Category: Blog Articles

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In recent years, actively managed certificates (AMCs) have gained increasing popularity. This trend is due to both the growing offerings from wealth managers and the numerous benefits that AMCs provide. In this blog post, we would like to introduce you to the main advantages of AMCs and explain how Everon can offer you diverse investment strategies with them.

What are Actively Managed Certificates?

An Actively Managed Certificate (AMC) is an investment instrument that combines the features of structured products and actively managed funds. AMCs provide a framework for various investment strategies, combining characteristics of Exchange Traded Funds (ETFs), bonds, and managed funds. An AMC represents a basket of assets and offers investors a percentage return. These certificates can be traded on secondary markets or exchanges.

Unlike ETFs, an AMC provider is not obligated to purchase the assets. AMCs are linked through contracts that serve as synthetic securities, enabling a flexible composition of assets. An AMC can invest in various asset classes, such as stocks, bonds, commodities, cryptocurrencies, and more.

The Advantages of AMCs

Low minimum investment

Actively managed certificates provide access to a wide range of underlying assets with low investment amounts. These underlying assets can include investments in private markets, funds, and many more. This allows even small investors to invest in assets that are often reserved for institutional investors.

Diversification and Flexibility

AMCs offer great variety as they enable the composition of a broad asset basket in a single certificate. Investors can benefit from wide diversification, reducing dependency on individual assets. Additionally, AMCs can be set up by Everon within three weeks, offering extra flexibility.

Liquidity


Although some assets in an AMC may be long-term and illiquid, an AMC still offers high liquidity. This is because an AMC can be sold on the secondary market, reducing illiquidity. This option makes AMCs very flexible and attractive for investors, as they can access their investment at any time. AMCs are also very transparent regarding the investment. Investors can constantly track the performance of their investment using the ISIN number.

Tradability and Cost Structure

The structure of AMCs allows for easy reallocation of the underlying assets. This means the wealth manager can quickly and efficiently respond to market changes and adjust the portfolio accordingly without the investor needing to take action. Trading costs and fees for AMCs are generally transparent and clearly defined. This makes it easier for investors to understand and plan the total costs of their investments, supporting decision-making.

Reading tip: Costs and tax treatment of actively managed certificates

Conclusion

AMCs offer a variety of advantages and have gained significant popularity in recent years, particularly due to their flexibility and diversification options. Especially for foreign investors who must pay taxes on capital gains, AMCs are attractive as they have no cross-border restrictions. Investors looking for a flexible structure will find the ideal solution in AMCs.

Are you a financial intermediary interested in setting up an AMC? Contact us

Reading Time: 10 minutes

Over 90 percent of all people want to lead a self-determined life. Personal pension planning is the key to maintaining the quality of life they are accustomed to in retirement. This applies not only to wealthy Swiss people, but to all income brackets.

In order to achieve personal goals and ensure financial security, sound financial advice is crucial at certain stages of life. So what events call for expert advice? What are the advantages of individual financial advice and what should I look out for when searching for the right expert? This article provides some initial guidance.

The most important facts in brief

• The course for wealth accumulation is set at certain stages of life
• The title of financial advisor is not protected – this makes selection difficult
• Professional financial advice is tailored to your personal situation
• Sound expert advice is not available for free
• Professional financial advice is followed by equally professional wealth management

Expert advice is particularly important in certain phases of life

Private financial planning has become very complex due to volatile markets. In certain phases of life, it is particularly important to plan your finances with foresight and sound advice.

• Entry into professional life: In addition to planning budgets, the first thing to do here is to create a reserve for unforeseen events. Furthermore, the possibilities of the three pillars of Swiss pension provision should be known and utilized.
• Professional career: Solid asset accumulation requires time. Investment strategies must be adapted to changes in income. With higher incomes, the issue of tax optimization also becomes more important.
• Starting a family: In addition to your own, you now need to plan for the protection of all family members. This includes life insurance and disability insurance. The children’s education also needs to be taken into account.
• Home ownership: Are you looking to buy your own property? Financing involves high and long-term liabilities. Once affordability has been checked, the financing concept determines how much the property will ultimately cost.
• Retirement provision: Only those who use the time until retirement efficiently will achieve the goal of financial independence in old age. This includes, for example, making optimum use of the opportunities offered by pillar 3a of the Swiss pension system.
• Retirement: Perfect asset management ensures a reliable income stream in retirement.
• Asset transfer: If necessary, optimal inheritance planning is part of comprehensive wealth management. Last but not least, this minimizes any inheritance tax.
• Divorce : Separation is one of life’s unpredictable events. It is therefore difficult to make sensible arrangements for all financial matters without outside help. In Switzerland, the division of assets normally applies, according to which the assets acquired during the marriage are divided. Pension fund contributions saved during the marriage are also divided. Furthermore, the issues of debts, insurance and inheritance law must be clarified. Overall, the financial situation needs to be completely reassessed and replanned.

What you should look out for when choosing your investment advice

Despite the serious effects of the 2008 financial crisis, the financial literacy of Europeans has hardly improved since then. According to a 2017 study by Allianz Insurance, the Swiss are among the leaders, but there are major gaps, particularly when it comes to assessing risks.

Animportant result: the efficiency of financial decisions increases with knowledge about investments and their risks. This means that qualified advice pays off. Choosing the right financial advisor is therefore vital.

Recognized educational qualification of the financial advisor as a minimum requirement

As the title of financial advisor is not protected in Switzerland, as in many other countries, customers should look out for recognized educational qualifications of their potential advisors. These are for example

• Diploma Financial Advisor IAF
• Financial planner with federal certificate
• MAS Financial Consultant

In addition to theoretical training, the advisor should of course have sufficiently proven their qualifications in practice. After all, experience in the financial sector is an important indicator of the advisor’s ability to deal with different market situations and develop individual strategies.

When selecting a suitable financial advisor, also pay attention to the following criteria:

• Independence: an independent advisor can provide objective recommendations as they are not tied to specific financial products or product providers.
• Transparency of fees: Clarify how the financial advisor is remunerated. Transparent fee structures help to avoid conflicts of interest.
• Personal advice: The advisor should respond to your individual needs and goals and offer tailor-made solutions.
• References and reputation: Find out about other clients’ experiences with the advisor and research their reputation in the industry.
• Clear communication: A competent advisor will be able to explain complex issues in a simple and understandable way so that you can make informed decisions.
• Regular review: The advisor should offer regular reviews of your portfolio to ensure that your investments continue to meet your objectives.

You should always be suspicious if the advisor makes contact with potential clients without prior inquiry. If no witnesses are allowed during the consultation, if no information is provided about possible risks, if a savings instrument is formally imposed or if blank forms are to be signed, these are signs of dubious financial advice.

Financial advice is organized differently

In Switzerland, there are various types of financial advisory services that help people plan and manage their finances. The main types are

Independent financial advisors

Independent financial advisors offer financial services and financial products from various providers. They act in the interests of their clients and are not tied to specific products or companies. They receive their remuneration either in the form of fee-based advice from clients or as commission from the product providers. As advisors normally only focus on a limited selection of product providers, customers should not take the terms independent and free too literally.

Banks and financial institutions

Banks and financial institutions also offer financial advisory services. These range from asset management and pension provision to financial advice. Customers should note that the advice may not always be independent. Alternatively, some banks offer investment advice on a fee basis.

Asset management

Asset managers offer professional asset management services. They analyze the financial situation of their clients, develop investment strategies, select investment products and continuously monitor the performance of the portfolio. Today, professional asset management is no longer reserved for very wealthy clients. Innovative start-ups have now made competent asset management accessible to a broad customer base using digital financial tools. With Everon, for example, it is possible to get started with assets as low as CHF 50,000.

Tax advice

Tax advisors offer their clients advice on optimizing their tax situation. They help them to minimize their tax burden by applying legal tax-saving strategies.

Insurance

Insurance advisors help clients find the right insurance cover for their needs. They analyze risks, recommend suitable insurance products and assist with claims handling in the event of an insurance claim. They therefore generally only cover part of their customers’ financial situation.

Reading tip: Investing money in Switzerland: investment strategies and the 1×1 of investing

The process of professional financial advice

Before you seek advice, document your financial situation in detail. This includes bank statements, information on pension accounts, investment dispositions and details of mortgages and insurance policies.

Also determine what financial and personal goals you would like to achieve and try to plan a timeframe for achieving them.

Comprehensive financial advice usually includes the following steps:

• Taking stock of the personal situation: the advisor prepares a comprehensive analysis of the client’s financial situation, including income, expenses, existing assets, debts and insurance.
• Definition of goals: The advisor talks to the client in detail about their financial goals, needs and investment objectives.
• Risk analysis: This involves determining how much risk the client is prepared to take in order to take this into account in the investment strategy.
• Financial analysis: The financial advisor prepares a personal analysis based on the parameters determined.
• Investment recommendation: Based on the information from the previous steps, the advisor will propose an investment strategy to the client that is tailored to their individual goals and risk tolerance. Depending on the structure of the investment advice, the investment strategy may already contain specific product recommendations.

Reading tip: Family office – definition, services & for whom it is worthwhile

Different remuneration models in investment advice

Remuneration models can essentially be divided into two main categories: commission-based and fee-based financial advice.

• Commission-based financial advice: In this case, the advisor refinances his services via commissions for brokered financial products. This can lead to a conflict of interest if the broker favors products with high commissions. Specific disclosure of the calculated costs (commissions) contributes to the necessary transparency.
• Fee on assets under management: If the advisor also takes on the subsequent asset management, remuneration is often based on a percentage fee of the assets. This averages around one percent and is known as a management fee.
• Fee-based advice: Here, the advisor is paid directly by the client for their services. This model can be financially worthwhile for very wealthy investors, as it offers a transparent cost structure and can reduce conflicts of interest. Unless flat rates are agreed, hourly rates of around CHF 200 are common.

When weighing up the costs and benefits, investors should consider the cost of the advice in relation to the quality of the service and the expected return.

Important: The development of private assets is largely dependent on the efficiency of the investment advice and ongoing asset management. If, for example, the possibilities of pillar 3a and the tax structuring options are used optimally, this can ultimately pay off more than any fee costs and asset management fees saved.

Reading tip: Fees when investing: Asset management, portfolio, shares, funds & co.

No financial planning without sound risk management

Risk management is an indispensable part of financial planning. It aims to identify potential risks, assess them and develop measures to reduce or eliminate them. This helps to minimize financial losses, protect the capital base and ensure long-term financial success.

Financial advisors can provide valuable support in identifying and implementing risk management strategies. They have the expertise and experience to identify, assess and prioritize risks. They can also propose customized solutions that are tailored to the client’s specific needs and objectives.

Key elements of risk management strategies include

• Diversification: one of the most basic risk mitigation strategies is to diversify the portfolio to spread risk and minimize the impact of market fluctuations.
• Insurance: The use of insurance to cover specific risks, such as occupational disability, invalidity or death, can help to limit financial losses in the event of a claim.
• Emergency fund: Setting up an emergency fund ensures that unforeseen expenses or loss of income can be managed without having to fall back on long-term savings targets or investments.
• Regular review and adjustment: Financial markets and personal circumstances are constantly changing. Regular review and adjustment of risk management strategies is therefore essential to ensure that they continue to meet needs and objectives.

