{"id":9485,"date":"2018-11-12T11:45:37","date_gmt":"2018-11-12T10:45:37","guid":{"rendered":"https:\/\/schweizerfinanzblog.ch\/diversification-not-all-eggs-in-the-same-basket\/"},"modified":"2026-06-12T00:00:00","modified_gmt":"2026-06-11T22:00:00","slug":"diversification","status":"publish","type":"post","link":"https:\/\/schweizerfinanzblog.ch\/en\/diversification\/","title":{"rendered":"Diversification: the only \u201cfree lunch\u201d in investing"},"content":{"rendered":"\n<p><strong>Why does a broadly diversified portfolio beat the supposedly smartest stock tip? The answer lies in one of the most powerful concepts of modern finance theory \u2013 and in the only genuine \u201cfree lunch\u201d in investing. In this third lesson of our financial guide, you will learn how to use diversification effectively in two stages, where its limits lie and what this means for building your wealth.<\/strong><\/p>\n\n<p class=\"has-text-align-center wp-block-paragraph\"><a href=\"https:\/\/schweizerfinanzblog.ch\/en\/investing-the-magical-triangle-of-investment\/\" target=\"_blank\" data-type=\"post\" data-id=\"259\" rel=\"noreferrer noopener\">&lt; Lesson 2<\/a> | <a href=\"https:\/\/schweizerfinanzblog.ch\/en\/invest-in-8-lessons\/\" target=\"_blank\" data-type=\"page\" data-id=\"776\" rel=\"noreferrer noopener\">Overview<\/a> | <a href=\"https:\/\/schweizerfinanzblog.ch\/en\/asset-allocation\/\" target=\"_blank\" data-type=\"post\" data-id=\"510\" rel=\"noreferrer noopener\">Lesson 4 &gt;<\/a><\/p>\n\n<link rel=\"stylesheet\" href=\"https:\/\/schweizerfinanzblog.ch\/wp-content\/themes\/schweizerfinanzblog\/components\/post-info-component\/post-info-component.css?v=3\">\n<div class=\"post-info-component sfb-post-info-autoren\">\n\t\t<span class=\"sfb-post-info-bilder\">\n\t\t<img decoding=\"async\" class=\"sfb-autor-bild\" src=\"https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2026\/07\/stefan_bw_round-autor-240.webp\" alt=\"Stefan Huser\" width=\"40\" height=\"40\" loading=\"lazy\"><img decoding=\"async\" class=\"sfb-autor-bild\" src=\"https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2026\/07\/toni_bw_round-1-autor-240.webp\" alt=\"Antun Brcina\" width=\"40\" height=\"40\" loading=\"lazy\">\t<\/span>\n\t\t<div class=\"sfb-post-info-text\">\n\t\t<div class=\"von-and-comments sfb-post-info-namen\">\n\t\tBy <a href=\"https:\/\/schweizerfinanzblog.ch\/en\/author\/stefan-huser\/\">Stefan Huser<\/a> and <a href=\"https:\/\/schweizerfinanzblog.ch\/en\/author\/antun-brcina\/\">Antun Brcina<\/a>\t<\/div>\n\t\t\t<div class=\"post-dates\">Updated on <time class=\"entry-date updated\" datetime=\"2026-06-12T00:00:00+02:00\">12.6.2026<\/time><\/div>\t\t<\/div>\n\t\t<a class=\"sfb-post-info-kommentare\" href=\"#comments\">8 Comments<\/a>\n\t<\/div>\n\n<link rel=\"stylesheet\" href=\"https:\/\/schweizerfinanzblog.ch\/wp-content\/themes\/schweizerfinanzblog\/components\/kurz-bundig-component\/kurz-bundig-component.css?v=2\">\n\n<div  id=\"NtmuFhb\" class=\"kurz-bunding mb-3\" style='background-color:#f9f9fa'>\n\t<div class=\"d-flex kurz-bunding-title\">\n\t\t<div>\n\t\t\t<img decoding=\"async\" class=\"kurz-bunding-icon\" src=\"https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2023\/01\/lifghtbulb2.png\">\n\t\t<\/div>\n\t\t<p class=''>\n\t\t\tIn a nutshell\t\t<\/p>\n\t<\/div>\n\n\t<div class=\"kurz-bunding-content\">\n\t\t<ul>\n<li class=\"whitespace-normal break-words pl-2\">Diversification is the only \u201cfree lunch\u201d in investing: you get the same return potential with less risk.<\/li>\n<li class=\"whitespace-normal break-words pl-2\">Before you invest, you should meet two basic requirements: an emergency fund covering three to six months of expenses and no outstanding consumer loans.<\/li>\n<li class=\"whitespace-normal break-words pl-2\">Stage 1: Spread your equities globally and across sectors \u2013 this eliminates company-specific risk.<\/li>\n<li class=\"whitespace-normal break-words pl-2\">Stage 2: If you want to go one step further, combine different asset classes \u2013 bonds and alternative investments such as real estate can reduce fluctuations or open up additional return opportunities.<\/li>\n<li class=\"whitespace-normal break-words pl-2\">With the core-satellite approach, you keep discipline in the foundation and leeway for targeted positions in the satellite.<\/li>\n<li class=\"whitespace-normal break-words pl-2\">Stock picking can boost returns \u2013 but can also lead to a total loss. That is why diversification is generally the more promising path \u2013 and it is scientifically sound.<\/li>\n<\/ul>\n\t<\/div>\n\t\t\t\n\t<\/div>\n\n<style>\n\t#NtmuFhb .kurz-bunding-content li::marker{\n\t\tcolor: #37c392;\n\t}\n\t#NtmuFhb .kurz-bunding-call-to-action a{\n\t\tbackground-color: #1bab78;\n\t\tcolor: #FFFFFF;\n\t}\n\n<\/style>\n<div id=\"toc_container\" class=\"no_bullets\"><p class=\"toc_title\">Contents<\/p><ul class=\"toc_list\"><li><a href=\"#Resisting_the_temptation_of_stock_picking\">Resisting the temptation of stock picking<\/a><\/li><li><a href=\"#What_is_behind_diversification_The_theory_in_a_nutshell\">What is behind diversification? The theory in a nutshell<\/a><ul><li><a href=\"#The_efficient_frontier_what_makes_an_optimal_portfolio\">The efficient frontier: what makes an optimal portfolio<\/a><\/li><\/ul><\/li><li><a href=\"#Diversification_in_practice_two_stages\">Diversification in