Whether you’re a seasoned investor or just curious about how people build wealth faster, leverage is a strategy worth exploring. In this episode, Hayden and Dave explore the logic, psychology, and mechanics behind borrowing to invest. They also share their own lessons and offer a perspective on the risks and rewards.

Borrowing to invest – better known as leverage – is one of the most talked-about (and polarising) strategies in personal finance. For some, it’s a fast track to growing wealth. For others, it’s a risk not worth taking.

In this episode of Aussie FIRE, Hayden and Dave roll up their sleeves and dive deep into what leverage actually involves. From tapping into home equity to fast-track a share portfolio, to the emotional rollercoaster that comes with borrowing to invest, they share practical insights and personal stories. Their goal? To help you figure out if this strategy might be right for you. Remember, though, that this episode only explores the topic generally, and doesn't take your personal circumstances into account. If you're unsure over the best course of action, speak with a licensed financial adviser.

What is leverage, and why consider it?

To kick things off, Dave defines leverage simply: it’s using borrowed money to invest. For homeowners, this often means tapping into the equity in their home to access investment funds sooner than they’d otherwise be able to.

“Essentially, you're able to build your portfolio at a faster rate,” Dave explains. “Let's say there's $100k right now sitting in your home. You might be able to go to the bank, access that equity, and invest all of that money straight away. The aim would be to rapidly grow your share portfolio much faster than you otherwise could.”

This means bringing future investment growth into the present. And if your investment returns exceed your interest payments, the logic goes, you're essentially creating extra returns. As Dave puts it: “You're borrowing at 5 or 6%, and hopefully getting 8 or 9% – maybe more.”

Hayden adds that the idea of leverage used to sound intimidating until someone explained it to him as “just a loan.” Then, the concept clicked.

“You are taking someone else's money because you want to do something sooner," Hayden says. "They charge you for it, and you have a belief that there will either be an ongoing benefit or a long-term benefit."

Leverage isn’t a new concept to many Australians, particularly those with investment properties . But using it to invest in shares feels less common – and perhaps more risky – due to the volatility of markets. However, as Dave and Hayden explain, understanding how it works can help demystify the strategy.

Home equity and leverage: how does it work?

The focus of this episode is homeowners using equity to invest in shares. If your home’s value increases and your loan stays the same, you can potentially increase your borrowing up to 80% of the new value without needing extra cash.

“Let’s say the home is worth $700,000, but when you bought the home, the loan was sitting at about $500,000. Most banks are pretty happy to lend up to 80% ... that would give you a loan of $560,000 to easily access 60 grand,” Dave says.

The key is to set up a separate loan account to track what’s used for investing, which helps keep things clean for tax purposes. This approach is similar to debt recycling , but with one crucial difference: you're increasing your overall loan size rather than converting existing non-deductible debt.

Hayden points out that if you’ve owned a property for a few years and it has appreciated in value, you might already be sitting on leverageable equity without even realising it. And there’s nothing stopping you from combining both approaches: debt recycling and extending your home loan.

The risks of leverage: stress, losses and uncertainty

Of course, leverage isn’t all upside. Hayden openly shares his experience with the downsides, especially when markets dip.

“Even as someone who's leveraged with ETFs right now in the US , it's hard watching the markets come crashing down," he says. "I haven't really made any money off them anyway – I've been paying tons of money for the leverage for the loan. It's kind of stressful and keeps me up at night occasionally.”

Dave agrees that the psychological aspect is often underestimated.

“It's easy to say in theory: 'Okay, I'm going to pay x per cent in interest. Let me leverage up and make a whole bunch of money over the next ten or 15 years'," he says. "That sounds great in theory. But in practice, that feels a lot different because you're dealing with uncertainty.”

If markets fall, leveraged investors can find themselves underwater, sitting on losses while still making regular repayments. As Dave puts it: “It makes your investing far less enjoyable over that period of time.”

What’s more, you still need to make the repayments, even if your portfolio is in the red. In times of high interest rates, this cash flow pressure becomes very real. It’s one thing to invest with optimism, but it’s another to pay interest on an underperforming portfolio .

How leverage shaped Hayden’s approach to investing

One of the most insightful moments in the episode is when Hayden reflects on how leveraging debt forced him to rethink his investing strategy .

"Before I debt recycled, I had not invested anywhere near that much money in the stock market," he says. Suddenly, though, he was investing real money.

That shift led Hayden to lean towards growth-focused ETFs, particularly US-heavy options, due to their long-term capital appreciation and tax efficiency for high-income earners.

Dave notes that this is an often-overlooked benefit of leverage: “The debt itself can actually force you to make better decisions. It can also encourage you to think more deeply about your investing and where your money's going to be parked for the next decade.”

Many investors dabble with small amounts and hold diversified portfolios without strong views. But with leverage, every decision carries more weight. The risk is real, and so is the need for strategy.

Growth vs. income: how your strategy changes with leverage

Whether you choose high-dividend investments or growth-focused ones depends on your circumstances. Dave breaks it down into two broad camps:

• Dividend-focused portfolios , like those heavy in Australian shares, tend to produce more income, which can potentially help service debt repayments and reduce stress.
• Growth-focused portfolios , such as US ETFs, usually deliver better long-term returns but involve more upfront outflows, potentially making them more suitable for high-income earners seeking tax deductions.

Hayden, who works in tech and has a higher income, opts for growth. On the other hand, someone with a lower income might prefer the certainty of dividend income, especially if they're not aiming for maximum capital growth.

How much leverage is too much?

When deciding how much to borrow, Dave says the most important factor is whether you can service the loan – both financially and emotionally – under worst-case conditions. Assume your shares and your home both go down. Can you keep making the repayments? Can you sleep at night?

He adds that there’s no obligation to go all in.

“If you’ve got 200 grand that you can access, you don’t need to take out all of the 200 grand. You can just start small. Just take 50 or 100, and see how you go.”

Hayden agrees, emphasising that the journey doesn’t have to be linear. You can take small steps, assess your comfort level, and adjust.

Planning your exit: retiring debt before retiring from work

While leverage can accelerate your journey to Financial Independence , it complicates things when you’re ready to retire. The reason? Debt repayments don’t go away, even if your portfolio income drops.

Dave explains.

“Consider when interest rates are, for instance, around 6%. You're not going to be earning 6% in terms of cash flow from that same amount of money tied up in the share market" he says. "Quite often the income that you can get from that is going to be a lot less.”

There are a few ways to unwind the debt:

• Sell assets in one go , but this risks poor timing if markets are down.
• Gradually repay over time , using income or savings to chip away.
• Use a lump sum from another investment to pay it off.

Hayden adds that your strategy doesn’t have to be all or nothing. Your lifestyle may shift, your tolerance for volatility may drop, and your cash flow needs may rise. Your investment approach should reflect those changes.

Is leverage worth it?

Using leverage through home equity can be a solid strategy if used thoughtfully. It may allow you to invest more now, potentially bringing forward your Financial Independence. But it also increases your exposure to market risk, and the psychological toll can be real.

As Hayden puts it, it could be worth considering if you believe strongly in the long-term prospects of what you’re investing in. You’ll also need to be confident you can handle the financial and psychological strain – even when things don’t go as planned.

We're always keen to hear your thoughts and topic suggestions, so hit us up at hello@aussiefirepod.com . Head over to Pearler for resources, calculators, and community insights that complement what we chat about on the show.

Until next time, keep dreaming big and living on your terms. Catch you on the next one, and happy long-term investing.

Dave and Hayden