Leverage in investing means using borrowed money to increase the potential return of an investment. For example, if an investor has $1M and borrows another $1M to invest $2M total, a 10% gain on the full investment yields $200K — a 20% return on the original $1M. But leverage also amplifies losses: a 10% decline yields a -20% return.
Private equity firms routinely use leverage in leveraged buyouts (LBOs), often financing 50–70% of an acquisition with debt. Hedge funds use leverage through margin borrowing and derivatives.
Many billionaires use low-interest loans against their stock portfolios as a tax-efficient way to access liquidity without selling shares (and triggering capital gains taxes).