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What is Asset Allocation?

Asset allocation is the strategic decision about what percentage of a portfolio to hold in each major asset class — stocks, bonds, real estate, cash, alternatives — chosen to match the investor's return objective, risk tolerance and time horizon.

Research by Brinson, Hood and Beebower (1986, replicated many times since) found that 90%+ of the variation in a long-term portfolio's returns is explained by asset allocation, not by security selection or market timing. In other words, your stock-versus-bond split matters far more than which specific Swiss large-cap you picked.

Classic frameworks include the 60/40 portfolio (60% equities, 40% bonds), the all-weather portfolio (Ray Dalio: 30% equities, 55% bonds, 15% commodities and gold), and the age-based glide path used in pension funds and target-date funds (equity weight = 100 − age, or 110 − age for longer horizons).

Real-life asset allocation must reflect your total balance sheet: pillar 2 pension assets behave like fixed income, owning your own home is concentrated real-estate exposure, and stable employment income is similar to holding a giant inflation-linked bond. Build the brokerage portfolio to complete the picture, not to mirror it.

Example

A 35-year-old Swiss professional with CHF 80,000 in pillar 2 (behaving like bonds) and CHF 50,000 in brokerage targets 70% global equities. He puts the full CHF 50,000 brokerage into a global equity ETF — combined with pillar 2, his total financial portfolio is 38% equities/62% bonds, which is below target so he raises his monthly ETF contribution.

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Frequently asked questions

How much in stocks?+

Common rule: 100 − age in equities; modern advice goes higher given longer life expectancy and pillar 2 ballast.

Does asset allocation include cash?+

Yes — emergency funds and money market are part of total allocation, though usually small for accumulators.

Should I change it over time?+

Yes — gradually de-risk as your horizon shortens, e.g. reduce equities by 1 percentage point per year approaching retirement.