In a historical crisis, how much does leverage amplify the outcome?
Pick a historical market decline and compare the same capital, unlevered versus at 1.5× exposure: the loss at the trough, the cost of carrying the loan, and the net value years later. The page uses the declines and recovery times of the periods listed, combined with other assumptions, to build an illustrative path.
1Choose a crisis
2Choose the approach
Both shown together on the chart. The toggle highlights one path.
"Borrowing" here spans investment loans, home-equity lines, and securities margin — their margin-call and forced-sale terms differ enormously; this illustration assumes the loan is never called or recalled.
Borrowing cost assumption (annual)
The closer the borrowing cost gets to the assumed 8% growth, the smaller any long-run leverage advantage — the outcome is highly sensitive to this assumption.
3When does the crisis strike?
Crisis hits in year1
Y1Y5Y9
In the current setting, the decline comes at the start of the holding period, before any earlier growth has built a cushion.
Global Financial Crisis · 2008
S&P 500 · peak-to-trough and the recovery that followed
Unlevered investment
1.5× leveraged investment
Index peak-to-trough (price)-57%
Index back to prior high~5.5 yrs
The two paths compared (per $100 of own capital, under this page’s assumptions):
Metric
Unlevered
1.5× levered
Net value at trough
$43
$11
Max net drawdown
−57%
−89%
Cumulative interest paid
—
$25
End net value (after interest, loan repaid)
$153
$154
Levered vs unlevered
ahead by ~$1
Assumptions: normal years grow at 8%/yr. Crisis depth and recovery come from the index's PRICE series (dividend reinvestment excluded) — read the 8% on the same basis; taxes and product fees are not included. For every $100 of own capital, $50 is borrowed alongside it (1.5× exposure) at 5%/yr (adjustable above), interest paid in cash. The loan is assumed not to be margin-called or recalled as prices fall — real margin loans, secured credit lines, and investment loans can behave very differently. The curve splices real peak-to-trough declines and recovery times onto assumed normal growth — it is not a continuous historical series. Asset-class illustration, not a personal projection.
What happenedFrom its 2007 peak the broad U.S. market fell roughly 57% into March 2009, and took about five and a half years to reach a new high. The fall was steep, but the recovery that followed became one of the longest bull markets in history.Data series: S&P 500 price index (dividends excluded) · peak Oct 2007, trough Mar 2009, regained prior high ~Mar 2013 · source
Model assumptions and real borrowing terms: this example assumes the loan is never called or recalled during the simulation and that interest can be paid throughout. Real loans carry their own margin, renewal and prepayment terms. Even with a cash buffer, borrowing magnifies losses and adds financing risk; the recovery path in the chart does not mean a real position could always have been held to the end.
Historical data is for illustration only. It reflects asset-class-level performance over real historical periods, does not represent future results, and is not personalized advice or a promise of returns. Structured borrowing must be designed around individual circumstances and carries real risks.