Leverage, with purpose
Leverage is a scary word for many investors, and in my opinion, rightly so. Just because a F1 driver isn't scared to race doesn't mean I shouldn't be! The specifics of leverage on a total portfolio level is widely unknown, even among intelligent retail investors and many financial advisors. However, if you take a sophisticated approach while heeding the warnings of history, leverage is an incredible tool to turn diversification into actual returns.
Many portfolios on here consist purely of equities, while many others throw in fixed income like bonds or t-bills. Rarely, you'll see a managed futures fund at like 5% of the portfolio. This is an indicator that many portfolios are not constructed at all; they are simply thrown together as shares are purchased and interests shift. Applying leverage to a portfolio like this should be scary! If your portfolio is not built with a goal for its behavior, how can you expect to determine the likelihood of an extreme tail event?
However, if your portfolio is well thought through and is resilient to correlation surges in bear markets (a far from trivial goal), it can be perfectly safe to leverage to the volatility of your liking, allowing you to eat your risk-adjusted returns. Given the access to portable alpha products and short box spreads afforded to retail investors, rational investors may benefit from moving from their current mindset of viewing their portfolio only at the individual component level to viewing their portfolio wholistically, academically, and with respect for leverage (be it >1x, 1x, or <1x).
