Your portfolio is set, your asset allocation is determined – and then the markets do what they want. Prices rise, fall, shift. Suddenly your portfolio no longer matches your risk profile. Does that have to be the case? Not necessarily. In this 5th lesson of our financial guide, you’ll find out how you can rebalance your assets with little effort – and when you can save yourself the trouble.

< Lesson 4 | Overview | Lesson 6 >

Short & sweet

• Rebalancing means adjusting your portfolio back to your target weighting after market fluctuations – no more and no less.
• If you hold a single global ETF and a fixed amount of Swiss francs as a low-risk component, you do not need rebalancing.
• It becomes relevant if the low-risk portion is defined as a percentage or if different asset classes in the portfolio perform differently.
• Checking once or twice a year is sufficient – readjustment is only worthwhile if there is a deviation of 5 percentage points or more, ideally via new deposits rather than sales.
• The so-called rebalancing bonus can bring a small additional return, but is a welcome side effect – the real argument remains risk control.

What is rebalancing – and do you even need it?

In the last lesson, you learned how to divide your assets into a high-risk and a low-risk part. The foundation of your portfolio is now in place. But the markets don’t stick to your plan: prices rise and fall, and the weightings shift with them. Rebalancing means restoring the original allocation.

An example: You have invested CHF 100,000 – 75% high-risk, 25% low-risk.

Now the stock markets collapse by 30%. Your risky portion falls from CHF 75,000 to CHF 52,500, while the CHF 25,000 in your savings account remains unchanged. Your total assets now amount to CHF 77,500 – and the low-risk portion is suddenly 32% instead of 25%. Your portfolio is much more conservative than you had planned.

To get back to 75/25, you would have to shift around CHF 5,600 from your savings account to the risky part – after a crash, of all times, when your gut feeling is against it. This is exactly what rebalancing is: a sober, rule-based correction that brings your portfolio back into line with your risk profile.

When you don’t need rebalancing

But before you create a rebalancing calendar now: Not every portfolio needs this correction. If you hold a single global ETF and define the low-risk portion as a fixed amount in Swiss francs – e.g. CHF 25,000 in your savings account, excluding your nest egg – you simply have nothing to rebalance. The ETF is adjusted internally by the provider on an ongoing basis. And a fixed amount does not move, no matter what the markets do. In the same crash, your CHF 25,000 stays where it is. Your risky part has become smaller, but your risk profile has not changed. No need for action.

Rebalancing therefore becomes relevant if the low-risk portion is defined as a percentage (as in the example above) or if the portfolio consists of several ETFs, such as in a core-satellite approach. In both cases, the weightings drift apart over time – and you have to actively readjust them. We will now take a look at how this can be done pragmatically and cost-effectively.

Rebalancing in practice: how to bring your portfolio into balance

Two questions arise: When should you rebalance? And how?

When to rebalance?

In theory, there are two approaches: calendar-based and threshold-based. With the calendar-based approach, you review your portfolio at fixed intervals – about once a year. With the threshold-based approach, you only take action if a deviation exceeds a certain value, e.g. 5 percentage points.

In practice, you can combine the two: You check your portfolio once or twice a year – and only intervene if the deviation is large enough. That’s enough. Rebalancing is not a daily business, but an occasional adjustment.

Three ways to bring your portfolio back into balance

There are basically three methods to bring your portfolio back in line with the target weighting:

• Rebalancing: You sell investments that are above their target weighting and use them to buy underweighted positions. Classic, but associated with transaction costs.
• Cash flow rebalancing: You direct new deposits – for example from your monthly savings amount – specifically into the underweighted positions. No need to sell, no additional costs. For investors in the savings phase, this is the most elegant approach, which we also follow.  
• Combination: In the event of minor deviations, readjust by making new deposits. Only in the event of major shifts do you actively reallocate.

Perfection is out of place

If you balance every position exactly to the franc, you will pay unnecessarily high transaction fees – especially for smaller amounts. Concentrate on the biggest deviations. If the overall distribution between the high-risk and low-risk parts is correct again, you can safely ignore minor imbalances within the high-risk part. The next time you make a savings deposit, you can simply adjust them again. As a rule of thumb: If a position deviates from its target weighting by more than 5 percentage points, an intervention is indicated. Below this, the effort is not worthwhile in most cases.

The following graphic shows what this looks like in concrete terms.