practice \u2013 two stages<\/a><ul><li><a href=\"#Stage_1_Diversification_within_the_equity_asset_class\">Stage 1 \u2013 Diversification within the equity asset class<\/a><ul><li><a href=\"#Caution_limited_concentration_risk_even_in_ETFs\">Caution: limited concentration risk even in ETFs<\/a><\/li><li><a href=\"#Digression_currency_risk_an_issue_for_Swiss_investors\">Digression: currency risk \u2013 an issue for Swiss investors<\/a><\/li><li><a href=\"#Conclusion_on_diversification_stage_1\">Conclusion on diversification stage 1<\/a><\/li><\/ul><\/li><li><a href=\"#Stage_2_Diversification_across_asset_classes\">Stage 2 \u2013 Diversification across asset classes<\/a><ul><li><a href=\"#Bonds\">Bonds<\/a><\/li><li><a href=\"#Alternative_investments_as_an_add-on\">Alternative investments as an add-on<\/a><\/li><li><a href=\"#Conclusion_on_diversification_stage_2\">Conclusion on diversification stage 2<\/a><\/li><\/ul><\/li><\/ul><\/li><li><a href=\"#The_pragmatic_middle_way_the_core-satellite_approach\">The pragmatic middle way: the core-satellite approach<\/a><\/li><li><a href=\"#The_honest_downside_diversification_vs_concentration\">The honest downside: diversification vs. concentration<\/a><\/li><li><a href=\"#Conclusion\">Conclusion<\/a><\/li><li><a href=\"#You_might_also_be_interested_in\">You might also be interested in<\/a><\/li><li><a href=\"#Updates\">Updates<\/a><\/li><li><a href=\"#Disclaimer\">Disclaimer<\/a><\/li><\/ul><\/div>\n<h2 class=\"wp-block-heading\"><span id=\"Resisting_the_temptation_of_stock_picking\">Resisting the temptation of stock picking<\/span><\/h2>\n\n<p class=\"wp-block-paragraph\">Admittedly, it is not easy to resist the supposedly safe stock tip with rosy profit prospects from your circle of friends. But it is necessary all the same!<br\/><img loading=\"lazy\" decoding=\"async\" width=\"1\" height=\"1\" border=\"0\" src=\"http:\/\/pl01.owen.prolitteris.ch\/na\/plzm.a7dc1300-837b-437a-afe4-2b5757f39a1e\"\/><\/p>\n\n<blockquote>\n<p style=\"text-align: center;\"><strong><span style=\"color: #37c392;\">\u201c<\/span><\/strong>Hunting for individual stocks, also known as stock picking, can backfire badly.<strong><span style=\"color: #37c392;\">\u201d<\/span><\/strong><\/p>\n<\/blockquote>\n\n<p class=\"wp-block-paragraph\"><br\/>If you invest in an individual stock, substantial price losses with no prospect of a lasting recovery are unfortunately an all too realistic scenario. And this affects not only exotic stocks, but also well-known and established Swiss companies.<\/p>\n\n<p class=\"wp-block-paragraph\">The <strong>Swatch Group<\/strong>, once a popular stock on the Swiss stock exchange, has lost around 70% of its value since its peak in November 2013 \u2013 as the chart impressively shows. <\/p>\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1854\" height=\"1218\" src=\"https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2018\/11\/Chart_SwatchGroup.png\" alt=\"Swatch Group chart; diversification\" class=\"wp-image-16543\" srcset=\"https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2018\/11\/Chart_SwatchGroup.png 1854w, https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2018\/11\/Chart_SwatchGroup-768x505.png 768w, https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2018\/11\/Chart_SwatchGroup-1536x1009.png 1536w\" sizes=\"auto, (max-width: 1854px) 100vw, 1854px\" \/><figcaption class=\"wp-element-caption\">Swatch Group share price since 1997: despite interim highs of over CHF 600, the share was trading below its 2006 level at the beginning of 2026. (Source: Google Finance, 2 April 2026)<\/figcaption><\/figure>\n\n<p class=\"wp-block-paragraph\">The worst case is even more drastic: bankruptcy. <strong>Swissair<\/strong>, once the nation&#8217;s proud airline, was grounded in October 2001 \u2013 shareholders lost everything. Investors in <strong>Credit Suisse<\/strong>fared little better: once one of the largest banks in the world, it was taken over by UBS in an emergency deal for very little money in March 2023 after a crisis of confidence. Shareholders lost practically everything.<\/p>\n\n<p class=\"wp-block-paragraph\">By the way, the opposite of stock picking is not necessarily passive investing \u2013 actively managed funds also often hold hundreds of stocks and are therefore broadly diversified. The real counter-concept is <strong>concentration on a few stocks<\/strong>. And it is precisely this concentration that increases risk \u2013 without increasing returns.<\/p>\n\n<p class=\"wp-block-paragraph\">But concentration does not only show up in stock picking. If you keep all your wealth in a savings account, you are also concentrating on a single type of investment \u2013 with the difference that the threat here is not price losses but a gradual loss of purchasing power due to inflation. And the compound interest effect, which makes the decisive difference in the long run, remains practically ineffective. We showed how big this difference is over decades in <a href=\"https:\/\/schweizerfinanzblog.ch\/en\/invest-instead-of-saving-money\/\">Lesson 1<\/a> .<\/p>\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\"><\/p>\n<\/blockquote>\n\n<p class=\"wp-block-paragraph\">You will find out in the next chapter how diversification solves this risk \u2013 and what science has to say about it.