Investing like the world's wealthiest individuals, using borrowed money to amplify stock market gains, is no longer an exclusive club. This strategy, once a complex tool for institutions, is now within reach of savvy retail investors, including a growing number in India, thanks to technological and financial democratization. However, this ease of access is ringing alarm bells for market regulators concerned about systemic risks.
From Academic Theory to Mainstream Practice
The intellectual foundation for this shift was laid over fifteen years ago. In 2009, financial economists Ian Ayres and Barry Nalebuff published a book championing "lifecycle investing." They challenged conventional wisdom, which advises young investors to simply hold stocks and shift to bonds later. Instead, they argued that young people with stable future earnings should actually borrow money to invest more aggressively in equities early in their careers. Their research, covering data from 1871 to 2009, suggested this leveraged approach would have historically produced better outcomes.
At the time, implementing this was prohibitively difficult for the average person. Trading fees were high, online brokers were rare, and margin loan rates were exorbitant. In 1999, for instance, E*Trade charged around 9% when the Federal Reserve's rate was under 5%. Even in 2009, major brokers like Fidelity and Vanguard had high rates, keeping leveraged investing as the preserve of the very rich or institutions. A contemporary review of their book aptly warned, "Don’t try this at home."
The Democratization of Leverage
Today, trying it at home is not just possible but straightforward. Ayres and Nalebuff had briefly noted a then-small player, Interactive Brokers, for its competitively low margin rates. That company, worth $7bn with 134,000 clients in 2009, has exploded to a $110bn giant with 4 million clients. Its cheap lending has made it a hub for sophisticated small investors. Coupled with the rise of low-cost exchange-traded funds (ETFs) and easier access to global markets, the barriers have crumbled.
Consider the example of a tech professional in his early 30s, earning about $200,000 annually, who spoke to The Economist under the pseudonym Mr. Street. While not an "everyman"—his strategy requires a minimum account of $110,000—his approach is replicable for many young professionals. He borrows from Interactive Brokers in a mix of dollars, yen, and euros to secure lower rates, investing in a diversified portfolio of global stock indices. His average interest rate is roughly 3.5%, and he maintains a loan-to-value ratio between 50% and 65%. This means for every $1,000 of his own capital, he controls $2,000 to $2,857 in investments.
Record Debt and Rising Regulatory Anxiety
Mr. Street is far from alone. By August 2025, American brokers had extended a staggering $1.1 trillion in margin debt to clients—a record high that marks a 33% increase in just one year. As a share of GDP, this level is near the peaks seen during the 2021 meme-stock frenzy and exceeds the dot-com bubble peak. This surge is a primary source of concern for regulators globally, who fear excessive leverage could exacerbate a market downturn, leading to a cascade of forced selling.
The risks are real. Mr. Street's portfolio fell by 42% during a recent market spasm when the S&P 500 dropped 19%, narrowly avoiding an automatic liquidation trigger at 67%. Interactive Brokers, like many platforms, automatically sells assets to maintain borrowing limits instead of issuing traditional margin calls. "I have a very high tolerance for volatility and an almost cult-like belief that the long-run return of stocks is greater than the interest rate on short-term borrowing," Mr. Street stated.
The period since Ayres and Nalebuff's book has been ideal for this strategy, blessed with low rates and strong returns. The critical question now is whether this good run can continue amid higher market valuations. The answer matters not just to daring investors like Mr. Street but to financial stability watchdogs worldwide, who are hoping the leveraged bet of the masses doesn't lead to a painful reckoning.
