In essence, you’re building your own risk and reward scenario, using tools already at your disposal.

• Example: Instead of buying shares in a leveraged ETF, an investor might take out a personal loan or use a margin facility to buy additional shares of a regular ETF, effectively replicating the leverage.
• This approach can be tailored to individual risk tolerance, investment goals, and tax circumstances.

With the Reserve Bank of Australia (RBA) holding rates steady in early 2025 but signaling possible easing later in the year, the cost of borrowing remains in focus. This dynamic makes homemade leverage both more attractive and more nuanced for investors willing to take calculated risks.

How Homemade Leverage Works in Practice

Let’s break down how an Australian investor might implement homemade leverage:

1. Assess borrowing options: This could involve a margin loan, a redraw from a mortgage, or even a personal loan. Each option comes with its own interest rates, terms, and tax implications.
2. Deploy borrowed funds: The borrowed money is used to purchase additional investments, such as shares, ETFs, or managed funds.
3. Monitor portfolio and risk: Because the investor is personally responsible for the loan, ongoing risk management is critical. Unlike managed leveraged products, there’s no built-in stop-loss or automatic rebalancing.

For example, if Sarah has $50,000 in ASX200 index funds and borrows an extra $25,000 via her home loan offset (at a competitive 5.7% variable rate), she’s increased her exposure by 50%. Any gains (or losses) are amplified—so she needs to factor in loan repayments, potential margin calls, and the impact of rising or falling rates.

Why More Australians Are Choosing DIY Leverage in 2025

The appeal of homemade leverage is on the rise, fuelled by several 2025 trends:

• Greater control: Investors can set their own leverage ratios, choose their preferred investments, and decide when to unwind positions.
• Transparency: Unlike structured products, homemade leverage doesn’t hide costs or embed complex derivatives. You see exactly what you’re borrowing and investing.
• Potential tax benefits: Interest on loans used for income-producing investments may be tax-deductible, depending on individual circumstances and current ATO guidelines.
• Market volatility: With 2025 markets expected to remain choppy as inflation moderates and global growth slows, some investors prefer to actively manage their risk rather than rely on off-the-shelf leverage.

However, homemade leverage isn’t for the faint-hearted. The risks are real and include the possibility of magnified losses, forced sales if asset values fall, and the mental toll of managing debt. ASIC and major banks continue to warn investors about the dangers of over-leveraging, especially in the wake of recent market corrections.

Key Considerations Before Trying Homemade Leverage

Thinking of adding homemade leverage to your investment strategy? Keep these factors front of mind:

• Interest rates: With the RBA’s policy outlook remaining data-dependent, consider how rate changes will impact your borrowing costs and investment returns.
• Loan structure: Variable-rate loans might be cheaper now but could increase in cost. Fixed-rate loans offer certainty but less flexibility.
• Risk tolerance: Only leverage what you can afford to lose, and stress-test your portfolio against major market moves.
• Tax implications: The ATO continues to scrutinise deductions for investment loan interest. Make sure your documentation is airtight.
• Exit strategy: Have a clear plan for repaying the loan and unwinding leveraged positions if the market turns against you.

Some Australian platforms now offer tools to model DIY leverage scenarios, helping investors visualise the impact of borrowing on both upside and downside outcomes. But at its core, homemade leverage is about personal responsibility, discipline, and knowing exactly what you’re getting into.

The Bottom Line

Homemade leverage isn’t new, but it’s enjoying a renaissance among Australians who want more control over their investment journey in 2025. By taking a hands-on approach, you can customise your risk and reward profile in ways that mass-market products simply can’t match. Just remember: with greater power comes greater responsibility. Know your numbers, watch your rates, and always keep an eye on the bigger picture.