<\/p>\n\n<h2 class=\"wp-block-heading\"><span id=\"What_is_behind_diversification_The_theory_in_a_nutshell\">What is behind diversification? The theory in a nutshell<\/span><\/h2>\n\n<p class=\"wp-block-paragraph\">This brings us to the <a href=\"https:\/\/en.wikipedia.org\/wiki\/Modern_portfolio_theory\" target=\"_blank\" rel=\"noreferrer noopener\">Modern Portfolio Theory (MPT)<\/a> by Harry Markowitz. He received the Nobel Prize in Economic Sciences in 1990 for his groundbreaking doctoral thesis.<\/p>\n\n<p class=\"wp-block-paragraph\">Markowitz was the first to provide theoretical proof of the positive effect of diversification on the risk and return of an overall portfolio. At the core of his theory is the distinction between <strong>systematic<\/strong> and <strong>unsystematic risk<\/strong>.<\/p>\n\n<p class=\"wp-block-paragraph\">All securities on the market are exposed to systematic risk \u2013 i.e. market risks such as rising interest rates, recessions or political instability. It cannot be diversified away and is simply the price of investing itself.<\/p>\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\"><\/p>\n<\/blockquote>\n\n<p class=\"wp-block-paragraph\">Unsystematic risk, on the other hand, is company-specific risk \u2013 such as management failures like in the VW emissions scandal. This risk can be reduced through diversification. And that is the crucial point: the market compensates you for systematic risk \u2013 but not for unsystematic risk. So if you bet on individual stocks, you take on unnecessary risk without being able to expect a higher return for it.<\/p>\n\n<div style=\"height:10px\">\n\t\n\t\n<\/div>\n<blockquote>\n<p style=\"text-align: center;\"><strong><span style=\"color: #37c392;\">\u201c<\/span><\/strong>Company-specific risk can be reduced through diversification \u2013 market risk cannot.<strong><span style=\"color: #37c392;\">\u201d<\/span><\/strong><\/p>\n<\/blockquote>\n\n<div style=\"height:20px\">\n\t\n\t\n<\/div>\n<p class=\"wp-block-paragraph\">You achieve the strongest diversification effects by combining investments with the lowest possible <strong>correlation<\/strong> . The range extends from +1 (identical movement) through 0 (independent movement) to \u20131 (opposite movement). Within the equity asset class, typical correlations are between 0.70 and 0.95 \u2013 the effect is real, but limited. Combining different asset classes brings much more, as we will see below.<\/p>\n\n<h3 class=\"wp-block-heading\"><span id=\"The_efficient_frontier_what_makes_an_optimal_portfolio\">The efficient frontier: what makes an optimal portfolio<\/span><\/h3>\n\n<p class=\"wp-block-paragraph\">Markowitz not only showed that diversification reduces risk \u2013 he also specified the minimum amount of risk that has to be taken for a given return. The result is the <strong>efficient frontier<\/strong> (German: Effizienzlinie).<\/p>\n\n<p class=\"font-claude-response-body break-words whitespace-normal leading-[1.7] wp-block-paragraph\">The efficient frontier is created by plotting all conceivable portfolio combinations on a chart \u2013 with risk on the X-axis and expected return on the Y-axis.<\/p>\n\n<p class=\"font-claude-response-body break-words whitespace-normal leading-[1.7] wp-block-paragraph\">Portfolios on the curve are <strong>efficient<\/strong>: they achieve the maximum possible return for a given risk. Portfolios below it are <strong>inefficient<\/strong> \u2013 too much risk for too little return. Portfolios above the curve are simply not attainable.<\/p>\n\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" src=\"https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2026\/04\/Schema_mit_Effizienzlinie_EN.png\" alt=\"Diversification_efficient frontier\" class=\"wp-image-16619\"\/><figcaption class=\"wp-element-caption\">Not every portfolio is equally good: the blue dots show inefficient portfolios \u2013 they deliver too little return for the risk taken. Only on the red efficient frontier is the ratio between risk and return right. Three points stand out: the MVP (minimum variance portfolio) at the lower end with the lowest risk, the MEP (maximum return portfolio) at the upper end with the highest return and, in between, the tangency portfolio \u2013 the portfolio with the highest return per unit of risk taken. (Source: own illustration)<\/figcaption><\/figure>\n\n<div style=\"height:10px\">\n\t\n\t\n<\/div>\n<blockquote>\n<p style=\"text-align: center;\"><strong><span style=\"color: #37c392;\">\u201c<\/span><\/strong>Diversification is the only free lunch in investing: the same expected return \u2013 but less risk.<strong><span style=\"color: #37c392;\">\u201d<\/span><\/strong><\/p>\n<\/blockquote>\n\n<div style=\"height:20px\">\n\t\n\t\n<\/div>\n<p class=\"wp-block-paragraph\">A global equity ETF such as the <strong>FTSE All-World<\/strong> is close to the MEP \u2013 the maximum return portfolio at the upper end of the efficient frontier. A single stock such as Swatch Group, on the other hand, lies to the right outside the curve: with the same or even lower expected return, you bear significantly more risk \u2013 without being compensated for it. That is exactly the \u201cfree lunch\u201d of diversification: not more return, but less risk for the same expected return.