Question

When does taking a leveraged position in a portfolio become unprofitable, and what would that look like in the risk return space?

Answer 1

Cases where leveraged position in a portfolio become unprofitable, and it would look like in the risk return space are:-

1. You have to pay interest on money that is borrowed, If your investments does not end up yielding a return equal to or higher than the interest you are paying, it will end up being unprofitable.

2. Losses are enlarged when market moves against you as we have lost the funds we were suppose to return along with profit that was planned to be earned

3. Companies may end up reducing the dividend payouts

4.You’ll be impacted by fund raising actions taken by companies.

5. Market may not become volatile and may trend sideways for an extended period of time , until then the interest payaments on borrowed funds won't stop.

6.Stocks can be reclassified into high risk category for leverage investing