Diversification: count the underlying risks, not the number of funds
Several funds can own the same companies and leave you unexpectedly concentrated.
More lines do not necessarily mean less risk
Holding five funds can create the appearance of variety while repeatedly buying the same large companies. Compare underlying holdings, sectors, regions and currencies. A global label is not a guarantee of equal geographic exposure. Concentration also exists outside investments: your salary, business, pension and home may depend on one economy. A useful diversification review starts with all those connections, not the number of entries on a statement.
Read through the wrapper
Obtain the latest holdings report and investment policy. Distinguish an index-tracking fund from an actively managed fund and check what each is allowed to own. A fund of funds can add layers of fees and overlapping positions. Asset-class labels also need scrutiny: two bond funds may both have long interest-rate exposure or similar issuers. Ask the adviser to explain how the proposed holdings genuinely differ.
Hypothetical overlap
An investor allocates CHF 20,000 to a broad equity fund and CHF 10,000 to a technology fund. If the broad fund already has substantial technology exposure, the second holding increases that concentration instead of creating a new independent source of risk. A third fund tracking a similar index may add little. This hypothetical example demonstrates overlap; it does not establish that technology exposure is always inappropriate.
Diversification has limits
Different assets can fall together during stress. Diversification may reduce exposure to a single issuer but does not guarantee a positive return or remove market losses. Illiquid holdings can be hard to rebalance and create valuation uncertainty. Currency and derivatives can change the economic exposure in ways not obvious from a product name. Do not treat a smooth historical chart as proof that future volatility is low.
Rebalancing needs a rule
Decide whether reviews follow a calendar or an agreed deviation from target weights. Compare trading costs and tax implications before selling; additional contributions can sometimes correct a drift without unnecessary turnover. If a provider proposes a discretionary mandate, understand its authority to change allocations and its reporting obligations. The Swiss Financial Services Act provides the legal framework, but your contract determines the actual service and its boundaries.
Documents for a meaningful review
Gather holdings, fund factsheets, pension allocations, employer shares and major liabilities. List any restricted holdings or promises of capital protection, with their conditions. Ask for a plain account of what drives risk and how fees change if the portfolio is simplified. A more understandable portfolio may be easier to maintain. Clearwise can organise the overall planning discussion and clarify when a securities specialist is required.
Look at the provider too
Diversification of investments and diversification of custody are separate discussions. The first concerns the economic assets; the second concerns where accounts and legal claims are held. Multiple brand names can belong to the same legal institution, while different funds can share the same administrator or market exposure. Identify those relationships without assuming that every operational link creates identical risk. Ask what would happen if a provider became unavailable and how statements, records and transfer instructions could still be obtained.
Sources and further reading
Original Clearwise analysis. External reporting provides context; rules and contract terms must be verified with the competent authority or provider. Some press articles may require a subscription.
- Reference Federal Financial Services Act ↗
- Reference FINMA: Financial Services Act ↗
Apply this to your situation
Compare your actual documents and clarify what matters before making a commitment.
Request a free consultationGeneral guidance, not a binding quote or personalised legal, tax or investment advice. Examples are hypothetical and results are not guaranteed.