<\/p>\n\n<h2 class=\"wp-block-heading\"><span id=\"Diversification_in_practice_two_stages\">Diversification in practice \u2013 two stages<\/span><\/h2>\n\n<p class=\"wp-block-paragraph\">Theory is all well and good \u2013 but how do you actually put diversification into practice? And how far do you have to go? The old stock market wisdom that you should not put all your eggs in one basket comes in two stages. But first, you should meet one important requirement.<\/p>\n\n<p class=\"wp-block-paragraph\"><strong>The emergency fund.<\/strong> Before you invest, you should keep bank savings covering three to six months of expenses as a liquidity reserve. This reserve serves to cushion unforeseen expenses \u2013 for example in the event of job loss, illness or repairs \u2013 without you having to touch your investments. Paying off any <strong>consumer loans<\/strong>also takes priority, as their interest exceeds any realistic investment return. Only once you have built up this reserve and are free of consumer debt can you invest the rest of your wealth for the truly long term.<\/p>\n\n<h3 class=\"wp-block-heading\"><span id=\"Stage_1_Diversification_within_the_equity_asset_class\">Stage 1 \u2013 Diversification within the equity asset class<\/span><\/h3>\n\n<p class=\"wp-block-paragraph\">Let us start with the most important level: spreading your equities widely. A simple rule of thumb helps you find your bearings:<\/p>\n\n<ul class=\"wp-block-list\">\n<li><strong>No-go: individual stocks<\/strong> <br\/>If you hold only one share, you bear the full company-specific risk. A total loss \u2013 as with Swissair \u2013 is not a theoretical scenario.<\/li>\n\n\n\n<li><strong>Suboptimal: a few Swiss stocks<\/strong> <br\/>Many people tend to overweight domestic equities \u2013 the so-called home bias. Understandable, but structurally problematic: the Swiss market is heavily concentrated in three sectors (pharma, financials, consumer goods) and accounts for less than 3% of global market capitalisation.<\/li>\n\n\n\n<li><strong>Recommended: global and across sectors<\/strong> <br\/>A global ETF on the FTSE All-World or MSCI ACWI covers thousands of companies from all over the world. Company-specific risk is practically eliminated \u2013 and whether individual companies rise in the index or disappear simply need not concern you. <\/li>\n<\/ul>\n\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" src=\"https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2026\/04\/Diversifikation-chart_Einzeltitel_Index_EN.png\" alt=\"\" class=\"wp-image-16616\"\/><figcaption class=\"wp-element-caption\">Global beats Switzerland beats individual stocks. After 20 years, Swatch Group is in the red \u2013 while the broad world index has more than tripled the capital invested. A clear argument for global diversification in your portfolio. (Source: own illustration based on stock market data from Google Finance \/ SIX; period 6 January 2006 to 31 March 2026; SMI and Swatch Group in CHF, FTSE All-World in USD; excluding dividends, not adjusted for inflation)<\/figcaption><\/figure>\n\n<h4 class=\"wp-block-heading\"><span id=\"Caution_limited_concentration_risk_even_in_ETFs\">Caution: limited concentration risk even in ETFs<\/span><\/h4>\n\n<p class=\"wp-block-paragraph\">If you buy an <strong>MSCI World ETF<\/strong> and think you are perfectly diversified, you should take a closer look: around 70% of the index is made up of US equities, with over 20% in the seven largest technology companies alone \u2013 the \u201cMagnificent Seven\u201d (source: MSCI, as of April 2026). In addition, the MSCI World only covers large and mid-sized companies in developed markets \u2013 <strong>emerging markets<\/strong> such as China, India or Brazil are not included. If you want genuine geographical diversification, you have two options: either add an emerging markets allocation with a separate ETF, or go straight for an MSCI ACWI or FTSE All-World, which already include emerging markets. If you want to go one step further, you can also add a <strong>small-cap ETF<\/strong> to your portfolio \u2013 and thereby also capture smaller companies.<\/p>\n\n<p class=\"wp-block-paragraph\">Lawmakers also have diversification rules: for <strong>UCITS funds<\/strong> \u2013 the standard structure of most ETFs available in Switzerland \u2013 the so-called <strong>5-10-40 rule<\/strong>applies: no single position may exceed 10% of the fund&#8217;s assets, and all positions above 5% may not account for more than 40% in total. UCITS is not a must, but a quality label intended to protect investors. Other ETFs \u2013 such as those that track the best-known Swiss index, the SMI \u2013 do not meet the requirements, as Nestl\u00e9, Novartis and Roche together regularly account for more than 50% of the index. So if you want to invest in a well-diversified way, you should look out for the UCITS label.<\/p>\n\n<h4 class=\"font-claude-response-body break-words whitespace-normal leading-[1.7]\"><span id=\"Digression_currency_risk_an_issue_for_Swiss_investors\">Digression: currency risk \u2013 an issue for Swiss investors<\/span><\/h4>\n<p class=\"font-claude-response-body break-words whitespace-normal leading-[1.7]\">When you invest globally, you automatically invest in foreign currencies \u2013 around 60% of a FTSE All-World consists of US dollar stocks. What matters is not whether you buy your ETF in CHF or USD, but in which currency areas the companies in the fund operate.