Which term describes the use of borrowed money to increase investment returns?

The term that describes the use of borrowed money to increase investment returns is "leverage." Leverage involves using various financial instruments or borrowed capital—in other words, debt—to increase the potential return on investment. By using leverage, investors can control a larger position than what they could with their own capital alone, which can amplify returns when the investment performs well. For example, if an investor puts down a small percentage of a property’s value as a down payment and borrows the rest, they can gain exposure to an asset worth much more than their initial investment.

In contrast, investment diversification refers to spreading investments across various assets to reduce risk, asset allocation involves deciding how to distribute investments among different categories (like stocks, bonds, or cash), and capital preservation focuses on protecting the value of an investment rather than seeking high returns. While all these concepts are important in investing, they do not involve the specific mechanism of using borrowed funds to enhance overall returns, which is the essence of leverage.