Asset allocation: the nuts and bolts of your investment

How much of your assets should be invested in shares – and how much should stay in your bank account? The answer to this question is the most important decision when investing your money. Not the choice of the right ETF, not the perfect time to start – but the question of how you structure your assets. In this fourth lesson of our financial guide, you will find out how to determine your personal asset allocation step by step and what role your risk profile, liquidity reserve and 3rd pillar play in this.

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What does asset allocation mean?

The term asset allocation is based on a simple idea: the structuring of your assets. Specifically, it’s about how you distribute your money across different asset classes – how much goes into shares, how much stays in your bank account, how much you put into real estate or other investments?

If diversification is the blueprint, then asset allocation – or your asset structure – is the foundation of your house. It determines how stable the building is, not the color of the walls or the model of the kitchen. Numerous studies confirm exactly this: it is not the choice of individual products, but the allocation of your assets that has the greatest influence on long-term investment success. You base all other investment decisions on your asset allocation.

Before we get into the details, it’s worth taking a look at the big picture. Your assets can be divided into three areas that fulfill different tasks:

The liquidity reserve: your safety net

Every sound financial plan includes a liquidity reserve – a nest egg of three to six months’ expenses in your bank account. This reserve serves to cushion unforeseen expenses such as job loss, illness or major repairs without you having to touch your investments.

Even if the liquidity reserve is also held in a low-risk bank account, it is not part of your asset allocation. The difference is that the low-risk portion of your investment is a conscious strategic decision within your portfolio. The liquidity reserve, on the other hand, is a requirement that must be met before you even think about investing. It is reserved for emergencies – and therefore taboo for investment purposes. Repaying any consumer loans also has priority – their interest rates exceed any realistic investment return.

Only what remains after your nest egg and debt reduction is your freely available investment capital. And it is precisely these assets that are now structured using asset allocation.

 

Your risk profile determines the allocation

How you allocate your disposable assets depends on your individual risk profile – i.e. the interplay between your risk appetite and your risk capacity, which we covered in detail in lesson 2.

As a reminder: risk appetite describes how much price loss you can withstand without lying awake at night or selling in a panic. Risk capacity describes how much loss your wallet can take without you getting into financial difficulties – determined by your initial financial situation and your investment horizon.

Both factors must be in harmony. An example: You are young, earn well and could easily cope financially with a 50% drop in the share price. But at minus 20% you get nervous and sell. In this case, it is not your risk capacity that is decisive, but your risk appetite – this sets the narrower limit. Conversely, if you consider yourself a risk-taker but want to buy an apartment in three years’ time, you should stick to the lower risk capacity. In short: the more cautious of the two factors sets the framework.

From theory to practice: dividing up your assets

Based on your risk profile, you divide your freely available investment assets into two parts: a high-risk part and a low-risk part. As a rule of thumb, the higher the proportion of equities, the higher the risk – but also the higher the return – of your portfolio.

Let’s assume fictitious fixed assets of CHF 100,000 – your nest egg is already secured. You have a regular income and have your running costs under control. Five typical breakdowns for your assets:

Risk profile	High risk*	Low risk**
Defensive	0-20%	80-100%
Conservative	20-40%	60-80%
Balanced	40-60%	40-60%
Dynamic	60-80%	20-40%
Offensive	80-100%	0-20%

For the offensive profile, we recommend an investment horizon of at least 10 years due to the high susceptibility to fluctuations. More conservative models with a low equity component, on the other hand, are also suitable for shorter periods.

The risky part: equities in the core, additions in the satellite

The risky part is the return driver of your portfolio – and its most important component is equities.

“In the risky part, you can’t avoid stocks.“

Specifically, it fulfills four tasks:

• Long-term wealth accumulation: Shares are the asset class with the highest historical returns – and compound interest ensures that your money grows exponentially over decades.
• Inflation protection: While bank deposits lose value in real terms, shares offer effective long-term protection against inflation.
• Participation in the global economy: With a global ETF, you benefit from the growth of thousands of companies – without having to analyze a single one.
• Passive income: Broadly diversified equity ETFs pay out dividends regularly – either directly to your account or automatically reinvested, depending on the fund, which increases the compound interest effect.

ETFs that track broad market indices from all regions of the world are particularly suitable investment vehicles. You can find out why we consider ETFs to be particularly attractive when investing in lesson 6.

A global ETF as a foundation

The simplest and most elegant solution: with a single global ETF – such as the Vanguard FTSE All-World or an MSCI ACWI ETF – you invest in thousands of companies from industrialized and emerging countries, weighted by market capitalization. A single purchase, global diversification, minimal effort. This is the core idea behind passive investing – and for most investors, it’s the ideal way to get started.