<\/p>\n<p class=\"font-claude-response-body break-words whitespace-normal leading-[1.7]\">Is that a reason to forgo global diversification? No. In the long run, the benefits of diversification clearly outweigh the drawbacks, and currency fluctuations partly even out over time. ETFs with currency hedging (\u201chedged\u201d) do exist, but they cost more and eat into returns over the long term. For most investors with a long horizon, currency risk is simply something to live with \u2013 and part of the package.<\/p>\n<h4><span id=\"Conclusion_on_diversification_stage_1\">Conclusion on diversification stage 1<\/span><\/h4>\n<p>Combined with a solid liquidity reserve in your bank account, you are already well positioned with stage 1 \u2013 a global equity ETF covers the essentials. But if you want to go one step further \u2013 reducing fluctuations or opening up additional return opportunities \u2013 you combine different asset classes. That is stage 2.<\/p>\n\n<h3 class=\"wp-block-heading\"><span id=\"Stage_2_Diversification_across_asset_classes\">Stage 2 \u2013 Diversification across asset classes<\/span><\/h3>\n\n<p class=\"wp-block-paragraph\">Even more effective than spreading within equities is combining different asset classes \u2013 because their correlations with each other are significantly lower than within the equity asset class. While equities from different markets still show correlations of 0.70 to 0.95, correlations between equities and other asset classes are often much lower \u2013 sometimes close to zero or even negative. However, correlations are not fixed; they can shift over time. The lower the correlation, the greater the diversification effect.<\/p>\n\n<h4 class=\"wp-block-heading font-claude-response-body break-words whitespace-normal leading-[1.7]\"><span id=\"Bonds\">Bonds<\/span><\/h4>\n\n<p class=\"font-claude-response-body break-words whitespace-normal leading-[1.7] wp-block-paragraph\">Bonds \u2013 in Switzerland usually called <a href=\"https:\/\/schweizerfinanzblog.ch\/en\/obligations-simply-explained-all-facts\/\" target=\"_blank\" rel=\"noopener\">Obligationen<\/a> \u2013 often move in the opposite direction to equities. In times of crisis, bond prices rise when everyone is looking for safety. However, this does not always apply: in 2022, both equities and bonds lost massive value when central banks raised interest rates drastically. So bonds are not a panacea, but they can be a valuable portfolio anchor over long periods.\u00a0<\/p>\n\n<p class=\"wp-block-paragraph\">A classic example is the 60\/40 portfolio: 60% global equities, 40% bonds. For decades, it has been considered a proven starting point for people with a balanced investment approach \u2013 more stability, but also lower returns than a pure equity investment. If you have a long investment horizon and are aiming for maximum growth, you will see bonds as a brake on returns. The right weighting ultimately depends on your individual risk profile \u2013 which is exactly the topic of the next lesson.<\/p>\n\n<h4 class=\"wp-block-heading text-text-100 mt-2 -mb-1 text-base font-bold\"><span id=\"Alternative_investments_as_an_add-on\">Alternative investments as an add-on<\/span><\/h4>\n\n<p class=\"font-claude-response-body break-words whitespace-normal leading-[1.7] wp-block-paragraph\">If you want to expand your portfolio beyond the classic asset classes, you will find further sources of diversification among alternative investments \u2013 with different return, risk and liquidity profiles.<\/p>\n\n<ul class=\"wp-block-list\">\n<li><strong>Real estate<\/strong><br\/><a class=\"underline underline underline-offset-2 decoration-1 decoration-current\/40 hover:decoration-current focus:decoration-current\" style=\"font-size: revert;\" href=\"https:\/\/schweizerfinanzblog.ch\/en\/real-estate-etfs-the-easiest-way-to-invest-in-concrete-gold\/\" target=\"_blank\" rel=\"noopener\">Real estate ETFs<\/a><span style=\"font-size: revert; color: initial;\"> are the most accessible way into \u201cbricks and mortar\u201d \u2013 without a mortgage, a condominium owners&#8217; association or administrative hassle. They provide ongoing income, but are sensitive to interest rate changes and are not completely decoupled from the stock markets.<\/span><\/li>\n\n\n\n<li><strong>Commodities<\/strong><br\/>Gold, oil and industrial metals often act as a hedge against inflation and have low correlations with equities. Gold in particular has behaved as a safe haven in many crises. However, commodities do not generate ongoing income such as dividends or interest.<\/li>\n\n\n\n<li><strong>Crowdlending <br\/><\/strong><a class=\"underline underline underline-offset-2 decoration-1 decoration-current\/40 hover:decoration-current focus:decoration-current\" style=\"font-size: revert;\" href=\"https:\/\/schweizerfinanzblog.ch\/en\/crowdlendig-p2p-switzerland-flying-high\/\" target=\"_blank\" rel=\"noopener\">P2P lending<\/a><span style=\"font-size: revert; color: initial;\"> \u2013 lending directly to private individuals or SMEs via online platforms \u2013 can generate attractive returns. But the risks are real: during the 2020 coronavirus crash, several platforms froze withdrawals, and at <strong>Estateguru<\/strong>, returns for many fell from double digits to close to zero \u2013 high default rates on German real estate loans continue to weigh on the platform to this day. Conceivable as a small add-on for risk-takers, but not as a core building block.