Risk management is an integral part of financial planning that not only serves to minimize potential financial losses, but also helps to achieve financial goals. The support of experienced financial advisors is extremely valuable in developing and implementing effective risk management strategies.

Reading tip: Investing in volatile markets: Risk strategies for investors

From financial advice to wealth management

Investment advice and asset management are two services that differ in terms of responsibility and scope of service. These differences have an impact on the rights, obligations and liability of the service providers.

Investment advice vs. asset management

Investmentadvice offers investment proposals and advice, whereby the decision on the investment ultimately lies with the client . The advisor bears no direct responsibility for the investment decisions and their consequences.

With asset management, on the other hand, the client grants the asset manager a power of attorney to make investment decisions on their behalf and for their account. Once an investment strategy has been defined in the advisory meeting, the asset manager assumes full responsibility for the portfolio and its performance. This includes the selection, purchase and sale of investments based on the agreed strategy.

Liability and responsibility

Liability is complex in the event of “incorrect advice” in investment advice that leads to losses. In principle, responsibility for the investment decisions made lies with the client, as it is the client who makes the final decisions. However, the advisor can be held liable if there is evidence of incorrect advice or a lack of information. This applies in particular if the advice was not in line with the client’s interests.

In asset management, the asset manager bears a greater responsibility and therefore also a higher liability risk. As the manager makes independent investment decisions, he is directly responsible for the performance of the portfolio. In the event of proven misconduct or mismanagement, the asset manager can be held accountable.

Asset management: implementation of investment advice

Professional financial advice pays off if it is implemented just as professionally. First of all, appropriate financial products must be found for implementation. Once the customer has accepted the corresponding investment recommendations of their advisor, they commission the purchase of investment instruments such as shares, bonds or investment funds. If you have only taken advantage of pure investment advice, you execute the orders yourself or outsource the execution and management to another service provider – an asset management company.

By separating investment advice and asset management, customers avoid potential conflicts of interest between advisors. However, this is often not feasible in practice or is unprofitable in terms of the overall calculation due to the pricing. Performance would suffer too much as a result. Normally, this only pays off for very high assets.

Nevertheless, asset management companies such as Everon prove that there is no need to forego sound investment advice and asset management even for medium-sized assets. Everon uses digital financial tools to manage assets from as little as CHF 50,000 at reasonable fees. The fact that decent returns can be achieved with this approach is demonstrated by the awards received from the business magazine Bilanz in recent years.

Once the personal investment strategy has been implemented, the portfolio is monitored by the asset management company and continuously adjusted to the prevailing market conditions and the client’s objectives. This means that financial advice and asset management also focus on financial security when new life situations arise and recommend or take appropriate measures. Competent asset management companies are characterized by transparent reporting on performance and fees.

Reading tip: Asset management mandates: definition, importance & advantages

Conclusion

Professional financial advice is essential in certain phases of life to ensure financial goals and security. It is important to choose a qualified and experienced financial advis or who takes the customer’s individual situation and needs into account. When choosing an advisor, customers should look for officially recognized educational qualifications, independence, transparency of fees and references.

Private individuals can find easy-to-understand information on financial topics on the website of the Swiss Financial Market Supervisory Authority (FINMA). FINMA also maintains lists that warn investors of dangers on the financial market.

In addition, a sound risk management strategy is essential to minimize financial losses and ensure long-term success. For middle-income investors, wealth advice and asset management are often provided by a single service provider so that performance is not excessively burdened by fees. Qualified advisors are characterized by transparent reporting and regular portfolio reviews.

Reading Time: 10 minutes

As an investor, you are constantly faced with the challenge of exploiting opportunities for returns while at the same time reducing risk. The much-cited portfolio diversification is a crucial element here. This means that instead of putting all their eggs in one basket, investors invest in a range of different financial products and asset classes. This allows them to spread their chances of success across several pillars and achieve a stable result in the long term.

Mastering diversification is crucial to optimizing the performance and resilience of a portfolio. The strategy offsets risky or temporarily negative developments in certain investments.

Translated, diversification means “variety”. But how can the required diversity in capital allocation be implemented? To do this, it is essential to find out about the various forms, such as asset classes or regions. This article will give you an initial overview.

The most important facts in brief

• Diversification means using variety to reduce investment risks
• Spreading risk is vital for institutional and private investors alike
• Equity diversification: exploiting opportunities with acceptable risk
• Personal requirements determine the diversification strategy
• ETFs enable simple and cost-effective diversification

Diversification: definition, explanation and example

The well-known saying advises against putting all your eggs in one basket, thus emphasizing the importance of spreading risk. This concept is commonly referred to as diversification in the financial sector. Research and literature repeatedly emphasize the importance of diversified asset allocation – spreading investments across different asset classes. It is crucial for optimizing the risk-return dynamic and achieving sustainable investment success.

The main aim of diversification is to reduce risk by spreading investments across different instruments. This reduces the impact of unfavorable developments in a single investment. This basic principle is based on the idea that different assets often exhibit different and uncorrelated price movements. This also applies within the individual asset classes. Diversification in equities, for example, leads to a balanced risk/return ratio.

Correlation is therefore at the heart of diversification. This indicates how the returns of different assets or asset classes relate to each other. A positive correlation indicates that the returns move in step with each other, while a negative correlation indicates opposite movements. A portfolio with low correlations between the individual investments offers greater diversification and therefore lower risk.

Portfolio diversification and the Nobel Prize

in 1952, the American economist Harry Markowitz presented his portfolio theory, in which he set out the scientific justification and quantification of risk diversification in investments.

He determined the securities and their proportion required for an optimal portfolio in order to minimize risk without compromising the expected return. The scientist took into account the preferences of investors with regard to risk, return and liquidity.

Markowitz was awarded the Nobel Prize in Economics in 1990 for this work.

Reading tip: Investment strategy in focus: The power of the income strategy

Risk management is vital for both institutional and private investors

Diversification serves as protection against the unpredictability and volatility of the financial markets. By spreading investments across different asset classes, such as equities, bonds, real estate and commodities, investors can spread risk and minimize the impact of adverse market movements on their overall portfolio.

Diversification is also a powerful tool for optimizing risk-adjusted returns. By diversifying the portfolio, investors can potentially achieve a more favorable balance between risk and return, which optimizes the overall performance of their portfolios. This risk management approach is a cornerstone of a sound long-term investment strategy.

Diversification is not limited to a specific group of investors. The principles of diversification apply from individual investors seeking to build a secure financial future to institutional investors managing large portfolios.

• Retail investors, especially those with long-term financial goals, can benefit significantly from the protective shield of diversification. By diversifying their investments, individuals can navigate the volatility of financial markets with greater confidence. They know that their portfolios are protected against unforeseen market downturns.
• Institutional investors, such as pension funds, foundations and asset management companies, use diversification to protect the financial interests of their stakeholders. Finally, the size of institutional portfolios requires careful risk management and makes diversification an indispensable tool.

Reading tip: Investing in volatile markets: Risk strategies for investors

Portfolio diversification vs. cluster risks: These are the scenarios

To illustrate the differences between a diversified portfolio and a portfolio with bulk risk, two hypothetical investment portfolios are compared below.

Two investors have assets of CHF 500,000 and are invested in the financial market as follows:

• Investor A: The portfolio is focused on technology stocks within one geographical region.
• Investor B: The investments are spread across various asset classes (equities, bonds and commodities) and various sectors and are geographically diversified.

The potential differences in performance and risk exposure between these two portfolios are significant.

While a diversified portfolio may generate more stable and consistent returns due to its exposure to different areas of the market, a pooled portfolio may face increased volatility and potential losses if the concentrated sector or region experiences a downturn.

The following scenarios are hypothetical. However, they illustrate the different impacts.

• Scenario 1 – negative market development: In a scenario where the market plummets by 30 percent, Portfolio B’s diversified holdings can mitigate the impact, resulting in a value decline of only 10 percent. Portfolio A, on the other hand, which is subject to cluster risk, could suffer a 35% decline, highlighting the increased vulnerability of concentrated portfolios in unfavorable market conditions.
• Scenario 2 – normal market development: If the market as a whole rises by 5 percent, the diversified portfolio A can record an increase in value of 3 percent and thus benefit from the general market upswing. In contrast, Portfolio A’s concentrated exposure could lead to a 7% increase in value, boosted by the positive performance of the specific sector in which it is heavily invested.
• Scenario 3 – positive performance: If the market generally rises by 15 percent, Portfolio B’s diversified approach can lead to an 8 percent increase in value as it absorbs the general market growth. In contrast, Portfolio A’s concentration can achieve a substantial 20% increase in value as it benefits from the strong performance of its focus sector.

Understanding the opportunities and risks associated with both portfolio strategies is of paramount importance. A diversified portfolio offers stability and the potential for consistent returns. However, it can limit opportunities in the event of exceptional performance in a particular sector or region.

On the other hand, a concentrated portfolio offers the opportunity for substantial gains if the specific focus area experiences exceptional growth. However, it carries the risk of significant losses if that sector or region faces challenges.

Reading tip: Portfolio rebalancing – why it’s so important

Types of diversification in the portfolio

There are different types of diversification that investors can implement in their portfolio. These types differ in the way in which the portfolio is diversified.

First of all, diversification can be divided into three areas:

• Horizontal diversification: horizontal diversification refers to spreading the portfolio within an asset class. This means that investors invest their money in different securities within the same asset class. For example, within equity diversification, an investor can invest in shares of companies from different industries to minimize risk.
• Vertical diversification: Vertical diversification refers to spreading the portfolio across different asset classes. Investors can invest their money in different asset classes such as equities, bonds, commodities or real estate. The risk is reduced as the different asset classes usually perform differently.
• Geographical diversification: This refers to the distribution of investments across different countries. Investors invest their money in companies from different countries in order to minimize risk. In this way, they can benefit from economic developments in different countries and offset risks arising from economic problems in certain countries.

Diversification by asset class

Spreading assets across different asset classes is one of the key instruments of risk management.

The main asset classes are

• Equities: With equities, investors invest in companies. They can be divided into different categories, such as growth stocks, dividend stocks or blue chip stocks. Experience has shown that investors achieve higher returns with equities than with fixed-interest securities, although this is associated with higher risks.
• Bonds: These are debt instruments issued by governments, companies or other organizations. Investors receive regular interest payments and the capital is repaid at the end of the term. Bonds are generally less risky than shares, but offer lower returns in the long term.
• Real estate: Real estate is considered to be quite stable in value. As the investments are more difficult to liquidate, investors should already have a certain amount of financial assets before committing to real estate for a longer period of time. In addition to buying your own home, investments in REITs (real estate investment trusts) or real estate funds are a good option.
• Commodities: These include gold, silver, oil and agricultural commodities. Commodities can serve as a hedge against inflation and currency fluctuations, as their value is generally independent of the equity and bond markets.
• Alternative investments: These include hedge funds, private equity funds, works of art, collector’s items and other alternative forms of investment.

