One is usually on safe ground if investing with only a small percentage of assets bought with leverage or margin. However, even the cautious margin investor may occasionally be caught with the proverbial pants down, for equity markets at times can fluctuate quite wildly. I have received a margin call, and sold off assets in a hurry so as to avoid others, and can attest that these are not pleasant experiences. There is meager satisfaction after big losses in knowing one may claim them on subsequent tax returns.
If investing a lot in margin debt securities, the risks of losing big are also naturally increased. Again using the illustration initially presented above, if, instead of gaining 10% a year, the investor's assets drop 20% one year, a not uncommon event from time to time, the actual return will be -20% (on his shares owned outright), and then -20% (on the shares bought with a margin loan), and -5% (the interest on the margin debt) = -45% or -$45,000 (assuming one did not lose still more due to margin calls and selling securities at a loss, with the net proceeds even lower after subtracting commissions).
My father appeared for many years to be addicted to margin purchases, generally staying leveraged to the hilt, then facing huge margin calls when the market would plummet, as occurred in the 1973-1974 period and, to a lesser extent, again in 1987 and 1990.
Although he was a fairly good stock picker, his average profits were so reduced by losses during margin call selling that he likely would have done better, and with lower stress for all concerned, had he merely invested the same amounts in Treasury Bills, Certificates of Deposit, or Money Market Accounts, which during much of the period of his investing career were yielding 6% or higher, even as much as 12% a year for awhile.