Tag Archives: Leverage

Risk Budgeting: A Critical Tool for Portfolio Management

We are all familiar with the traditional idea of basic budgeting: you set up a plan for how much money you will save and spend each month. “Risk budgeting” is much the same idea for investors, but involves setting up a plan for how much risk you plan on taking with your long-term investments. Continue reading

Understanding Leverage

The concept of leverage is crucially important throughout finance, but many investors may not have a real grasp on the meaning of this term.  Leverage refers to the practice of borrowing money to increase your exposure to a specific investment.  A home mortgage is a form of leverage.  If you put down 20% when you buy a home and the house value appreciates by 20%, your actual return on your investment is 100%.  Such is the power of leverage.  On the other hand, if the price of your house drops by 20%, you have lost 100% of your investment. Continue reading