Industry and sector diversification

Sector diversification is used to offset negative developments in specific sectors.

Well-known sectors are

• Technology
• Healthcare
• Energy
• Financials
• Consumer goods
• Industry

Reading tip: Investing money in Switzerland: investment strategies and the 1×1 of investing

Risk diversification depending on investment strategy and investment horizon

In order to determine a suitable investment strategy, the investment horizon and individual risk tolerance are decisive.

• Defensive: The focus here is on preserving value or generating a secure income. This conservative strategy is aimed at investments such as fixed-interest securities or fixed-term deposits. The investment horizon tends to be short.
• Balanced: The strategy includes a balanced mix of fixed-income securities and a small proportion of high-yield investments such as equities. The aim: capital growth with manageable risk.
• Growth: The strategy is usually accompanied by a predominantly equity component. The focus is on high returns, for which higher risks are also taken.

Diversification within the asset class

Within an asset class, differentiated parameters must be taken into account for meaningful diversification. This is explained in the next two sections for the important asset classes equities and bonds.

Equities: volatility and correlation

Volatility is the standard deviation of price movements. Even a portfolio that only contains equities with high volatility can be less risky overall. This is because, with the right mix, some shares can fall sharply on one day while others rise in price. This means that a portfolio with relatively high-risk investments can increase returns and offset the risk taken with low-risk stocks.

The correlation coefficient is decisive for the relationship between securities. It ranges between -1 and 1. A correlation coefficient of -1 means that the shares move in exactly the opposite direction, with one share falling while the second rises to the same extent. A value of 1 shows that the shares behave identically and have an identical return pattern. This high correlation between the shares implies similar behavior in their movements. A value of 0 means that there is no linear correlation at all.

Shares within a sector generally have a very high correlation as they behave similarly due to their dependence on the sector. Diversification can mitigate this dependency and reduce risk by selecting stocks with a lower correlation.

Bonds: issuer risk

In the supposedly safe asset class, the risk is primarily the default of the debtor. Diversification here can mean investing in government bonds from countries with good ratings and, at the same time, increasing returns with higher risk by investing in corporate bonds.

Implement diversification simply and cheaply: ETFs

Investing individually in shares and bonds can be both time-consuming and costly. Fund companies take over this process. An equity fund that combines the largest companies in industrialized countries is a good starting point for many. ETFs that track established share indices, which in turn reflect the economic performance of a country, region or sector, are particularly cost-effective. An ETF portfolio thus enables simple and cost-effective diversification for a wide range of investors.

Reading tip: The most important Swiss equity indices at a glance

Risk minimization: opportunities and limits

Past experience has shown that in times of high market volatility, effective diversification protects portfolios from significant downturns. Asset allocation strategies tailored to clients’ risk tolerance and investment objectives have led to sustainable returns even in a difficult economic environment.

However, the principle that risk and return are fundamentally interdependent also applies here. If you try to compensate for every supposed risk, you will end up with no return. Investors must therefore be aware that systematic risk in particular can never be completely ruled out.

Systematic vs. unsystematic risk

Diversification is a powerful tool for minimizing risk. Nevertheless, there are clear limits, especially in connection with systematic and unsystematic risk. Systematic risk, also known as market risk, relates to the overall market or economy and cannot be “diversified away”. On the other hand, unsystematic risk, also known as specific risk, can be mitigated by diversification in relation to individual assets or sectors. In the case of shares, for example, this risk consists of the factors that influence the management of a company.

Reading tip: Stock market crash: stock market down – how should you react?

Implementing diversification strategies: Practical implementation

The diversification of a portfolio can only succeed if the investment strategy has been determined. This essentially depends on the investment horizon and personal risk appetite. This results in a sensible equity allocation, which should be in the context of age, assets and income.

When selecting asset classes, the main focus is initially on equities, bonds, commodities and, where appropriate, real estate. When choosing, it is advisable to invest in different sectors and regions. Exchange-traded funds give private investors very simple and cost-effective access to various asset classes and provide diversification at the same time.

Those who invest directly in individual securities take correlation and volatility into account when making their selection. A correlation analysis helps to understand the dependencies between the individual investments. Historical data is used to calculate the correlations. Suitable investments with a low correlation can be selected on the basis of this information.

Conclusion: All investors benefit from the power of diversification

In times of uncertainty and market volatility, diversification is more important than ever, even if it is increasingly challenging.

In these market conditions, it is necessary to expand into additional asset classes such as commodities, currencies, gold and digital assets. Implementing strategies that respond to market trends and market changes are added to this. The good news is that access to these options is no longer limited to large institutional investors. Innovative digital wealth advisory services enable a wide range of investors to act professionally. It is therefore important to focus on diversification, gather comprehensive information and seek expert advice where necessary.

Reading Time: 11 minutes

In recent months, interest rates have risen significantly due to strong inflation, particularly in the USA and the EU. Although Switzerland was not as strongly affected by this development, it also recorded an increase in inflation and interest rates for borrowed capital and financial investments.

Central bank interest rates have a significant impact on the financial and real estate markets. In view of these developments, it is important to know the correlations and influencing factors in the context of interest rate trends in Switzerland.

This article informs investors and borrowers about current interest rate developments in Switzerland and how they come about. Furthermore, an outlook leads to strategic recommendations for both investors and potential real estate buyers.

The most important facts in brief

• The key interest rate in Switzerland is set by the Swiss National Bank (SNB)
• Interest rates in Switzerland are low by global standards
• Savers receive interest again. Savings are losing value in real terms due to inflation
• Real estate buyers should lock in low interest rates for a long time
• Despite higher interest rates, private wealth planning requires diversification

Interest rates in Switzerland: current situation

In Switzerland, too, interest rates affect almost all parts of society: investors, borrowers and the entire economy. In each case, specific interest rates are decisive, depending on requirements.

There are basically four main types of interest rates:

1. Key interest rates: the Swiss National Bank (SNB) sets the key interest rate in Switzerland . Banks have the option of investing or borrowing money from the SNB at short notice at these conditions. The key interest rate is currently 1.75 percent (as at 18.12.2023).

Another reference interest rate is SARON (Swiss Average Rate Overnight), which has replaced LIBOR as the main reference interest rate until 2021. It is calculated daily and is based on the average interest rate of money market transactions carried out by financial institutions in Switzerland. SARON is considered a robust reference interest rate for numerous Swiss financial products and is calculated and published by SIX (Swiss Exchange). As at 15.12.2023, SARON stood at 1.70 percent.

2. Money market interest rates: This includes market interest rates for short-term deposits with terms of up to twelve months.

3. Capital market interest rates: This includes market interest rates with terms of over 12 months and up to 30 years or more.

4. Mortgage interest rates: These interest rates are subject to a similar development as money market interest rates or capital market interest rates. However, the conditions depend on other factors such as the creditworthiness of the customer, the business policy of the respective bank and its refinancing options.

In the following chapters you will find a brief explanation of the main interest rate products and forms of credit with the corresponding interest rates in Switzerland.

Savings interest

As the name suggests, a savings account is used to save capital or as a reserve. It is therefore particularly suitable for short-term investments . Savings interest rates in Switzerland vary depending on the bank and type of savings account. On average, the interest rate for Swiss savings accounts for adults is currently around 0.8 percent. Vested benefits foundations offer similar interest rates on vested benefits accounts. The interest rate level is based on the development of the key interest rate. In most cases, savings accounts are offered by banks without fees.

However, there are differences between the individual banks, which is why it is worth comparing the interest rates on savings accounts. The current range is from 0.38 percent to 1.25 percent (as at 18.12.2023). Higher interest rates are often paid on youth savings accounts. Furthermore, banks sometimes entice new customers with special conditions for new deposits.

Compared to private accounts, Swiss savings accounts generally have more restricted withdrawal conditions, which are often limited to monthly, semi-annual, quarterly or annual withdrawals. Limitations to CHF 50,000 per year are not uncommon. Depending on requirements, it is therefore advisable for investors to open several savings accounts.

Tip: More about vested benefits at Everon

Interest on medium-term notes, fixed-term deposit accounts and time deposit accounts

In Switzerland, the term fixed-term deposit normally refers to investments with a fixed interest rate for terms of up to one year. Unlike medium-term notes, they are not securities.

With medium-term notes, fixed-term deposit accounts and time deposit accounts, investors receive slightly higher guaranteed interest for their deposit during the term than is usual with savings accounts. However, the funds in these forms of investment cannot be withdrawn before the end of the term. The key interest rate also plays a decisive role in the development of fixed interest rates for certain terms. The specific interest rates are set by the Swiss banks depending on their business policy and calculation basis.

As at mid-December 2023, investors can expect interest rates of 1.2 to 1.4 percent on medium-term notes for maturities of one year and 1.5 to 1.6 percent for two-year maturities.

Interest rates for consumer loans

Private customers in Switzerland can currently obtain personal loans from around 5 percent (as at 18.12.2023). The federal government limits the maximum interest rates for consumer loans by law. In doing so, the legislator follows the development of the reference interest rate and regularly adjusts the maximum interest rates.

From January 1, 2024, the following maximum interest rates will apply to consumer loans

• Personal loans: 12 percent
• Overdrafts, installment facility: 14 percent

Mortgage interest rates

Mortgage interest rates in Switzerland vary depending on the type of mortgage, term and provider.

The main types of mortgage are

• Fixed-rate mortgages: these mortgages have a fixed interest rate for an agreed term. The interest rates for fixed-rate mortgages vary depending on the term. For example, the interest rates in Switzerland for a one-year fixed-rate mortgage in mid-December 2023 are around 1.7 percent to 2.00 percent, for a five-year fixed-rate mortgage around 1.70 percent to 2.40 percent and for a ten-year fixed-rate mortgage around 1.90 percent to 2.50 percent.
• Variable-rate mortgages: With this form of financing, the interest rate can change. Interest rates for variable-rate mortgages average around 2.8 percent in mid-December 2023.
• SARON mortgages: With this form of mortgage, the interest rate is linked to SARON. The interest rates for SARON mortgages are currently (as at 18.12.2023) between 0.60 percent and 2.9 percent.

The actual interest rates that a borrower receives depend on various factors. These include the creditworthiness of the borrower, the loan-to-value ratio of the property and the general market conditions. A comparison of interest rates between mortgage providers is therefore also necessary here.

Interest rate level: key influencing factors

The interest rate situation in Switzerland is influenced by various factors, including economic, political and market-related factors.

The factors influencing interest rates include in particular

• the foreign interest rate trend,
• the inflation rate
• the economy and
• the monetary policy of the Swiss National Bank.

Rising interest rates abroad also have an impact on interest rate trends in Switzerland. After all, Switzerland must remain attractive to foreign investors in the long term.