<\/span><\/li>\n\n\n\n<li><strong>Collectibles<\/strong><strong style=\"font-size: revert; color: initial;\"><br\/><\/strong><a class=\"underline underline underline-offset-2 decoration-1 decoration-current\/40 hover:decoration-current focus:decoration-current\" href=\"https:\/\/schweizerfinanzblog.ch\/en\/splint-invest-reviews-investing-starting-at-50-eur\/\" target=\"_blank\" rel=\"noopener\">Collector&#8217;s items<\/a><span style=\"font-size: revert; color: initial;\">\u00a0\u2013 art, watches, whisky, sports cards \u2013 are considered inflation-resistant and have little correlation with the financial markets. Platforms such as Splint Invest let you invest from as little as EUR 50. The downsides: low liquidity, assets that are hard to value and no ongoing income.<\/span><\/li>\n\n\n\n<li><strong>Cryptocurrencies<\/strong>\u00a0<br\/>Bitcoin &amp; Co. are among the most volatile asset classes of all \u2013 if you invest here, you should be able to withstand strong fluctuations and only use money you could do without in an extreme case.<\/li>\n<\/ul>\n\n<h4 class=\"wp-block-heading font-claude-response-body break-words whitespace-normal leading-[1.7]\"><span id=\"Conclusion_on_diversification_stage_2\">Conclusion on diversification stage 2<\/span><\/h4>\n\n<p class=\"font-claude-response-body break-words whitespace-normal leading-[1.7] wp-block-paragraph\">All asset classes can usefully complement your portfolio \u2013 but none replaces the stable foundation of diversified equity ETFs. The golden rule: the more exotic the investment, the smaller its weighting should be.<\/p>\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\"><\/p>\n<\/blockquote>\n\n<h2 class=\"wp-block-heading\"><span id=\"The_pragmatic_middle_way_the_core-satellite_approach\">The pragmatic middle way: the core-satellite approach<\/span><\/h2>\n\n<p class=\"wp-block-paragraph\">The core-satellite approach elegantly resolves the apparent dilemma between diversification and concentration. The idea is simple:<\/p>\n\n<ul class=\"wp-block-list\">\n<li><strong>Core \u2013 70\u2013100% of the portfolio <br\/><\/strong>One or two broadly diversified ETFs \u2013 such as MSCI ACWI or FTSE All-World \u2013 form the stable foundation. There is no speculation here; this is where wealth is built over the long term. People with a more defensive risk profile can also add bonds to the core.<\/li>\n\n\n\n<li><strong>Satellite \u2013 optional 0\u201330% <br\/><\/strong>This is where there is room for targeted positions \u2013 individual countries or sectors, <a href=\"https:\/\/schweizerfinanzblog.ch\/en\/worthwhile-factor-investing\/\" data-type=\"post\" data-id=\"1934\" target=\"_blank\" rel=\"noreferrer noopener\">factor ETFs<\/a>, individual stocks or alternative investments such as real estate ETFs, P2P lending, collectibles or crypto. These positions can beat the market, but they do not have to. Losing them does not jeopardise the overall portfolio.<\/li>\n<\/ul>\n\n<p class=\"wp-block-paragraph\">The decisive advantage: you keep the discipline of diversification at the core without giving up the fun of active investing. And you always know what is at stake.<\/p>\n\n<h2 class=\"wp-block-heading\"><span id=\"The_honest_downside_diversification_vs_concentration\">The honest downside: diversification vs. concentration<\/span><\/h2>\n\n<p class=\"wp-block-paragraph\">Here comes a point that finance blogs often keep quiet about because it seems to undermine the main message. But it is part of the truth:<\/p>\n\n<p class=\"wp-block-paragraph\"><strong>Exceptional returns come from concentration, not diversification.<\/strong><\/p>\n\n<p class=\"wp-block-paragraph\">Warren Buffett achieved his excess returns because he bet heavily on a few carefully selected companies. Private equity funds \u2013 if they outperform the market at all \u2013 also do so through concentrated bets. Anyone who had bet everything on Nvidia or Apple in the past would be rich today.<\/p>\n\n<p class=\"wp-block-paragraph\">That sounds tempting \u2013 but it is not a realistic path for the vast majority. And for one simple reason: <strong>concentration increases not only the opportunities, but the risks to the same extent.<\/strong> For every Buffett, there are hundreds who backed the wrong horse and suffered total losses. Excess returns through concentration require sound analysis, a robust psychological profile, a lot of time \u2013 and above all a considerable amount of luck.<\/p>\n\n<p class=\"wp-block-paragraph\">For most private investors, the following therefore applies: diversification is not the path to super returns \u2013 but it is the path to solid, risk-adjusted returns over decades. And that is exactly what sustainable wealth building means in practice.<\/p>\n\n<p style=\"text-align: center;\"><span style=\"color: #37c392;\"><i><em>\u2013 Partner offers \u2013<\/em><\/i><\/span><\/p>\n<p class=\"has-text-align-center\" style=\"text-align: center;\"><em>Still looking for the right financial solution?&nbsp;<a href=\"https:\/\/schweizerfinanzblog.ch\/en\/our-recommendations\/\" target=\"_blank\" rel=\"noopener\">Our recommendations<\/a>&nbsp;\u2013 with attractive welcome bonuses.