# Asset Allocation by Age: How Much Debt Do You Need?

How much debt should you hold at 20, 30, 40, 50 and 60? A 15-year SIP backtest shows what debt costs you, what it saves in a crash, and how to rebalance.

By Nikhil Varghese, CA · 14 July 2026 · https://finniki.com/blog/asset-allocation-by-age

**Quick answer:** Debt in your portfolio makes you less money over the long run, and that's fine: its job is to soften the fall in a crash, not to win the race. In a 15-year SIP backtest, a 70:30 equity–debt mix ended about ₹4 lakh behind all-equity, but fell less in every one of the ten worst crashes. A balanced starting point is about 90:10 in your 20s, 85:15 in your 30s, 75:25 in your 40s, 70:30 in your 50s and 60:40 from your 60s. Adjust it for your income, debts, dependants, cash cushion and how you react to a fall, then rebalance only when it drifts 5–10% off target.

[Watch the 18-minute episode: How much debt do you need at every age?](https://youtu.be/7NP6LPdzu-I)

## Why hold debt if it lowers your returns?

Because debt was never meant to win on returns. Over a long run, every slice of debt you add lowers your final number. Its value only shows on the worst days in the market.

Take two investors, each putting **₹20,000 a month** into a SIP for 15 years, from April 2008 to April 2023: ₹36 lakh invested in total. The first is all equity. The second holds 70% equity and 30% debt and rebalances back to that mix every April.

- **All equity:** about **₹97 lakh**.
- **80:20:** about ₹2.5 lakh behind all-equity.
- **70:30:** about **₹93 lakh**, ₹4 lakh behind.
- **60:40:** about ₹7 lakh behind.

![Over 15 years of ₹20,000 monthly SIPs, a 70:30 portfolio ended about ₹4 lakh behind all-equity: ₹93 lakh against ₹97 lakh](https://finniki.com/blog/media/2362a15529b33299963d4a23.jpg)

So if debt costs you money, why does every adviser tell you to hold it?

## What does debt do for you in a market crash?

It makes the fall smaller. In early 2020 the COVID crash took the Nifty from around 12,000 to about 8,000 within weeks, a third of the market.

- **All equity:** on 2 January 2020 the portfolio above stood at nearly ₹60 lakh. By 2 April it was about ₹40 lakh, down **more than 33%**: ₹20 lakh gone in three months.
- **70:30:** over the same days it fell about **22%**, from around ₹57 lakh to ₹44.5 lakh. That is a loss of about ₹12.5 lakh instead of ₹20 lakh.
- **80:20** fell about ₹5 lakh less than all-equity; **60:40** about ₹10 lakh less.

![In the COVID crash, from January to April 2020, an all-equity portfolio fell more than 33% while a 70:30 portfolio fell about 22%](https://finniki.com/blog/media/ba4a0be7ef6f779a4eea58bb.jpg)

This was not one lucky date. Across the **ten worst crashes** in those 15 years, the 70:30 portfolio fell less every time, all ten. The cushion saved between **₹36,000 and ₹7.37 lakh** on each one.

Think of a car. **Equity is the engine**: it gives you speed. **Debt is the suspension**: it adds no speed, but it lets you drive fast over a broken road without the car shaking apart. On a smooth road, in a bull market, the suspension feels like a waste. The road always breaks eventually.

## How much debt do you need at each age?

Your debt floor, the least cushion you should carry, rises with age. The balanced (moderate) mix is given first, equity to debt, with the aggressive and conservative versions in brackets. Pick the one that is actually you.

- **20s: 90:10** (aggressive 100:0, conservative 80:20). You have the longest runway you'll ever have, so a 40% crash is a sale you get to buy into.
- **30s: 85:15** (aggressive 90:10, conservative 70:30). Life shows up: a loan, a family, people relying on your income. Debt becomes a choice, not an accident.
- **40s: 75:25** (aggressive 85:15, conservative 60:40). Peak earning years, with big bills close: school fees and home loan EMIs.
- **50s: 70:30** (aggressive 80:20, conservative 50:50). Retirement is 10 to 15 years away, and a crash now may not leave you time to recover. In any single year, the odds of a negative year are about one in three.
- **60s and beyond: 60:40** (aggressive 75:25, conservative 40:60), sliding further after 70. Past 70 to 80, equity often drifts to 10–20% and debt to 80–90%.

**Treat these as a starting line, not a sentence.** In my 40s the formula said cut equity. My income had become steadier and I understood equity far better, so I took on more risk, not less. That one decision is the difference between my portfolio today and one about half its size.

## Why does debt matter most after you retire?

Because you're taking money out, not putting it in. In retirement debt goes from passenger to engine. The common guide is the **4% rule** for yearly withdrawals; for India, I suggest **3.5% or less**. If a crash forces you to sell equity at the bottom just to pay your bills, that loss is permanent. Enough debt means you never have to.

## Is "100 minus your age" a good rule for equity?

It's a fine place to begin, but it ignores everything that matters. At 40 it gives 60:40, the conservative end of the range above.

Take two 30-year-olds. One has a shaky job, no safety net and real debts. The other has a rock-solid job and almost no liabilities. The formula gives both of them 70% equity, though they have very different capacity for risk.