Inflation and deflation affect market interest rates. In the case of financial investments, a kind of risk premium is demanded in the event of high rates of price increase, as investors expect to be compensated for the expected price increase. In this respect, Switzerland continues to look good in an international comparison, so that the SNB currently sees no reason to raise key interest rates further. According to a report in the NZZ on December 14, 2023, the inflation rate in the USA was still at 3.1% in November and 2.4% in the eurozone. In Switzerland, however, it has already fallen again to 1.4%.

Economic trends also have an influence on the general interest rate level. In times of economic boom , investments increase and, as a result, the need for capital. As a result, interest rates tend to rise. The effect works in the same way when the economy is weakening and interest rates are falling.

The Swiss National Bank has a direct influence on interest rates, in particular through the key interest rate, which is used to steer monetary policy and influence the economy.

Interest rates in Switzerland: comparison with international developments

Compared to the major currency areas, Swiss interest rates are lower and less volatile.

The key interest rates of the Swiss National Bank and other major central banks in comparison (as at 18.12.2023):

• Switzerland – Swiss National Bank: 1.75 percent
• Eurozone – European Central Bank (ECB): 4.5 percent
• USA – US Federal Reserve (Fed): 5.5 percent

The central banks make their decisions based on an analysis of economic data and an assessment of the economic outlook. It is true that Switzerland was not entirely immune to negative influences such as the higher inflation rate. Overall, however, an international comparison shows that the Swiss economy is comparatively stable.

Diverse reasons for interest rate changes

Central banks make their decisions based on an analysis of economic data and an assessment of the future economic outlook.

One of the main reasons for interest rate changes is inflation. If inflation rises, the central bank can raise interest rates to reduce the money supply and curb inflation.

Interest rate changes can also occur in response to economic cycles. In times of economic upswing, the central bank can raise interest rates to prevent the economy from overheating. In times of economic slowdown, central banks will tend to lower interest rates in order to stimulate the economy.

Interest rates are also changed in response to exchange rate fluctuations. If a country’s currency becomes too strong, the central bank may raise interest rates to limit the inflow of foreign capital and stabilize the exchange rate.

It should also be noted that international interest rate changes have an indirect impact on Switzerland. For example, influencing the exchange rate has an impact on the export economy. Furthermore, an increase in interest rates abroad may result in money being withdrawn from Switzerland. And as experience shows, a slowdown in the European economy also affects Switzerland.

A look at historical interest rate trends

The State Secretariat for Economic Affairs (SECO) has initiated several research projects to gain insights into the current low interest rate environment. As part of this study, the development of interest rates, exchange rates and inflation rates from the mid-19th century to 2020 was researched.

The real interest rate in Switzerland is currently at a very low level, but this is not unusual in historical terms. The study compares the situation in Switzerland with that of its most important trading partners in a long-term perspective since the mid-19th century.

The Swiss nominal interest rate on Swiss franc bonds (maturities of five years or more) developed differently compared to other countries. In particular, interest rates in Switzerland were higher until the end of the Second World War. They were particularly high in the years before the First World War. Over the past 30 years, nominal interest rates in Switzerland have fallen continuously – even falling into negative territory after 2015. however, a countermovement began in 2023.

The real (inflation-adjusted) interest rate was stable until 1930, before falling significantly. It then remained at a low level until 1980 and then rose again until the mid-1990s, but without reaching its original level. Finally, it fell again and is currently at a historically very low level. The trend is similar abroad, albeit with some differences. It is interesting to note that the Swiss real interest rate was higher than foreign interest rates after the change in Swiss monetary policy in 2000.

Demographic developments obviously have an impact on interest rate trends. The interest rate is lower if the population has a low proportion of young people or a high proportion of pensioners.

How interest rate conditions affect consumers and the financial markets

The impact of interest rate changes on consumers depends on the consumer’s situation.

• For homeowners, interest rates increase the monthly burden. This also means that fewer people can afford to buy property.
• Saving becomes more attractive when interest rates rise. Conversely, lower interest rates can have far-reaching consequences. For example, pension plans based on interest income no longer work out.
• The use of consumer credit is dependent on interest rates. Interest rates therefore indirectly determine consumption.

The effects of interest rate changes on the financial markets are also far-reaching.

• Shares are less attractive when interest rates rise, as the yield on safe bonds is more attractive. This leads to a fall in share prices. If interest rates fall, investments in shares become attractive again and share prices rise.
• Interest rate changes have a direct impact on the bond markets. If interest rates rise, the price of bonds falls. This is because bonds with a higher interest rate are more attractive to investors than bonds with a lower interest rate. If interest rates fall, the price of bonds rises.
• Interest rate changes also have a direct impact on the foreign exchange market. If interest rates rise in a country, the currency of that country becomes more attractive to investors. This can lead to an increase in the exchange rate of this currency. If interest rates fall in a country, the currency of that country becomes less attractive to investors. This can lead to a fall in the exchange rate of this currency.

Reading tip: Portfolio rebalancing – why it is so important

What investors and real estate buyers should consider

If you keep a close eye on changes in interest rates in Switzerland, you have a wide range of opportunities to adjust your own finances accordingly.

The mortgage market

The Swiss National Bank’s (SNB) unchanged key interest rate pause has little impact on variable-rate mortgages. However, fixed mortgage conditions have already reacted to the expectation of a slightly lower key interest rate next year. Longer-term financing is now significantly cheaper than in the previous year, especially compared to SARON mortgages.

The high level of interest rates has reduced demand for real estate. The development of real estate prices could weaken further, and slight price declines are possible in 2024. However, an extreme correction seems unlikely due to the shortage of housing.

Compared to SARON mortgages, a long fixed-rate period is currently advantageous for customers whose fixed-rate period is coming to an end. Long-term fixed-rate mortgages make particular sense if borrowers expect inflation to persist and therefore have little scope for interest rate cuts. In the event of an expected economic downturn and a possible SNB interest rate cut, shorter terms are advantageous.

Investing and saving

Savers are now enjoying interest rates again. The development of savings interest rates follows the ups and downs of the key interest rate. Nevertheless, savers should keep an eye on the current inflation rate. This means that the real value of the money invested is falling at average savings interest rates.

Diversification therefore remains the advice to all investors. Depending on personal risk affinity, this means investing in investment funds, precious metals, ETFs or shares, for example. As interest rates are often higher at banks in other European countries, it is worth comparing interest rates. Important: Despite deposit protection, attention should be paid to the respective country rating.

Reading tip: Investment strategy in focus: The power of the income strategy

Outlook on the interest rate landscape in Switzerland

Interest rates have a significant impact on the strategies of the major players on the financial markets, as interest rates and equities generally tend to move in opposite directions. This is why financial experts are constantly looking at interest rate forecasts.

The SNB left the key interest rate unchanged at 1.75 percent in December. It mentioned that it would raise the key interest rate further if necessary. However, this would require a noticeable deterioration in the price outlook. The prospect of a sustained slowdown in the Swiss economy should keep price risks low in the coming year. There is therefore currently no need for the SNB to take action.

The slowdown in the Swiss economy is primarily due to the slump in global trade, which has dampened the business climate, particularly in Swiss industry. Experts assume that growth in the Swiss economy will remain below average in 2024, but will still be positive.

Factors that could influence future interest rate trends include the inflation rate, the general economic situation, currency developments and the monetary policy of the central banks. The SNB therefore monitors inflation and economic developments in order to set the key interest rate. Based on these assessments, it is expected that interest rates in Switzerland could remain stable or rise slightly over the next few years. The rapid interest rate hikes experienced since June 2022 are likely to be a thing of the past.

Reading Time: 9 minutes

In the highly complex world of financial markets, investors are looking for clear and reliable information for initial and independent orientation. The Swiss equity indices are of central importance for investors who wish to place their capital on Swiss equity markets. This applies both to long-term investment strategies and to investors who want to take advantage of short-term opportunities with equity securities on the stock exchange.

The Swiss stock exchange has several share indices, which in their entirety serve as a barometer for the country’s overall economic performance. If you understand the structure, composition and functioning of a stock index, you will already have a sound understanding of the markets. Furthermore, a Swiss equity index will give you valuable insights into the opportunities and risks associated with trading Swiss equities.

This beginner’s guide will give you a detailed overview of the most important Swiss equity indices. Each of these indices offers insights into different aspects of the Swiss economy.

The most important facts in brief

• A stock index shows the development of a defined part of the stock market.
• The selection of shares in an index serves to reflect the stock market of a country, a region, a sector or other sub-sectors.
• The stocks included in the index are weighted according to market capitalization or another defined method.
• An equity index enables investors to compare the performance of their portfolio with the comparable overall market.
• Equity indices are not tradable securities, but statistical tools.
• With ETFs, which track indices, investors invest indirectly in indices.

Share index: definition, explanation and examples

A stock index, also known as a stock market index, is a statistical measure developed to represent the performance of a specific part of the stock market or the entire stock market of a country or region. It serves as a benchmark for measuring general market performance and not for measuring the performance of individual companies.

A stock index usually has the following characteristics:

• Composition: A stock index consists of a fixed group of selected stocks that are typically chosen according to certain criteria. These criteria may include market capitalization, sector, liquidity or other factors. The selection of shares is representative of the overall market or a specific market sector.
• Weighting: Each share in the index is weighted according to its market capitalization or another defined method. This means that larger companies with higher market capitalization have a greater influence on the index than smaller ones.
• Calculation: An equity index is usually calculated by adding up the current prices of the shares included, taking into account the weighting. Changes in share prices lead to changes in the index level.
• Benchmark: Share indices often serve as benchmarks against which the performance of investment funds, portfolios or individual shares is measured. Investors use these benchmarks to assess how well their investments are performing compared to the broader market or a specific market segment.
• Historical data: Stock indices provide historical data that allows investors to analyze the performance of the market over time and identify trends. The closing levels of stocks are usually used for this purpose.

The reference point for calculating a share index is always a fixed point in time. The subsequent changes in the share index reflect the performance of the shares contained in the index. The respective level is expressed in index points.

Well-known global examples of share indices are the S&P 500 in the USA, the DAX in Germany, the Nikkei 225 in Japan and the Swiss Market Index (SMI) in Switzerland.

Swiss Market Index (SMI)

The blue-chip SMI index, the most prominent share index in Switzerland, contains the 20 largest companies from the SPI. It represents around 80 percent of the total market capitalization of the Swiss stock market. The SMI is free-float-adjusted: Only the tradable shares in the index are taken into account.

By limiting the share weightings, it is guaranteed that no single company has more than 20 percent influence on the index. The SMI therefore complies with the ESMA UCITS guidelines. It can therefore be used within the EU as a benchmark for the Swiss equity market.

The SMI is published as a price index (price index) and is listed under the name SMIC as a so-called performance index. As the SMI tracks a large part of the Swiss equity market, it serves as an underlying for a large number of financial instruments such as options, futures and ETFs.

The SMI was launched on June 30, 1988 with 1,500 points. The composition of the index is reviewed annually. The SMI is calculated in real time. This means that every trade by a company included in the SMI triggers a recalculation of the index.

