How to Use Leverage to Manage Risk

I'm a big believer in the use of leverage for smart reasons as a way to manage risk, not as a way to magnify risk. In this case, leverage is being used to magnify potential risk, but also magnify outperformance. More risk, more return. That's the whole name of the game.

I'm a big fan of using leverage as a way to manage risk. Long short is using leverage because you can have more long exposure and manage risk by your short exposure.

Then there's a new type of theme use of leverage, which is this idea of return stacking. Corey Hoffstein is the mastermind behind the idea of return stacking, which is actually stacking and using leverage to gain equal exposure. If you have, for example, they do this a lot with alts, you want to get 100% exposure to your 60/40, but you want to have alts as a diversifier.

So you might leverage part of your 60/40 so that you can get 100% exposure and then use that as leverage to get your alt exposure so that you'll be able to get the benefit of both things without sacrificing on returns. That's that concept of return stacking. There's products out there that do that. One that stands out to me is RSBA, which is Corey's return stacked bonds and stock portfolio. He has others as well. Wisdom Tree also has some products in this space and this concept of return stacking.