If you are a retiree and need a predictable stream of income from your investment portfolio to cover basic living expenses, you should probably be invested predominantly in investment-grade bonds from highly-rated corporations and the Treasury. If you’re willing to take a little more risk than that in order to increase your expected return, usually you do it by investing more and more in the stock market. Unfortunately, for levels of portfolio risk above what is usually considered the very conservative end of the spectrum, there are diminishing returns in the risk/return tradeoff: as you increase the aggressiveness of your investments and take on more and more risk, you get rewarded with less and less additional return. This is a natural consequence of concentrating your portfolio more and more into stocks, which tend to be volatile and highly correlated.
There is another way of increasing your portfolio’s expected return, a way that allows for a proportional tradeoff between risk and return, a way that maintains diversification among all major asset classes without undue concentration risk, a way that is taught to undergraduate finance students all over the world: leverage.