Good to know: Rebalancing in the deconsolidation phase, 3rd pillar and taxes

De-savings phase

What has been described so far relates to the accumulation phase – i.e. the time in which you build up your assets. But you can also rebalance your assets when you retire. The principle is simply reversed: Instead of targeting new deposits, you first sell positions that are above their target weighting. In this way, you bring your portfolio closer to the target weighting with each withdrawal – without additional transactions.

3rd pillar

If you hold part of your assets in the 3rd pillar: Rebalancing is usually automated here. You enter your risk profile once and the provider takes care of the rebalancing for you – often already included in the management fees. You still have to take care of rebalancing your free assets yourself.

Taxes

Rebalancing generally has no tax consequences for private investors in Switzerland. Capital gains on private assets are tax-free. The only exception: anyone who trades so frequently and on such a large scale that the tax authorities suspect commercial securities trading must pay tax on gains as income. This is not an issue for one or two rebalancing transactions per year.

The rebalancing bonus: a welcome side effect

The main aim of rebalancing is clear: to bring your portfolio back in line with your risk profile. However, there is a pleasant side effect that is known in specialist literature as the rebalancing bonus.

The principle behind it is simple: with rebalancing, you systematically buy investments that have fallen and reduce those that have risen. You are therefore acting anti-cyclically – and it is precisely this behavior that can generate a small additional return in the long term. Various studies put this effect at around 0.1 to 0.5 percentage points per year.

The honest flip side

The rebalancing bonus is not a law of nature. It works best when prices return to the mean after spikes – the so-called regression to the mean. In phases with long-lasting trends, however, rebalancing can slow you down because you sell winners too early. None other than Charlie Munger, Warren Buffett’s partner of many years, firmly rejected rebalancing for precisely this reason: systematically cutting winners slows down the growth of your portfolio.

Then there are the transaction costs. If you have to rebalance with an expensive house bank, you will quickly eat up the bonus again. The rebalancing bonus is therefore only worthwhile with a low-cost online broker where the fees per transaction are low.

Therefore: See the bonus as a welcome extra, not as a guarantee.

“The real argument for rebalancing is not the additional return – but risk control.“

– Partner offers –

Still looking for the right financial solution? Our recommendations – with attractive starting bonuses.

– – – – –

Conclusion

Rebalancing is not a third major investment principle alongside diversification and asset allocation – but the maintenance that ensures that your portfolio remains in line with your risk profile even after market fluctuations.

If you keep it simple – a global ETF and a fixed amount of Swiss francs in your savings account – you don’t need to worry about this. For everyone else: check once or twice a year and readjust if there are major deviations, preferably by making new deposits rather than selling. Perfection is out of place – as long as the overall allocation is correct, you can safely ignore minor imbalances.

In lesson 6, we take a closer look at the investment vehicle that crops up again and again in this guide: the ETF. What’s behind it – and why are we talking about a revolution in private investment?

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

This might also interest you

Investing in ETFs: The revolution for your investment

Asset allocation: the nuts and bolts of your investment

Updates

2026-04-14: 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 rebalancing 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 mistakes, forgotten important aspects and/or are no longer up to date, we would be grateful if you could let us know.

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.

< Lesson 3 | Overview | Lesson 5 >

Short & sweet

• Asset allocation – the division of your assets into a high-risk and a low-risk part – is the most important decision when investing your money.
• Before you invest, you need a liquidity reserve of three to six months’ expenditure. This is not part of the asset allocation.
• Your risk profile – consisting of risk appetite and risk capacity – determines the weighting. The more cautious of the two factors sets the framework.
• Broadly diversified equity ETFs are at the heart of the risky part. The simplest solution: a single global ETF. If you want, you can add according to the core-satellite principle.
• The low-risk part – bank deposits and possibly bonds with a high credit rating – offers hardly any return, but stability, flexibility and rebalancing ammunition.
• Make a note of your target allocation. It is your fixed star – and worth more than any hot investment tip in the next stock market crisis.

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:

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.

– Partner offers –

Still looking for the right financial solution? Our recommendations – with attractive starting bonuses.

– – – – –

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.

This might also interest you

Rebalancing: How to get your portfolio back on track

Diversification: The only “free lunch” when investing

Updates

2026-05-19: Table with historical returns and losses adjusted to CH ratios (inflation- and currency-adjusted).

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.

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