The largest individual stocks in the SMI by weighting (as at 30.10.2023) are

Company	Sector	Weighting in the index
Nestlé	Nestlé Food	22.96 percent
Novartis	Pharmaceuticals	15.91 percent
Roche	Pharmacy	14.05 percent
UBS	Finance	5.83 percent
Zurich	Finance/Insurance	5.34 percent
Richemont	Luxury goods	4.54 percent
ABB	Electrical engineering	4.81 percent

Historical development of the SMI (performance)

The Swiss Market Index (SMI) was launched on June 30, 1988. Here is a summary of the historical performance of the SMI since its launch in 1988:

• Early years (1988-1990s): The SMI started at a base value of 1,500 points. It experienced moderate fluctuations in the early years, but showed an overall upward trend.
• Rise and dotcom bubble (late 1990s): In the late 1990s, the SMI experienced a significant rise, driven by a general enthusiasm for technology stocks. The index reached over 8,000 points for the first time in July 1998. This period was characterized by the so-called dotcom bubble, which eventually burst.
• Decline and recovery (early 2000s): After the dotcom bubble burst, the SMI experienced a decline and entered a consolidation phase in the following years. In the early 2000s, however, the index recovered and approached its previous highs.
• Financial crisis (2008-2009): The SMI, like many other equity indices worldwide, was hit hard during the global financial crisis. It recorded significant losses, but recovered in the years that followed.
• Developments since 2010: Since around 2010, the SMI has shown a general upward trend, with occasional corrections and fluctuations. The SMI reached its highest level to date at 12,573 points on August 18, 2021. As at 30.10.2023, the SMI stands at around 10,400 points. The SMI has performed 17.4% over the past 5 years (as at 30.10.2023).

Overall, the SMI has shown a stable performance in the past, with some fluctuations due to global and local economic events. Its history is therefore a reflection of the economic dynamism and growth of the Swiss economy.

Swiss Performance Index (SPI)

The Swiss Performance Index (SPI) includes almost all shares listed on the SIX Swiss Exchange. It is therefore also regarded as the overall market index of the Swiss equity market.

The SPI is a total return index, which means that all dividend and interest payments are included in the index and not just price gains.

The SPI was introduced in 1987 and has been on an upward trend ever since, despite some dips during the economic crises. It offers investors broad coverage of the Swiss stock market and includes a large number of companies from various sectors. The largest individual stocks include Nestlé, Roche and Novartis.

Performance over the past 5 years (as at 30.10.2023): 30.1 percent

Swiss Mid Index (SMIM)

The Swiss Mid Index (SMIM) comprises the 30 largest companies on the Swiss stock market that are not yet listed in the blue-chip SMI index. The Swiss Mid Index enables investors to track the performance of companies that are not large enough to be included in the SMI but still play a significant role in the Swiss equity market.

As with the SMI, the weighting is based on the market capitalization and turnover of the individual stocks. The SMIM was introduced in 2004 and since then has shown a mixed development, depending on the specific conditions in the respective sectors of the companies included in the index.

Performance over the past 5 years (as at 30.10.2023): – 0.6 percent

Swiss Leader Index (SLI)

The SLI Swiss Leader Index consists of the shares of the SMI and the ten largest stocks of the SMIM and thus comprises the 30 most liquid and largest stocks on the Swiss equity market. The SLI has been calculated for publication in real time since July 2, 2007.

The index was calculated back to the end of 1999 and standardized as at 30.12.1999 with an initial value of 1,000 index points. This allows it to be compared with other indices.

In contrast to other indices, the SLI limits the weightings: The four largest stocks are each limited to 9 percent. In addition, the index weighting of all other stocks is limited to 4.5 percent if required.

The SLI is an alternative to the blue-chip SMI index. The idea is that the five largest stocks in the SMI already account for a combined weighting of around 70 percent. Therefore, strong price fluctuations in these stocks have an excessively strong influence on the index value. By limiting the weighting in the SLI, the weighting of smaller stocks is increased, which better diversifies the price risk.

In addition, this limitation enables the SLI to meet regulatory requirements in Switzerland, the EU and the USA, thereby opening up new investor groups and markets. As the weighting is constantly changing, the limitation factor required for the index calculation is recalculated and adjusted every three months by the SIX Swiss Exchange.

Performance over the past 5 years (as at 30.10.2023): 16.4 percent

MSCI Switzerland

The MSCI Switzerland is an international equity index created by MSCI. It comprises a broad range of Swiss companies and is often used by international investors for investment decisions to measure the performance of the Swiss market.

The index contains the 39 largest stocks in the SPI index. This means that around 85% of Switzerland’s market capitalization (freely tradable shares) is represented. The most important stocks are Nestlé, Roche and Novartis.

The MSCI Switzerland has shown an overall positive performance in the past, even if it is influenced by global economic events, as many of the companies included in the index are heavily involved in international trade.

Performance over the past 5 years (as at 30.10.2023): 25.98 percent

Swiss All Share

The Swiss All Share Index is a comprehensive benchmark index that includes all shares in Switzerland and the Principality of Liechtenstein . Upon application, companies that are primarily listed on the SIX Swiss Exchange can also be included in the index. Furthermore, the Swiss All Share also includes stocks that cannot be included in the SPI due to the free-float limit of 20 percent.

This index thus offers investors an overall view of the Swiss equity market, irrespective of the size of the company or the sector in which it operates. The launch of the index in July 1998 was triggered by the exclusion of investment companies from the SPI. The index level of the SPI as at 30.06.1998 was adopted. The performance index was standardized at 1,000 index points.

Performance over the past 5 years (as at 30.10.2023): 30.2 percent

BX Swiss TOP 30 (BX)

The BX Swiss TOP 30 (BX) was launched by the Zurich stock exchange BX Swiss. It contains the 30 largest shares in Switzerland. The prerequisite for inclusion in the index is an average trading volume of at least CHF 7,500. In addition, at least 20 percent of the shares must be in free float and the company must be listed in Switzerland. The index is recompiled every quarter.

Performance over the past 5 years (as at 30.10.2023): 15.0 percent

Frequently asked questions (FAQ)

Are equity indices and ETFs the same thing?

An equity index and an ETF are two different things. An equity index is a measure that represents the performance of a group of shares, such as the Swiss All Share Index. An ETF, on the other hand, is an exchange-traded fund that tracks a specific index, such as a stock index.

How does an equity index work?

A share index measures the performance of a specific group of shares and summarizes the values in a group. It provides a snapshot of general market trends and allows investors to compare the performance of their portfolio with the market as a whole.

What are the advantages of investing in an equity index?

The advantage of investing in an equity index (via an ETF) is that it provides broad diversification and reduces the risk associated with investing in individual stocks. It also requires less time compared to buying individual shares directly.

What are the disadvantages of investing in a share index?

Equity indices are limited to the stocks included in the index (for example, the SMI is dominated by Nestlé, Novartis and Roche). If you are a fan of a particular sector or company, index investing could mean you miss out on the opportunity to invest specifically in these companies. Equity indices are susceptible to the general volatility of the market. Index funds and ETFs follow passive strategies and do not offer active management or adjustment of your investments in response to changing market conditions. This may mean that you do not take advantage of market opportunities or protect your portfolio in times of high volatility.

Reading Time: 8 minutes

In the private markets, private equity is a fascinating area that offers lucrative opportunities for investors. Based on historical data, private equity investments typically have higher expected returns compared to global equity portfolios, for example.

As a financial center known for its stability and innovation, Switzerland offers a thriving landscape for private equity investment. While this has traditionally been considered an area of activity for institutional investors, there is growing curiosity from private investors looking to benefit from this powerful asset class.

But is this asset class really a viable option for the discerning private investor? Today, innovative asset managers allow private investors to enter with manageable minimum investment amounts, enabling them to further diversify their portfolios.

The most important facts in brief

• Private equity: A growing market.
• Private equity means private equity capital.
• The investment is not tradable on public trading venues.
• Private equity enables above-average returns.
• Pension funds also invest successfully in private equity.
• Access was previously restricted to institutional investors – investments are now also possible for private investors.

Private equity: A brief explanation

The two words private and equity already describe in their translation what it is all about: private equity. Private equity specifically means investments in companies that are not currently listed on the stock exchange. The trading places are therefore private markets. These are investments in which investors invest directly in companies in order to generate long-term profits. In contrast to listed equity investments, private equity investors usually have a significant influence on the management and business strategy of the companies.

How private equity works

Specialized private equity funds have emerged as the most attractive way to access these investments. These funds are also often referred to by the term private equity.

An investment in private equity takes place in several phases:

First phase: Fundraising

The private equity company collects capital from investors in order to use it to invest in companies.

Second phase: Investment

The private equity fund uses the collected capital to acquire stakes in companies.

Third phase: Investment management

The private equity company implements strategies to increase the value of the company.

Fourth phase: Exit

The investments are sold and the profits are distributed to the investors.

Differentiation from other forms of investment

Compared to other forms of investment such as stocks or bonds, private equity investments aim to achieve long-term business success. Investors often have direct influence on the management. In contrast, shareholders have only indirect influence on management.

Another important difference is that private equity investments are made outside the public market. This means that the investment cannot be liquidated on a public market in the form of a sale.

You can find out more about the background to this in our article “Private equity: background to off-market equity capital”.

Private equity: The market reaches Switzerland

In Switzerland, listed companies represent only a small percentage of the entire economy. The larger part of the economy consists of small as well as medium-sized companies, which are not listed on the stock exchange. These companies can raise capital through private equity and thus expand their business activities. At the same time, this opens up interesting investment opportunities for investors with an affinity for risk.

In Switzerland, the private equity market has grown strongly in recent years. According to the research firm Preqin, private equity managers domiciled in Switzerland have increased their assets under management more than sixfold since 2008. This shows the potential of this market for private individuals as well.

According to the Private Equity Trend Report 2023 by PwC Switzerland, digitalization and sustainability are the key value drivers for the industry. Digitization is emerging as a central lever for value creation.

Switzerland represented in the market with competent players

Large private equity firms in Switzerland include:

• Ufenau Capital Partner: the provider has been successful in business with SME investments in Europe since 2011. More than one billion Swiss francs are now managed for investors in Pfäffikon.
• Partners Group: The group is one of the pioneers of the Swiss private equity industry. 25 years after its foundation, its assets have grown to 127 billion dollars. Today, 1,500 employees work for Partners Group in 20 offices.
• Capvis: The experts from Baar develop small and medium-sized companies into global champions. Capvis has invested over 3.5 billion euros in more than 61 investments over the past 30 years. Started as the PE division of Swiss Bank Corporation, the company broke away from UBS in 2003.
• LGT Capital Partners: some 650 employees manage over $85 billion in assets at twelve locations. The provider is a leader in alternative investments and does about 90 percent of its business outside Switzerland.
• EQT: The private equity firm was founded in 1994 in Sweden, where its head office is still located today. EQT has grown into a huge private equity firm within three decades. It currently holds about 70 investments.

Legal framework in Switzerland

The legal and regulatory framework for private equity in Switzerland comprises various laws, ordinances and supervisory authorities.