Targeted additions according to the core-satellite principle

If you want to go beyond this foundation, you can apply the core-satellite approach from lesson 3. The core – 70 to 100% of the risky part – remains a broadly diversified equity ETF. If you wish, you can supplement the remainder up to a maximum of 30% in the satellite with targeted additions:

• Real estate with globally diversified REITs (real estate investment trusts) can improve the risk/return ratio due to their sometimes lower correlation to the stock market.
• Commodities such as gold can serve as inflation protection and a crisis buffer – but do not generate any current income.
• Cryptocurrencies such as Bitcoin are among the most volatile asset classes of all – anyone investing here should be able to withstand strong fluctuations and only use money that they can do without in extreme cases.
• Other options such as collectibles, crowdlending, factor ETFs or individual shares are conceivable for risk-takers – as a small addition, not as a core component.

Rule of thumb: the more exotic the investment, the lower its weighting.

The low-risk part: security and availability

The low-risk part is the anchor of stability in your portfolio – and the calming pill for your nerves. If the stock markets plummet by 30% again, it is this part that ensures that you remain calm. Specifically, it fulfills three tasks:

• Psychological anchor: If not everything is red, it’s easier to keep going and make better decisions.
• Flexibility: If your circumstances change unexpectedly – new job, relocation, unplanned expenses beyond your nest egg – you have room to maneuver.
• Rebalancing ammunition: After a crash, you can buy additional shares at a low price and rebalance your portfolio (more on this in lesson 5).

Bank balances – in savings or private accounts – are the simplest and most liquid option. You can access them at any time. In Switzerland, deposits of up to CHF 100,000 per person and bank are protected by the deposit guarantee scheme. The expected return is clear: at best some protection against inflation, but no real asset growth. That’s not the purpose of this part – it’s to give you security and the ability to act.

Bonds with a high credit rating – such as Swiss government bonds with a top rating of “AAA” – also offer a high level of security. However, their yield in Switzerland is historically close to inflation. Anyone hoping for a significant return after deducting inflation will generally be disappointed with Swiss bonds. However, they can still play a role as a stabilizer in a portfolio – especially for investors with a balanced or conservative profile.

Other options such as medium-term notes or fixed-term deposits offer slightly higher returns than a savings account, but tie up the capital for a fixed term. You can find an overview of this in lesson 2.

“Determining your individual asset allocation tailored to your risk profile is the be-all and end-all of your investment.“

And what about pillar 3a?

A question we are asked time and again: Where in my asset allocation do the 3a assets actually belong – low-risk or high-risk?

Our answer: Neither. Your 3a assets are tied pension assets – you cannot simply withdraw them if you want to. Early withdrawals are only possible in a few cases, such as when buying a home, emigrating or becoming self-employed. Pillar 3a therefore does not belong in the same drawer as your disposable assets, but follows its own rules.

But that doesn’t mean you should ignore them – on the contrary. If you still have 10, 20 or more years until retirement, you are sitting on an enormous compound interest lever. And this is precisely why we recommend investing your 3rd pillar in equities. The biggest return guzzler here? The fees. Traditional bank products often charge 1% or more per year – sounds like little, but can add up to tens of thousands of francs in lost returns over the long term. Low-cost online providers with fees of less than 0.5% make a huge difference here.

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Conclusion

Asset allocation is the most important decision in your investment – more important than the choice of individual products, more important than the time of entry, more important than the question of whether to buy ETF A or ETF B. It is your fixed star to which you align all other investment decisions.

The principle is simple: first secure your liquidity reserve. Then divide your freely available assets into a high-risk and a low-risk part based on your risk profile. In the high-risk part, broadly diversified equity ETFs are at the core – if you wish, you can supplement them with additions according to the core-satellite principle. In the low-risk part, bank deposits provide stability and peace of mind. You view your 3a assets separately – equity-based and cost-effective.

Make a note of your target allocation – so that you can monitor it periodically and take countermeasures if necessary. Because when shares rise or fall, the weighting shifts automatically. In our next lesson, we will look at how you can restore your original portfolio structure easily and cost-effectively: rebalancing.

You can find an overview of all the lessons here: Learning to invest – in eight lessons.

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Updates

2026-04-10: Article completely revised and updated.

Disclaimer

Disclaimer: Investing involves risks of loss. You must decide for yourself whether you want to bear these risks or not.

Errors excepted: We have written this article on asset allocation to the best of our knowledge and belief. Our aim is to provide you as a private investor with the most objective and meaningful financial information possible. However, if we have made any errors, forgotten important aspects and/or are no longer up to date, we would be grateful if you could let us know.