2 weeks ago
More Debt Cushions Portfolio Falls but Reduces Return Potential
Investors can build portfolios using stocks, debt investments and gold.
Stocks may grow more over time, but their prices can fall sharply.
Debt can make those falls smaller, although it may also reduce long-term returns.
In the study, portfolios with more debt had smaller historical losses.
A portfolio with 70% stocks and 30% debt fell as much as 40% in the periods examined.
A portfolio with 30% stocks and 70% debt fell as much as 14%.
Adding gold also reduced the size of some historical falls.
The right mix depends on how much loss an investor can handle and is not guaranteed to work the same way in the future.
FundsIndia’s historical analysis found that increasing debt reduced portfolio drawdowns but also lowered average seven-year returns.
A portfolio with 70% equity and 30% debt averaged 13.8% annually and suffered a maximum 40% fall.
A 50% equity and 50% debt portfolio averaged 12.5% and had a maximum 27% drawdown.
A portfolio with 30% equity and 70% debt averaged 10.7% and had a maximum 14% drawdown.
Adding gold also reduced historical drawdowns, but the analysis does not identify one ideal allocation or guarantee future returns.
- Who
- Investors building long-term portfolios.
- What
- A FundsIndia analysis examined how different allocations to equity, debt and gold affected historical returns and drawdowns.
- Where
- The analysis used Indian equity, US equity, gold and debt-fund data.
- When
- The analysis was reported as of 31 August 2026.
- Why
- To illustrate the trade-off between reducing portfolio declines and maintaining long-term return potential.
Higher Equity Allocation
Higher Debt Allocation
Return potential
Higher Equity Allocation
More equity historically produced higher average returns and greater long-term return potential.
Higher Debt Allocation
More debt historically reduced average returns compared with portfolios holding more equity.
Portfolio declines
Higher Equity Allocation
Higher equity exposure came with larger historical drawdowns, including a maximum 40% fall in the analyzed portfolios.
Higher Debt Allocation
Higher debt exposure reduced historical drawdowns, with the 30% equity and 70% debt portfolio falling by a maximum of 14%.
Investor suitability
Higher Equity Allocation
Investors with longer horizons and greater tolerance for volatility may be willing to hold more equity.
Higher Debt Allocation
Investors unable to tolerate declines of 30% or 40% may prefer less equity to make staying invested easier during market corrections.
Key facts
- 70% equity, 30% debt
- Average seven-year return of 13.8%; maximum drawdown of 40%.
- 50% equity, 50% debt
- Average seven-year return of 12.5%; maximum drawdown of 27%.
- 30% equity, 70% debt
- Average seven-year return of 10.7%; maximum drawdown of 14%.
- 70:15:15 portfolio
- 70% equity, 15% debt and 15% gold; average seven-year return of 15%; maximum drawdown of 40%.
- 50:25:25 portfolio
- 50% equity, 25% debt and 25% gold; average seven-year return of 14.2%; maximum drawdown of 27%.
- 30:35:35 portfolio
- 30% equity, 35% debt and 35% gold; average seven-year return of 13.2%; maximum drawdown of 17%.
- Rebalancing
- Portfolios were rebalanced annually when allocations moved beyond a 5% band.
Sources
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