Introduction

Every Saturday, I share my perspectives on topics that matter to investors. This week, I want to present a case study that challenges conventional thinking: Are there situations where traditional investment rules—like always keeping a share of your portfolio in debt—don’t actually apply?

The answer lies in understanding not just the rule itself, but the assumptions behind it.

The Standard Rule: Keep Debt in Every Portfolio

Financial advisors often insist that investors maintain a mix of equity and debt, no matter their age or wealth. The logic is straightforward:

• Protection in downturns: Debt provides stability when equity markets fall.

• Liquidity for expenses: Retirees often need to draw from investments, so debt acts as a ready pool of funds.

• Psychological comfort: Having stable assets reduces panic during crises.

But these rules are not universal—they are built on certain assumptions about income, expenses, and financial dependence on the portfolio.

The Case Study: The Financially Independent Retiree

Let us consider an investor who is 66 years old and has an unusually strong financial base:

• Owns a home outright, with zero liabilities.

• Enjoys comprehensive health insurance.

• Receives a regular pension plus steady rental income from commercial properties.

• Has financially independent children with no dependency burden.

• Income from pension and rent not only covers all living costs but also luxuries like vacations.

His entire equity-heavy investment portfolio represents surplus wealth. In other words, he may never need to use it for daily expenses.

Why Rules Don’t Apply Here

In most retirement cases, portfolios are designed to generate income and provide stability. But in this case, the investor’s income already far exceeds his expenses.

• He doesn’t require debt as a safety net.

• He can withstand equity volatility without ever needing to sell in a downturn.

• His portfolio acts more like a growth engine than a survival tool.

For such a person, a 100% equity allocation—normally considered risky—might actually make sense.

The Cautionary Notes

Even in exceptional situations, caution is necessary. Risks still exist:

1. Income isn’t absolute: Rental properties can face vacancies or high maintenance costs, and pensions may not always keep up with inflation.

2. Healthcare is unpredictable: Medical expenses rise faster with age, and even strong insurance has limits.

3. Behavioural discipline: A market crash of 40–50% tests even the most financially secure investor’s patience. Staying calm is harder than it seems.

4. Rebalancing opportunities: Holding some debt allows for systematic rebalancing—selling debt at peaks to buy equities in troughs. This strategy can improve long-term returns.

Lessons for Everyday Investors

This case study highlights a powerful insight: investment rules exist for specific reasons, but those reasons may not always apply to every individual.

• For most people, debt allocation is vital for stability and liquidity.

• For someone with multiple guaranteed income sources, comprehensive insurance, and surplus capital, leaning heavily on equity could be justified.

• The real challenge is honesty: are your circumstances truly exceptional, or are you assuming they are?

Conclusion

Investment rules are designed to protect the majority of investors from risks they cannot control. But when life circumstances eliminate those risks, bending the rules is possible.

The key takeaway: Don’t blindly follow or reject investment principles—understand the assumptions behind them. If those assumptions don’t apply to you, then you can build a portfolio that truly matches your reality.

Because in the end, successful investing is less about rules, and more about aligning your strategy with your life.