In particular, Swiss financial market law contains regulations applicable to the activities of private equity firms. For example, the Swiss Federal Act on Collective Investment Schemes (CISA) regulates investment funds, including private equity funds. The CISA is subject to supervision by the Swiss Financial Market Supervisory Authority (FINMA).

Swiss pension funds successfully use private equity

Swiss pension funds manage assets of around 1.3 trillion Swiss francs, making them very successful compared to their European neighbors. Over the past ten years, pension assets in Switzerland have grown by an average of 6.7 percent per year, while in Germany, for example, they have increased by only 1.9 percent. One reason for the success of Swiss pension funds is their greater willingness to take risks when investing capital, especially in alternative asset classes such as private equity.

To a large extent, the investment advantages recognized by pension funds are also beneficial for private investors:

• Higher returns: Private equity can generate higher returns compared to traditional investments such as stocks or bonds. This is partly due to the active role that private equity fund managers play in increasing the value of their portfolio companies.
• Diversification: By investing in private equity, pension funds can diversify their investments more broadly and thus reduce risk.
• Inflation protection: Private equity investments can offer a degree of protection against inflation, as they generally invest in real assets and benefit from economic developments.

Private equity: How investors invest

For a long time, private equity was only accessible to institutional investors due to the high entry threshold of several million francs. However, there are now also opportunities for private investors in Switzerland to invest in this asset class.

• Fund of funds: Semi-professional investors can diversify into private equity by means of a fund of funds, which invests in several private equity funds. The minimum investment amounts are between CHF 200,000 and CHF 250,000.
• Closed-end private equity retail funds or mutual funds: The minimum investment amounts for these funds admitted to public trading are usually around 10,000 Swiss francs.
• Digital investment advisors: Everon, for example, enables private investors to start investing from 10,000 francs, depending on the financial product, as part of its private banking offering.
• Exchange Traded Funds (ETFs): ETFs offer retail investors a cost-effective and transparent way to invest in private equity without directly entering a closed-end fund. However, these ETFs tend to track an index of private equity exchange-traded companies such as KKR and Blackstone, and thus have a relatively high correlation to the broad stock market.

When selecting an appropriate private equity fund, there are many issues to consider that require a high level of expertise. Investment objectives and risk tolerance play a significant role. Funds pursue different investment strategies and together with the track record (reference list of investments) of the fund managers, this can be decisive for the success of the investments. There are also fee structures to consider.

All of this usually means the private investor is best served by a professional investment advisor to identify the appropriate fund and manage the investment.

Private equity for private investors: What to consider

Private investors considering private equity should keep two points in particular in mind:

• Appropriate proportion of the portfolio
• Illiquidity of the asset class

The optimal allocation of private equity in a portfolio depends on individual investment objectives, risk tolerance and investment horizon. Some experts recommend that private investors should invest a maximum of around five to ten percent of their total portfolio in private equity.

The asset class involves higher risks and requires a long investment horizon. A balanced portfolio should have appropriate diversification and consider private equity as a complement to other asset classes.

An important aspect that private investors should consider when investing in private equity is the lower liquidity compared to other asset classes such as equities or bonds. Private equity funds often have restrictions on the redemption of shares to ensure the long-term capital commitment required for this type of investment. Also, often even in the most liquid funds, shares can be sold, often only once per quarter.

In this context, redemptions are often referred to as “redemption” in the terms and conditions. The regulations in this regard are referred to as “gates”. Gates limit the proportion of the net asset value (NAV) that can be redeemed per quarter. In some cases, the maximum redemption amount may be limited to five percent of the NAV per quarter. Investors should be aware of these limitations and ensure they plan for the liquidity needs of their overall portfolio accordingly.

Reading Tip: Private Markets: New opportunities in the asset class for exclusive investments

Private equity: Under these conditions an investment makes sense

The private equity asset class requires specific conditions under which an investment in private equity makes sense for private clients.

Private individuals should therefore consider the following points before making an investment:

• Long-term investment horizon: private equity investments are designed for the long term and generally have a holding period of several years. Private clients looking to invest in private equity should therefore have a long-term investment horizon and be prepared to commit their capital for an extended period of time. The long-term nature of private equity investing allows companies to realize growth potential and create value, which can offer attractive long-term returns.
• Portfolio diversification: an investment in private equity should always be considered as a complement to a diversified portfolio. For private clients, this means having different asset classes such as equities, bonds or real estate before investing funds in private equity. Diversification can offset potential risks and reduce overall portfolio risk.
• Risk Tolerance: Private equity investments involve certain risks, including the risk of loss of principal. The performance of private equity funds can be volatile and is subject to various factors such as market fluctuations, economic conditions and the performance of the companies in the portfolio. Therefore, appropriate risk tolerance is among the most important requirements.
• Understanding of complex investment structures: Private equity investments are more complex than traditional investments such as stocks or bonds. Specific expertise is therefore required to understand and consider the various aspects of the asset class.

Access to qualified funds and expertise: private equity investing requires access to qualified funds and professional expertise. As a private client, it can be difficult to gain direct access to high-quality private equity funds. It is therefore often advisable to consult a financial advisor or professional asset manager who has expertise in this area.

Reading Time: 8 minutes

Private markets offer promising investment alternatives to traditional financial markets. However, for a long time, access to these markets was severely restricted for private investors, as no direct trading takes place on the stock exchange. Furthermore, high minimum investment amounts of several million Swiss francs blocked access for many investors.

But the world of private markets is changing: new start-ups and digital asset managers make it possible to enter this exclusive investment area with significantly lower minimum investment amounts. This makes these attractive investment opportunities accessible to a broader investor base. It is therefore worthwhile to find out more about the opportunities. This article helps to enter the world of these exclusive investments.

The most important facts in brief

• Private markets are non-publicly traded investments in which investors provide capital.
• Investments are made in private companies, real estate or infrastructure projects.
• Early entry into growth projects enables high performance of the investments.
• Historically, only institutional investors with high minimum investments had access to this type of investment.
• Innovative providers are opening up the market to private investors with manageable minimum investment amounts as well.

Private Markets: definition and explanation of the asset class

Private Markets translates as private market investments. These are investments in equity and debt capital of companies and projects that are not listed on a stock exchange. The “private” in the name comes from the fact that they are not publicly listed and traded. This asset class allows investors to receive a type of risk premium for the illiquidity of their investment.

Compared to the public market, which is characterized by stock exchange listings, private markets generally exhibit less volatility. In the past, they have been able to generate above-average returns of over 14 percent in some cases.

A key difference between these private and public markets is liquidity. Investing in private markets requires longer investment horizons, as they cannot be traded as easily as listed equities. However, this provides opportunities, including giving investors access to younger and smaller companies that have higher growth potential than established listed companies.

Private markets investments are often only offered to a small circle of investors. These usually enter with several million Swiss francs. By investing, investors benefit from the potential growth of promising companies and diversify their portfolios at the same time. Shares can also be bought or sold on the secondary market via specialized asset managers or investment banks. This involves existing investor commitments to corresponding funds.

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These types of investments are offered by private markets

Private capital has a significant impact in today’s global economy. Private investment funds have more than $12 trillion in assets. The volume has doubled in the period from 2005 to 2021 alone.

The asset class is very diverse, with different opportunities and risks in each segment. Private markets include:

• Private Equity
• Private Real Estate
• Private Debt
• Private Infrastructure

Private Equity

Accounting for around two-thirds of the market volume, private equity is the largest segment of the private markets. It is divided into the categories buyout and venture capital. In a buyout, existing companies are bought from their owners and developed further. These are long-established companies. With venture capital, capital flows into newly founded companies or start-ups in order to finance research, development and marketing. In between, there is also so-called late-stage venture capital or growth equity, which focuses on companies that are between VC and buyouts in their development.

Private Equity Real Estate

This area includes the new construction and conversion of real estate in the residential, industrial and commercial segments. The following strategies are distinguished:

• Core: Purchase of existing real estate with the aim of generating stable rental income. The purchase is made exclusively with equity.
• Core Plus: This also involves the purchase of existing properties, but debt capital is also used for financing.
• Value Added: Existing properties are upgraded through renovation measures and then resold.
• Opportunistic: This strategy covers project planning, development and marketing of new buildings in all segments.

Private Debt

Compared to private equity, this strategy does not involve acquisitions, but rather the provision of debt capital to companies. The funds are often used to finance expansion plans. This growth financing is also known as mezzanine (an intermediate form of equity and debt). The terms of the loans are usually six to ten years, and the interest rate is usually variable.

Private Infrastructure

Private Markets covers the financing of infrastructure assets. This includes, for example, airports, electricity companies, water supply, waste disposal, schools and hospitals. Existing infrastructure facilities are characterized by stable earnings, as the use of a water treatment plant, for example, is quite constant.

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Private markets: exceptional opportunities

Private markets offer investors extraordinary opportunities and possibilities to diversify their portfolio and to profit from growth companies and interesting sectors. In doing so, they invest in companies and sectors that are otherwise difficult to access. The asset class is particularly attractive compared to public markets due to its historically high returns and lower volatility.

Through innovative asset managers, investors with comparatively lower minimum investments can also invest in private markets and benefit from their advantages.

The main opportunities can be summarized in three points:

• Opportunities for investors: Private markets allow investors to invest in young, high-growth companies that are not listed on the stock exchange. By investing in such companies, investors benefit from their growth and thus achieve above-average returns. Due to their low volatility and correlation to traditional asset classes, private markets serve well as diversification tools.
• Investment in attractive sectors: Private markets provide access to investments in infrastructure projects, growth sectors and other areas not usually accessible to private investors. Investments can be made in promising companies at an early stage. Lucrative acquisitions take place in the private equity sector, especially before the initial public offering (IPO).
• Opportunities for returns depending on risk appetite: Investors have the prospect of returns of up to around 15 percent, depending on their risk appetite. This shows that private markets are an attractive investment option for investors who are prepared to take a higher risk in order to achieve potentially higher returns. Above all, the risk of low liquidity must be taken into account here.

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Private Markets: the risks

When it comes to the risks associated with investing in Private Markets, the question arises especially when compared to other financial products that are publicly traded.

Lack of regulation and transparency

A key difference between private and public markets is that Private Markets are less regulated. While publicly traded financial instruments are subject to numerous regulations and disclosure requirements, private markets are subject to less stringent rules. This can lead to a lack of transparency, making it difficult for investors to make informed decisions and assess investment quality. In addition, private market investments are often valued only on a monthly basis, which also makes performance measurement more difficult.

Investment expertise and valuation

It is often difficult for private consumers to assess the risk of investing in private markets. Valuing investments in this segment requires in-depth expertise, as many factors need to be considered, such as the business model, management, and competitive landscape. In contrast, equities and other financial products are generally easier to value because they are traded on public markets and easily accessible information is available.

Higher risks

As with any form of investment, there is a risk of loss with private markets. The performance of private companies can be affected by a variety of factors, including the economic environment, the industry, and general market sentiment. Often, investments are made in a future prospect for which no concrete company figures are yet available, as in the case of venture capital. This is a significant difference from, for example, investing in traditional large companies with substance, as is the case with buyouts. Therefore, it is important to have a diversified portfolio to minimize risk.