<\/em><\/p>\n\n<figure class=\"wp-block-image size-full\"><a href=\"https:\/\/schweizerfinanzblog.ch\/en\/our-recommendations\/\" target=\"_blank\" rel=\" noreferrer noopener\"><img decoding=\"async\" src=\"https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2026\/02\/Our-Favourites_1-1.png\" alt=\"Our recommendations\" class=\"wp-image-15756\"\/><\/a><\/figure>\n\n<p class=\"has-text-align-center\" style=\"margin-top: 0cm; text-align: center; background: white;\" align=\"center\"><em><span style=\"font-size: 13.0pt; font-family: Montserrat; color: #37c392;\">\u2013 \u2013 \u2013 \u2013 \u2013<\/span><\/em><\/p>\n\n<h2 class=\"wp-block-heading\"><span id=\"Conclusion\">Conclusion<\/span><\/h2>\n\n<p class=\"wp-block-paragraph\">Diversification is not a lazy compromise \u2013 it is the only proven \u201cfree lunch\u201d in investing: the same return potential, less risk. If you pile up individual stocks, you take on unnecessary risk without corresponding compensation in returns. And if you park your wealth in a savings account, you may avoid price fluctuations \u2013 but you pay a different price: a gradual loss of purchasing power due to inflation and missed compound interest.<\/p>\n\n<p class=\"wp-block-paragraph\">Even the first stage \u2013 a global equity ETF combined with a solid liquidity reserve \u2013 forms a sound foundation. If you want to go further, you also diversify across different asset classes \u2013 with a sense of proportion.<\/p>\n\n<p class=\"wp-block-paragraph\">The core-satellite approach combines the best of both worlds: a stable foundation thanks to diversification and room for targeted positions thanks to controlled concentration.<\/p>\n\n<p class=\"wp-block-paragraph\">In the fourth lesson of this financial guide, we pick up exactly where we left off and turn to <a href=\"https:\/\/schweizerfinanzblog.ch\/en\/asset-allocation\/\" target=\"_blank\" rel=\"noreferrer noopener\">asset allocation<\/a> \u2013 in other words, how to spread your total wealth across the various asset classes in line with your individual risk profile.<\/p>\n\n<p>You can find an overview of all lessons here:&nbsp;<a href=\"https:\/\/schweizerfinanzblog.ch\/en\/invest-in-8-lessons\/\">Learn to invest \u2013 in eight lessons<\/a>.<\/p>\n\n<h2 class=\"wp-block-heading\"><span id=\"You_might_also_be_interested_in\">You might also be interested in<\/span><\/h2>\n\n<link rel=\"stylesheet\" href=\"https:\/\/schweizerfinanzblog.ch\/wp-content\/themes\/schweizerfinanzblog\/components\/post-list-component\/post-list-component.css\">\n\n<div class=\"post-list-componenet pt-2 pb-4\">\n\t<div class=\"row\">\n\t\t\t\t\t\t\n\t\t <div class=\"col-xl-6\">\n\t\t\t <a class=\"text-decoration-none\" href=\"https:\/\/schweizerfinanzblog.ch\/en\/asset-allocation\/\">\n\t\t\t\t<div class=\"d-flex post-list-card\">\n\t\t\t\t\t<div class=\"post-list-image \">\n\t\t\t\t\t\t<div class=\"image-wrapper\">\n\t\t\t\t\t\t\t<img loading=\"lazy\" decoding=\"async\" width=\"1920\" height=\"1080\" src=\"https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2026\/06\/Titelbild_Asset-Allocation_final_EN.png\" class=\"attachment-1920x1297 size-1920x1297 wp-post-image\" alt=\"Asset allocation\" srcset=\"https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2026\/06\/Titelbild_Asset-Allocation_final_EN.png 2400w, https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2026\/06\/Titelbild_Asset-Allocation_final_EN-768x432.png 768w, https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2026\/06\/Titelbild_Asset-Allocation_final_EN-1536x864.png 1536w, https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2026\/06\/Titelbild_Asset-Allocation_final_EN-2048x1152.png 2048w\" sizes=\"auto, (max-width: 1920px) 100vw, 1920px\" \/>\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t\t<div class=\"post-list-title px-2 d-flex align-items-center\">\n\t\t\t\t\t\t<p class=\"\">Asset Allocation: The Be-All and End-All of Investing<\/p>\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t<\/a>\n\t\t<\/div>\n\t\t\t\t\n\t\t <div class=\"col-xl-6\">\n\t\t\t <a class=\"text-decoration-none\" href=\"https:\/\/schweizerfinanzblog.ch\/en\/rebalancing\/\">\n\t\t\t\t<div class=\"d-flex post-list-card\">\n\t\t\t\t\t<div class=\"post-list-image \">\n\t\t\t\t\t\t<div class=\"image-wrapper\">\n\t\t\t\t\t\t\t<img loading=\"lazy\" decoding=\"async\" width=\"1920\" height=\"1080\" src=\"https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2026\/06\/Titelbild_Rebalancing_final_EN.png\" class=\"attachment-1920x1297 size-1920x1297 wp-post-image\" alt=\"Rebalancing\" srcset=\"https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2026\/06\/Titelbild_Rebalancing_final_EN.png 2400w, https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2026\/06\/Titelbild_Rebalancing_final_EN-768x432.png 768w, https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2026\/06\/Titelbild_Rebalancing_final_EN-1536x864.png 1536w, https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2026\/06\/Titelbild_Rebalancing_final_EN-2048x1152.png 2048w\" sizes=\"auto, (max-width: 1920px) 100vw, 1920px\" \/>\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t\t<div class=\"post-list-title px-2 d-flex align-items-center\">\n\t\t\t\t\t\t<p class=\"\">Rebalancing: How to get your portfolio back in balance<\/p>\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t<\/a>\n\t\t<\/div>\n\t\t\t\t\n\t\t <div class=\"col-xl-6\">\n\t\t\t <a class=\"text-decoration-none\" href=\"https:\/\/schweizerfinanzblog.ch\/en\/worthwhile-factor-investing\/\">\n\t\t\t\t<div class=\"d-flex