Magnifying returns through the use of debt. For example, assume you borrow $80 for an investment you buy for $100. If the total return on the underlying investment is 5% or $5, your return on your investment of $20 will be the full $5 which corresponds to 25%. The same magnification happens when returns are negative. A -5% return on an investment for which you borrow 80% will become -25%.
Susie Q is a retired property-casualty A professional who assesses and manages the risks of financial investments, insurance policies and other potentially risky ventures. Source: www.investopedia.com/terms/a/actuary.asp More and mother of two adult children. As her children were moving from their teens into their 20s, she found she was frequently a resource on many, many financial decisions and she had insights and information she could provide to them. She spent a significant portion of my career building statistical models of all of the financial risks of an insurance company and interpreting their findings to help senior management make better financial decisions. She is the primary author at Financial IQ by Susie Q and volunteers with other organizations related to financial education.