Liquidity risk

Another risk associated with investing in private markets is the typically low liquidity. Since the shares are not traded on public exchanges, it can be difficult to sell them. This can be particularly problematic when liquidity is needed in the short term. In contrast, stocks and other publicly traded financial products are usually easy to trade and offer investors greater flexibility.

Long investment horizons

Investments in private markets are often associated with an investment horizon of 10 to 15 years.

Accessibility more difficult

Since there is no single marketplace for any segment, access is difficult. Even if investors are suitably qualified, many markets are not available to private investors.

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Investments in private markets require in-depth expert knowledge

Investments in private markets offer high return opportunities and diversification possibilities, but also represent an increased risk. In order to manage these risks and find the optimal investments, sound expert knowledge is required.

The variety of products in Private Markets

Private markets encompass a wide range of investment products, from private equity and private debt to infrastructure and real estate. Due to the large number of products, it can be difficult for non-experts to identify the best investment opportunities. Experts have the expertise to evaluate the various products and select those that best fit the investor’s investment objectives and risk profile.

Complex and non-transparent fee structures

Fee structures in private markets can be intertwined and opaque, making it difficult for investors to understand the true cost of their investments. Experts help decipher fee structures and ensure investors are getting a fair deal and not overlooking hidden costs.

Differences in investment style and fund strategies

In private equity alone, the opportunities of a buyout (acquisition of companies) and those of venture capital (growth financing) must be evaluated in a completely differentiated manner. Only experts with proven expertise are in a position to make a sound assessment of the differences in opportunities and risks. Professionals can help understand the different approaches and identify those that best fit the investor’s individual goals and requirements.

The role of experts in analysis and pre-selection

As described earlier, investments in private markets are much more difficult to access compared to publicly traded financial products. At the same time, this means that the research and evaluation of the necessary data is only accessible to a limited circle of experts . Private investors therefore need to take advantage of this know-how. They can draw on their expertise to ensure, as investors, they invest in the right products that match their goals and risk appetite.

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Digital wealth advisors open up return opportunities in private markets to broad groups of investors

Private markets, such as private equity, private real estate, private debt and private infrastructure, have long been the exclusive domain of large institutional investors and high-net-worth individuals. But thanks to technological innovations and digital wealth advisors, these attractive investment opportunities are now opening up to a broader range of investors. Startups such as Everon enable investments in these segments from as little as CHF 10,000, allowing private investors to benefit from expanded investment opportunities with potentially high returns.

Digital wealth advisors as new enablers for private markets

Digital wealth advisors combine professional expertise with a high degree of automation to cost-efficiently create investment recommendations for their clients and provide them with support. By using these technologies, private investors can also gain access to private markets investments that are otherwise difficult to access.

Opening up private markets to a broad range of investors

The minimum investment amount for private market investments is often in the six- or seven-figure range. This excludes many private investors from these attractive investment vehicles. However, startups such as Everon have recognized that there is a great need for access to private markets and, as a consequence, offer investment opportunities from as little as 10,000 Swiss francs. Digitization and the innovative power of young providers have thus opened the door to private markets for broader investor circles.

Reading Time: 12 minutes

A separation and the subsequent divorce proceedings are difficult times and always involve the sensitive issue of finances. The assets are to be divided fairly and the pension equalization must be carried out. Therefore, the dissolution of marriage is not least about how to deal with the pension fund. After all, pension provision should also be secured after the separation.

This article informs those affected about the consequences of separation and in particular shows what happens to the pension fund assets.

The most important facts in brief

• Almost every second marriage in Switzerland ends in divorce.
• The average age of spouses in divorce proceedings has risen.
• Higher average age means greater challenges for pension distribution.
• Spouses can make individual arrangements within the framework of legal requirements.
• Proper handling of the pension fund secures retirement provision and standard of living in old age.

Divorce in Switzerland: Facts

In Switzerland, the divorce rate remained at a high, constant level until the mid-1960s. It then increased significantly, reaching a high of well over 50 percent as of 2011. In the past 10 years, however, the number of divorces has declined again and is currently around 40 percent.

In a global comparison, Switzerland’s divorce figures are in the midfield. France, Spain, Australia and Sweden, for example, have higher divorce rates. In Russia, the rate is twice as high as in Switzerland. And in the USA, too, around 50 percent more people divorce than in Switzerland.

Average age at divorce has risen

The age at which Swiss spouses divorce has shifted backwards in recent years. The average age is around 46. This means that men and women are still around eight years older at the time of divorce than they were in the 1970s. This can be explained in particular by the fact that couples are also marrying later.

Paying attention to divorce consequences at older ages

The tendency for older age at the time of divorce brings special challenges for the division of finances. As a result, the retirement savings already accumulated are often higher and the time to retirement is shorter. This means that for divorcees, the issue of pension funds plays a major role.

Marriage: essential rights and obligations

In Switzerland, marriage is possible from the age of 18. The principle of equality applies, which means that men and women have the same rights, which must also be taken into account when it comes to finances.

Major financial implications of marriage are thus:

• Family maintenance: spouses can agree on who should contribute how much to the family’s maintenance – however, both are equally obliged to do so.
• Children: Both parents have the same duty of care. This applies to care, nurturing and education, which results in a maintenance obligation.
• Matrimonial property regime: The spouses jointly determine the matrimonial property regime. In this way, they determine who owns what property and how the assets and debts are divided both in the event of divorce and death. Swiss law provides for the following matrimonial property regimes: joint ownership, community of property and separation of property.
• Occupational and private pension provision: the second and third pillar assets earned during the marriage also count towards the joint pension assets.

Separation: significant effects

The above-mentioned rights and obligations already give an idea of the effects of a divorce on finances and what things need to be settled.

If both are in agreement: Procedure of an amicable divorce

Provided both spouses agree to the divorce, they jointly file a petition for divorce. In the so-called divorce convention signed by both, no reasons for the divorce need to be given.

Furthermore, the spouses describe on a jointly written document (divorce agreement) the points on which they have agreed:

• Dissolution of the matrimonial property regime
• Division of occupational benefits
• Maintenance and custody of children
• other points, for example, who will remain in the marital home

As a rule, the court adheres to the divorce agreement in the divorce decree. However, it checks the balance. For example, a waiver of child support is usually rejected, as is a retirement provision that is not balanced.

Both must provide for their own maintenance after the divorce

After divorce, personal responsibility generally applies. However, depending on the age, duration of the marriage and distribution of responsibilities, a court ruling may require one spouse to make temporary alimony payments. Both parents are responsible for the maintenance of the children until they reach the age of majority or until the end of their education. Depending on the personal possibilities, the court examines the possible agreement between the parents, but makes the final decision. This is to ensure that the needs of the children are met in any case.

The division of property is regulated in Switzerland by the matrimonial property law

The matrimonial property law regulates the financial relations between the spouses during the marriage period as well as the division in case of divorce and death. The division of assets upon separation depends on which matrimonial property regime the spouses have chosen.

Swiss law recognizes three different property regimes:

• Acquired property: This matrimonial property regime is also referred to as the “ordinary matrimonial property regime.” It always applies if no other matrimonial property regime has been agreed in a marriage contract. The assets consist of personal property and acquisitions. Personal property is all assets that were brought into the marriage and thus remain in personal ownership. Inheritances and gifts also count as personal property. Everything that was earned during the marriage is referred to as acquired property and must be divided in half in the event of divorce.
• Community of property: The difference between community of property and community of inheritance is that no distinction is made between inheritance and personal property. Rather, everything is divided in half in the event of divorce. It is possible to exclude individual assets from the community of property by contract.
• Separation of property: As with community of property, the separation of property must be agreed in a marriage contract. The assets of the spouses remain separate, as they were before the marriage. Likewise, you also operate a separate asset accumulation during the marriage.

The professional and private pensions are also divided in the context of a divorce, as will be described in more detail later. Furthermore, debts must also be divided fairly; you will also receive further information on this in a subsequent chapter.

What does AHV splitting mean in the event of divorce?

The joint claims in the AHV are redistributed in the event of divorce in order to arrive at a fair allocation. For this purpose, an income distribution, the so-called splitting, takes place within the marriage. In order to determine the pension entitlements for old age or invalidity of divorced persons, the income earned by both spouses during the marriage is divided and attributed to each half. Only the years in which both partners were insured with the AHV/IV are taken into account.

The income in the year of the marriage and in the year of the divorce is not divided. Splitting is therefore only possible if the marriage has lasted at least one complete calendar year .

Maintenance obligation for joint children

Regardless of any agreements on post-marital maintenance between the divorced partners, parents are always obliged to provide maintenance for their children. This obligation continues until the child reaches the age of majority or completes his or her first vocational training.

The parent obliged to pay is the one who does not live with the child. The parent who forms a domestic community with the child fulfills his or her obligation to pay child support by raising the child as well as by providing personal care. The court shall determine the amount of child support without affecting the subsistence level of the parent liable to pay.

Legal remedies in case of non-fulfillment of child support obligations

If the parent liable to pay fails to meet his or her obligations, the person entitled to child support may seek collection assistance from the respective canton. Each canton must offer free assistance for the collection of child support. Furthermore, the cantons offer advances for child alimony to bridge the gap.

In certain cases, a debtor ‘s order can be applied for against the arrears payer at the competent civil court. Through this order, the child support is deducted directly from the salary or wages of the parent liable to pay and forwarded to the applicant.

If there are already long-term arrears in child support payments, debt collection proceedings can be initiated. The debt collection office at the place of residence of the parent liable to pay is responsible for this. If the parent continues to fail to meet his or her obligation to pay, criminal proceedings may be initiated.

Prenuptial agreement: these points can be agreed

Although a contractual agreement is unromantic, it can contribute to a relatively conflict-free separation in the event of a divorce, since the essential matters have been settled in advance. This can often reduce the high costs of divorce proceedings. Furthermore, fundamental property issues as well as the distribution of the inheritance can be clarified.

A prenuptial agreement regulates

• the matrimonial property regime
• the division of assets in the event of divorce
• the inheritance claims of the divorced spouses
• the inheritance claims in a marital union

Divorce: not always amicable

In Switzerland, spouses can in principle divorce without a lawyer. However, due to the complexity, an experienced specialist lawyer is advisable in most cases. If the spouses do not agree, the only option is to file for divorce. If one spouse does not agree with the divorce in general, a separation period of two years must first be observed. After that, the person wishing to divorce can sue for separation of the marriage.

While in the case of unity a divorce can be settled for about 2,500 francs, the costs quickly add up to 10,000 francs or more in the case of disputes. The costs are shared in the case of unity – in the case of divorce suits, the losing party bears the total costs.

Since both spouses are concerned about their future existence in the context of divorce proceedings, property issues are also frequently disputed. Here it is a question of the allocation of personal property and acquisitions or the valuation and division of real estate assets. A prenuptial agreement can help to save costs and nerves here.

What happens to debts in the event of divorce

After a divorce, spouses do not necessarily have to pay for the debts incurred by the other partner. Spouses are only liable for jointly concluded loan agreements, as is often the case with mortgage loans. However, for debts that are part of joint household management, such as household debts, insurance premiums or outstanding tax bills, both must be jointly liable. A division does not arise here.