post-list-card\">\n\t\t\t\t\t<div class=\"post-list-image \">\n\t\t\t\t\t\t<div class=\"image-wrapper\">\n\t\t\t\t\t\t\t<img loading=\"lazy\" decoding=\"async\" width=\"1080\" height=\"620\" src=\"https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2020\/10\/Titelbild_Factor_Investing.png\" class=\"attachment-1920x1297 size-1920x1297 wp-post-image\" alt=\"Factor Investing\" srcset=\"https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2020\/10\/Titelbild_Factor_Investing.png 1080w, https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2020\/10\/Titelbild_Factor_Investing-768x441.png 768w\" sizes=\"auto, (max-width: 1080px) 100vw, 1080px\" \/>\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t\t<div class=\"post-list-title px-2 d-flex align-items-center\">\n\t\t\t\t\t\t<p class=\"\">Is factor investing worth it? The 5 key factor premiums tested<\/p>\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t<\/a>\n\t\t<\/div>\n\t\t\t\t\n\t\t <div class=\"col-xl-6\">\n\t\t\t <a class=\"text-decoration-none\" href=\"https:\/\/schweizerfinanzblog.ch\/en\/best-etfs-switzerland-and-global\/\">\n\t\t\t\t<div class=\"d-flex post-list-card\">\n\t\t\t\t\t<div class=\"post-list-image \">\n\t\t\t\t\t\t<div class=\"image-wrapper\">\n\t\t\t\t\t\t\t<img loading=\"lazy\" decoding=\"async\" width=\"1920\" height=\"1280\" src=\"https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2026\/01\/Titelbild_BesteETFs_2026_EN.png\" class=\"attachment-1920x1297 size-1920x1297 wp-post-image\" alt=\"Best ETFs Switzerland and global\" srcset=\"https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2026\/01\/Titelbild_BesteETFs_2026_EN.png 2048w, https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2026\/01\/Titelbild_BesteETFs_2026_EN-768x512.png 768w, https:\/\/schweizerfinanzblog.ch\/wp-content\/uploads\/2026\/01\/Titelbild_BesteETFs_2026_EN-1536x1024.png 1536w\" sizes=\"auto, (max-width: 1920px) 100vw, 1920px\" \/>\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t\t<div class=\"post-list-title px-2 d-flex align-items-center\">\n\t\t\t\t\t\t<p class=\"\">Best ETFs in Switzerland and Globally 2026: And the Winner Is\u2026<\/p>\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t<\/a>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n<\/div>\n<h2 class=\"wp-block-heading\"><span id=\"Updates\">Updates<\/span><\/h2>\n\n<p>2026-06-12: Explained the 5-10-40 rule in more detail and made minor adjustments.\u00a0<\/p>\n<p>2026-05-18: Added commodities and cryptocurrencies to the alternative asset classes.\u00a0<\/p>\n<p>2026-04-06: Article completely revised and updated.\u00a0\u00a0<\/p>\n\n<h2 class=\"wp-block-heading\"><span id=\"Disclaimer\">Disclaimer<\/span><\/h2>\n\n<p class=\"wp-block-paragraph\"><strong>Disclaimer:\u00a0<\/strong>Investing involves the risk of loss. You must decide for yourself whether or not you want to take these risks.<\/p>\n\n<p class=\"wp-block-paragraph\"><strong>Errors excepted:<\/strong> We have written this article on diversifying your investments to the best of our knowledge and belief. Our aim is to provide you as a private investor with information on finance that is as objective and meaningful as possible. Should we nevertheless have made mistakes, forgotten important aspects and\/or if information is no longer up to date, we would be grateful if you let us know.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Why does a broadly diversified portfolio beat the supposedly smartest stock tip? The answer lies in one of the most powerful concepts of modern finance theory \u2013 and in the only genuine \u201cfree lunch\u201d in investing. In this third lesson of our financial guide, you will learn how to use diversification effectively in two stages, [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":17399,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":""},"categories":[176,182,180],"tags":[316,318,312,315,314,313,317],"class_list":["post-9485","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-passive-investing","category-basics-en","category-investment-strategy","tag-correlation","tag-dispersion","tag-diversification","tag-free-lunch","tag-markowitz","tag-modern-portfolio-theory","tag-variance"],"acf":[],"_links":{"self":[{"href":"https:\/\/schweizerfinanzblog.ch\/en\/wp-json\/wp\/v2\/posts\/9485","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/schweizerfinanzblog.ch\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/schweizerfinanzblog.ch\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/schweizerfinanzblog.ch\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/schweizerfinanzblog.ch\/en\/wp-json\/wp\/v2\/comments?post=9485"}],"version-history":[{"count":17,"href":"https:\/\/schweizerfinanzblog.ch\/en\/wp-json\/wp\/v2\/posts\/9485\/revisions"}],"predecessor-version":[{"id":18657,"href":"https:\/\/schweizerfinanzblog.ch\/en\/wp-json\/wp\/v2\/posts\/9485\/revisions\/18657"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/schweizerfinanzblog.ch\/en\/wp-json\/wp\/v2\/media\/17399"}],"wp:attachment":[{"href":"https:\/\/schweizerfinanzblog.ch\/en\/wp-json\/wp\/v2\/media?parent=9485"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/schweizerfinanzblog.ch\/en\/wp-json\/wp\/v2\/categories?post=9485"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/schweizerfinanzblog.ch\/en\/wp-json\/wp\/v2\/tags?post=9485"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}