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A 66-year-old reader wrote to ask a simple question: why hold any debt when his pension and rental income cover everything – including two holidays a year? His investments are entirely in equity mutual funds and direct equity, and he sees no need to change.
His case is both unusual and important. He owns his home, has employer-provided health cover, receives steady rent from commercial property, and has a regular pension. His children are financially independent. The gap between income and expenses is wide enough that his portfolio is truly surplus money he may never need.
That’s the key. Most rules exist because of the underlying assumptions that support them. Conventional asset-allocation advice assumes you might have to draw from your investments for living expenses, that sequence-of-returns risk matters, and that volatility will collide with monthly bills. If those assumptions don’t hold, the rules can bend.
Suggested read: Real, practical asset allocation
Standard guidance says everyone should hold some debt. A debt bucket absorbs shocks, reduces the portfolio’s ups and downs, and prevents forced selling after a fall. But our readers’ cash flows don’t depend on their portfolio. In theory, he can ignore market prices for years. In such cases, a high-equity allocation is defensible – the financial equivalent of being a young investor with a long runway.
Even so, caveats matter.
First, permanence is rare. Rentals can sit vacant, tenants can default, big repairs arrive without warning, insurers can change exclusions, and family health can shift quickly. Low-probability events are invisible – until they aren’t.
Second, behaviour beats theory. It’s easy to say, “I won’t touch my portfolio.” It’s harder to watch it fall 40-50 per cent and sit tight. Many who “didn’t need” the money still sold during 2008-09 or 2020. If you’ve never lived through that kind of drawdown with real money at stake, don’t assume immunity.
Suggested read: Yehi hai right balance
There’s also a positive – not merely defensive – case for a modest debt sleeve. Keep 10-20 per cent in short-duration or liquid instruments as dry powder. Rebalance out of equity after big rallies and into equity after deep falls. You’re not forecasting; you’re harvesting volatility in a rules-based way. Over time, that can lift returns and, more importantly, give you a script for bad days.
Practicalities matter too. A debt bucket lowers friction: it funds one-off expenses without redeeming equity at awkward times, holds windfalls until you decide, and simplifies gifts and bequests. Liquidity is a return in its own right.
Suggested read: A matter of balance
So how should someone in this position decide?
Start with a blunt risk map. List your income sources and the single points of failure: a large tenant leaving, a structural repair, an insurance clause you’ve never read, a family obligation you would not postpone.
Run a “two-bad-things” drill. Assume a market drawdown coincides with a rental vacancy (or a medical shock). Would you still sleep well? If yes, a high-equity allocation remains sensible. If not, build a small ballast now – before you need it.
Pre-commit your behaviour. Write a one-page investment policy for a calm day, with a view to the future, for the anxious you. Note your target allocation, set rebalancing bands (for example, equity ±10 percentage points), and insert a crisis rule: “Take no action for 30 days.” This prevents improvisation when headlines scream.
Fix the plumbing. Keep nominations current; update wills and medical directives; organise passwords and statements; brief a trusted person who can execute if you cannot. Administrative readiness is an essential component of risk management.
A word about his son, who has seen portfolios double every three years across fifteen years of equity investing. Good discipline, combined with a favourable period, can achieve that. However, careers and markets are more closely correlated than we would like to admit. Layoffs cluster in recessions. For working professionals, a modest debt sleeve is less about maximising return and more about optionality – the freedom to change roles, take a sabbatical, or start up without selling equity at the bottom.
Suggested read: Market jitters? Take a deep breath
None of this argues against bending rules. It argues for bending them consciously. If your income is robust, liabilities low, paperwork tidy, and temperament tested, you’ve earned the right to run mostly equity. Just recognise the trade: you are swapping short-term comfort for long-term growth and must carry that discomfort on the worst day.
For everyone else, the standard rule holds for the same old reason. Debt prevents markets from bullying your life. It buys time – and time is where compounding lives.
The broader lesson is simple. Rules are scaffolding. They keep us steady while we build. Some can be removed once the structure – cash flows, coverage, temperament – is truly self-supporting. But the mind works differently in good times than it does in bad. If you choose to bend the rule, bend it with a plan, not a hunch. Decide today how you will behave when tomorrow insists on its say. That is how exceptions stay prudent – and don’t turn into headline-driven regret later.
Also read: No, no, no
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