Pension equalization for occupational pensions

Pension equalization refers to the division of the pension assets accumulated during the marriage. In the event of a divorce, the property settlement takes place first, followed by the pension equalization. Finally, the maintenance contribution is determined.

Divorce and pension fund: equitable distribution of pension assets

Pension equalization balances out the often differing assets that the couple has accumulated during the course of the marriage. If one person was primarily responsible for childcare, caring for dependents or managing the household, they often did not have the opportunity to build up a large pension fund balance.

In contrast, the person who was more gainfully employed during the marriage period usually accumulated a larger balance. Pension equalization divides the assets accumulated during the marriage equally between the spouses in order to compensate for the pension losses of the person who was not or only slightly gainfully employed. This ensures a fair distribution of the pension assets for both spouses.

Components of the pension equalization

The entitlements of the compulsory and non-compulsory second pillar that are divided include:

• the termination benefit (retirement assets accumulated during the marriage at the time the divorce proceedings were initiated)
• the vested benefit credit (with a vested benefit institution)
• theadvance withdrawals for home ownership (payment by the pension fund to purchase owner-occupied residential property)

In order to calculate the termination benefit to be divided, any one-time contributions made from personal assets are deducted from the result. Any further capital payments made during the marriage are also deducted. Since only entitlements acquired during the marriage are relevant for pension equalization, assets prior to the marriage (including interest) are also not taken into account.

Pension equalization in the event of a disability pension

If a disability pension is drawn before the pension is drawn upon divorce, a “hypothetical termination benefit” must first be drawn up. This is the termination benefit in the event of regaining earning capacity. This calculated termination benefit is then divided in half. The division has the effect of reducing the disability pension.

Pension equalization in the case of an existing retirement pension

If one spouse is already receiving a retirement pension or disability pension and is already of retirement age, the pension is divided. In this case, half of the pension is considered as a guideline, but the court makes a discretionary decision in this case. Provided that both spouses receive a pension, a settlement can be made without any problems. However, an equalization of pension on one side and termination benefit on the other side requires the consent of both pension funds.

Divorce and pension fund: in exceptional cases there is no division

In exceptional cases, the court may deviate from the rule of splitting the pension fund assets in half.

These exceptions are:

• Over-half division: if one spouse was unable to work because of caring for several children, the court may order an over-half division. In doing so, the court will take into account that the spouse subject to the equalization obligation will be left with adequate retirement provisions.
• Refusal of equaldivision: If there are important reasons, the court may refuse equal division. This may be the case, for example, if one spouse is about to retire and the other is still able to save for his or her own retirement on account of his or her young age.
• Impossibility of division: If it is not possible to equalize the pension fund assets because, for example, the pension assets are located abroad, the person subject to the equalization obligation owes a lump-sum settlement as an alternative.
• Unreasonableness of the division: Unreasonable in this context could be, for example, the reduction of an already ongoing disability pension. However, the entitlement to compensation through free capital remains, which can also be paid in installments under certain circumstances.

Mutually agreed waiver of the termination benefit

Although the legal principle states that BVG assets accumulated during the marriage period should be divided at the time the divorce petition is filed, spouses may agree to a waiver.

The law allows spouses to waive division if both have adequate retirement or disability insurance. In this regard, the court is free to deny the waiver of division in case of doubt. The question, then, is what provision is adequate. In principle, this is the case if the person waiving benefits from other advantages, and thus a proper retirement is guaranteed.

To assess what is an appropriate retirement provision, below are some key points:

• Long marital periods usually require equitable compensation.
• For short periods of marriage, personal responsibility weighs more heavily (especially if the marriage was childless).
• If both spouses have reached retirement age, the principle of division is often without alternative, since neither can build up new pension entitlements.
• In the case of a considerable age difference, a half split is usually not appropriate, since each has adequate pension provision for himself or herself or will still benefit from it in the future.
• In the case of considerable income or assets on the part of the person entitled to equalization, it can be assumed that old-age provision is possible without any problems. This justifies a waiver of equalization.
• If one spouse is self-employed, the value of the business may be a substitute for retirement assets and thus a waiver of equalization is legitimate.
• If both spouses have excellent incomes, there is no need to equalize additional pension assets.
• If one spouse is particularly favored in the division of assets (such as leaving a condominium as the sole owner), a waiver of equalization of pension assets is justified.

The third pillar after divorce

As private pension funds, the third pillar funds count towards the matrimonial property settlement. The assets saved during the marriage are therefore halved in the event of divorce. Other arrangements can be made in the marriage contract. The taxes due on the subsequent payout must be taken into account in the division.

If Pillar 3a assets are transferred during the division of property, this capital must remain tied up. The bank or insurance company is therefore obliged to transfer the money to an occupational pillar institution, i.e. a pension fund or, if applicable, a vested benefits institution.

Learn more now: Vested benefits at Everon

All parties benefit from well-considered solutions

Because of the emotional nature of the matter, it may seem difficult to remain objective during a divorce. But spouses who treat each other with respect during the divorce proceedings and also think about retirement planning during this phase save time, money and nerves.

The Swiss pension system, in conjunction with the matrimonial property regime, allows for many structuring options. These can be used to give all parties a positive perspective. The courts take care to ensure that there is no discernible injustice. Parents should bear in mind that money lost through costly court proceedings is ultimately also missed by their own children.

Reading Time: 5 minutes

The so called “60/40-portfolio” is a classic. The combination of 60 percent stocks and 40 percent bonds in a portfolio, was seen as very favorable in risk-return relations. The main assumption behind it is that stocks and bonds exhibit a low, if not even negative, correlation over time. Therefore, historical correlations between stocks and bonds have been a subject of interest for investors seeking to diversify their portfolios.

Understanding these correlations provides valuable insights into asset allocation strategies and risk management.

This article will explore the historical correlation between stocks and bonds in the U.S., discuss factors influencing these correlations, and highlight recent trends and their implications for investors.

Historical Perspective: A look into the past

The relationship between stocks and bonds has not always been consistent. There have been periods when the two asset classes have moved in the same direction and periods when they have moved in opposite directions. In general, bonds have served as a hedge against stock market losses due to their typically low historical correlation to stocks​, at least over the last 25 to 30 years. When we look over a longer horizon, there was a regime of largely positive stock and bond correlation between 1945 and 1995.

This was for instance the case in 1969 when the Federal Reserve hiked interest rates to curb rising inflation, which led to both stocks and bonds moving in a negative direction. This scenario happened again in the last year, when stock and bond returns fell after the Federal Reserve increased interest rates at the fastest pace in 40 years. Over four decades, this simultaneous drop has occurred only 2.4% of the time across any 12-month rolling period​.

Factors Influencing the Correlation

Several factors can influence the correlation between stocks and bonds. One of the significant drivers is interest rates. Higher interest rates can reduce the future cash flows of these investments, hurting both stock and bond returns. Bond prices are directly linked to the interest rate level and their valuation drops with an increase in interest rates, as long as their coupon payments are fixed. The reason is that existing bonds with old (low) coupons become less attractive compared to newly issued bonds with higher coupons.

Stocks are impacted because higher interest rates mean higher financing costs and an intentional slowdown of the economy. Both effects tend to reduce company profits and therefor lead to lower equity valuations.

Additionally, the level of risk appetite among investors also plays a crucial role. When the economic outlook is uncertain and interest rate volatility is high, investors are more likely to reduce risk in their portfolios, pushing down both equity and bond prices. Conversely, if the economic outlook is positive, investors may be willing to take on more risk, potentially boosting equity prices​​. Also consider that the attractiveness of cash increases with the interest rate level of a currency as it can already provide decent “riskless” returns.

Reading tip: Investment strategy in focus: The power of income strategy

Recent Trends and Implications

We look at the US equity and bond markets, represented by the S&P 500 and the Bloomberg US Aggregate. As shown in the below graph, the rolling 53-weeks-correlation between bonds and stocks was negative most of the times between 2012 and 2020. So, over this period, the diversification effect of stocks and bonds worked well. However, the 60/40-portfolio was not a very attractive investment from a return perspective, as the zero-interest rate regime introduced very low yields on fixed income investments.

In recent years however, a notable shift has occurred in the stock-bond correlation and in the attractiveness of fixed income. In 2022, there was a lockstep movement between the S&P 500 and Treasury bonds. This was driven largely by high inflation, restrictive Fed statements, stubbornly high consumer spending, and nominal wages, which frequently upset the bond market.

This led to a situation where stocks often fell when interest rates rose, challenging the diversification benefits of traditional 60/40 portfolios​​, but boosting yields for fixed income investments.

As we move into 2023, the investing landscape appears to be changing. Weak manufacturing data, a softening household employment picture, and tame 3-month annualized inflation gauges suggest that the U.S. economy may move towards a mild contraction at times during the year.

This could lead to softer interest rates and a shift in the correlation between stocks and bonds, with Treasury bonds potentially moving in a different direction from equities. If this shift occurs, it would likely benefit diversified portfolios, particularly given the higher starting yields in Treasury bonds compared to previous years​.

Moreover, the investing climate may begin to resemble the period between 1945 and 1995, where stocks and bonds often moved together in a high-growth, sustained inflation environment. This would mark a significant shift from the period from the late 1990s through the early part of the COVID-19 pandemic, where deflation was more of a concern than high inflation, promoting the benefits of diversification between stocks and high-duration Treasury securities​​.

Reading tip: Investing money in Switzerland: investment strategies and the 1×1 of investing

The Impact of the COVID-19 Pandemic

The COVID-19 pandemic also played a significant role in influencing the correlation between stocks and bonds. The Federal Reserve’s shift to unprecedented monetary stimulus in response to the pandemic led to a unique situation in the bond and equity markets.

The U.S. stock market rebounded from the initial shock of the pandemic and reached new highs, fueled in part by the low interest rates that made bonds less attractive. Meanwhile, the Federal Reserve’s commitment to keeping rates at near-zero levels led to a surge in bond prices, resulting in a rare period where both bonds and equities performed strongly (period from mid 2020 to mid 2021)​.

Reading tip: Factor risk premiums: Value, Momentum, Size and Quality in recent years

Conclusion

While the correlation between stocks and bonds has varied over time, understanding this relationship and the factors that influence it is crucial for investors seeking to diversify their portfolios and manage risk.

As we move into 2023, it remains to be seen how this correlation will evolve. However, given the current economic trends and the higher starting yields in Treasury bonds, diversification could potentially prove more beneficial in the coming year​1​.

Today, financial markets are experiencing sharp swings as the implications of higher interest rates become more apparent. Yet, it’s important to remember that, over the last century, cycles of high interest rates have come and gone, and both equity and bond investment returns have been resilient for investors who stay the course​5​.

While the correlation between stocks and bonds will continue to shift based on various factors, what remains constant is the importance of a well-diversified, balanced investment portfolio. Investors who understand these shifts and adapt accordingly can better navigate the ever-changing financial landscape.