## What decides your debt allocation?

Six things, not one number:

1. **Your age.**
2. **When you'll need the money.**
3. **How stable your income really is.**
4. **What you owe, and who depends on you.**
5. **The cushion you've already built.**
6. **Your own psychology.** If a 30% fall would have you selling in a panic, you can take the risk on paper but not in real life. This is the one people underrate.

## When should you rebalance between equity and debt?

When your mix drifts away from your target, and only then. Say you set up 70:30 and the market runs. Equity grows into a much bigger share than you signed up for, and debt looks like dead weight next to it. The urge is to dump the debt and let the winner run. That is exactly when you should do the opposite.

- **Market runs hot** and 70:30 drifts to 75:25: sell a little equity and move it into debt. That's profit booked near the top, automatically.
- **Market crashes** and you drift to 65:35: move debt into equity. That's buying cheap while everyone else is frozen.
- **Don't fiddle constantly.** If the mix drifts more than **5–10%** off target, nudge it back gently.

![Rebalance only when your mix drifts: sell some equity into debt after a rally, move debt into equity after a crash, and act only past a 5–10% drift](https://finniki.com/blog/media/9dc4cfed703f8b9fe132430c.jpg)

It isn't easy, but it answers the question every investor struggles with, when to book profits and when to buy more, without guessing. Your allocation does it for you.

## Where can you keep the debt part of your portfolio?

My debt sits in two buckets:

- **The base: EPF**, the provident fund from my corporate years. It's government-backed and tax-friendly, and because it's hard to withdraw, it's money I can't panic-sell.
- **The rest: debt mutual funds and bonds**, including corporate bonds bought through an online bond platform.

## Are corporate bonds on online bond platforms safe?

No, not in the way a bank deposit feels safe. Changes in SEBI's regulations let retail investors buy corporate bonds through SEBI-registered **Online Bond Platform Providers**. The higher interest comes with three risks:

1. **Credit risk.** Many of these bonds are issued by NBFCs, not the government or a guaranteed AAA name. If an issuer defaults, getting your money back can be slow.
2. **Liquidity risk.** They don't trade freely on an exchange the way shares do.
3. **Regulatory risk.** There's no statutory bankruptcy protection wrapped around them and **no DICGC insurance**.

Higher return means higher risk. Keep tenures short and spread your money across several bonds instead of one. They suit someone who won't need the money in a hurry, is putting in a small slice for diversification, and accepts higher risk for more interest. For me they are the satellite, a capped slice of my fixed income, never the centre: the core stays in EPF and debt funds.

## What mistakes ruin the debt side of a portfolio?

- **Sudden changes.** Moving money out of debt into equity in the middle of a bull run, right before it tips over. Shifting your allocation is like steering a big ship: turn it slowly.
- **Flying blind.** You know your risk profile, but your money is nowhere near it, usually for one of four reasons:
  - you don't know enough, so everything sits in a savings account;
  - you set it up once and let it drift;
  - **herd instinct**: your neighbour made a fortune in equity, so you piled in without asking whether his situation looks like yours;
  - **the rear-view mirror**: chasing whatever just did well. If gold jumps 25% in a year, everyone floods in. This hurts debt most, because debt rarely tops the chart, so people drop the very thing meant to protect them.
- **Emotion**, the root of nearly all of them. After the COVID crash many people sold their funds and stopped their SIPs. The market bounced back fast, fear turned into greed, and money flooded back in near the top. At the next correction they sold again at the bottom: sold low, bought high, sold low. Set your allocation when you're calm, on the six factors above, and protect it from your own feelings.

## FAQs

### What is a good equity to debt ratio by age?
As a balanced starting point: about 90:10 in your 20s, 85:15 in your 30s, 75:25 in your 40s, 70:30 in your 50s and 60:40 from your 60s. Adjust it for your income, debts, dependants, cushion and temperament.

### Does holding debt reduce returns?
Usually, yes. In a 15-year SIP backtest from 2008 to 2023, a 70:30 portfolio ended about ₹4 lakh behind all-equity, about ₹93 lakh against ₹97 lakh.

### How much did debt help in the COVID crash?
From 2 January to 2 April 2020, an all-equity portfolio fell more than 33%, while a 70:30 portfolio fell about 22%.

### Is the "100 minus age" rule right?
It's a reasonable start but blind to your job security, debts, dependants and temperament. Two people of the same age can need very different mixes.

### How often should I rebalance my portfolio?
Only when your mix drifts more than 5–10% from your target. Constant fiddling does more harm than good.

### Are corporate bonds a safe debt investment?
No. They carry credit, liquidity and regulatory risk, with no DICGC insurance. Keep them a small, short-tenure, diversified slice, not the core of your debt.

### What withdrawal rate should a retiree in India use?
The common guide is the 4% rule; for India I suggest 3.5% or less, with enough debt that a crash never forces you to sell equity at the bottom.

### Is EPF part of my debt allocation?
Yes. EPF is government-backed and tax-friendly, and because it's hard to withdraw it works as a stable base for the debt side.

## Get your allocation right

Look at your own split, not your stocks: the boring part is what lets the exciting part keep growing. To set an allocation that fits your income, goals and temperament, [book a consultation](https://finniki.com/book). More explainers are on the [videos page](https://finniki.com/videos).

*This is general information, not personal investment advice.*