Unit-Linked / Euro Fund Rebalancing Simulator

Rebalancing involves changing the distribution of your capital between the euro fund (secure) and unit-linked funds (dynamic). This simulator compares two scenarios:

• Net return for each scenario: Net rate = (1 - %UC) x (Euro fund rate - Fees) + %UC x (UC rate - Fees).
• Projection over time: Capital is compounded annually with the net rate for each scenario.
• Difference: The gap in final capital between the two scenarios shows the concrete impact of rebalancing.

The higher the unit-linked share, the greater the potential return, but also the risk of capital loss. Rebalancing must match your investment horizon and your risk tolerance.

Rebalancing is not a trivial operation: it involves modifying the risk and return structure of your contract. Understanding the situations in which rebalancing is relevant allows you to make informed decisions, aligned with your long-term wealth management strategy. Here are the four most common scenarios where rebalancing is fully justified.

Securing gains after a strong market rally

When financial markets experience a prolonged bullish phase, the share of unit-linked funds in your contract mechanically increases. Your actual allocation then diverges from your target allocation, increasing the overall risk of the portfolio. Switching part of the gains to the euro fund allows you to lock in profits and reduce your exposure to correction risk. This approach is particularly wise if you are approaching a financial goal (property purchase, retirement, education funding) or if the unit-linked share has exceeded the level you consider comfortable. Since there is no tax to pay on internal switches within the contract, this operation is fiscally neutral and poses no tax obstacle.

Taking advantage of a market downturn to invest in unit-linked funds

Conversely, correction or crash periods offer opportunities to buy at reduced prices. Transferring part of your capital from the euro fund to unit-linked funds after a significant decline (15 to 30% on equity indices) is a proven "contrarian" strategy. Historically, equity markets have always eventually surpassed their previous peaks, even after the most severe crises (2008, 2020). Be careful, however, not to try to "time" the market perfectly: no one can predict the bottom. It is preferable to invest gradually through several switches spread over a few weeks or months, rather than moving everything at once.

Annual rebalancing: returning to the target allocation

Rebalancing is the most disciplined form of switching. It consists of returning, once or twice a year, to your initial target allocation. For example, if your target allocation is 60% unit-linked / 40% euro fund and the market rally has brought your actual allocation to 70% UC / 30% euro fund, rebalancing involves switching 10% of capital from UC to the euro fund. This mechanism forces you to sell what has risen (UC in a bullish phase) and to reinforce what has fallen, naturally applying the "buy low, sell high" principle. Academic studies show that annual rebalancing improves the risk-adjusted return over the long term compared to a "buy and hold" strategy without adjustment.

The lifecycle approach: adapting allocation to your time horizon

The lifecycle approach rests on a simple principle: the longer your investment horizon, the more volatility you can accept in exchange for potentially higher returns. A 30-year-old saver with a 30-year horizon before retirement can legitimately hold 70 to 80% in unit-linked funds. As retirement approaches, the UC share should gradually decrease in favor of the euro fund to protect accumulated capital. In practice, a commonly used rule by wealth managers is: percentage in UC = 100 - your age. At 35, 65% in UC. At 55, 45% in UC. At 65, 35% in UC. Of course, this rule should be adapted to your personal situation, overall wealth, other income sources, and appetite for risk.

Rebalancing is a powerful tool for managing your life insurance, but it must be used methodically. Behavioral errors or excessive activity can harm the performance of your portfolio. Here are the best practices for successful rebalancing.

Do not rebalance on a whim: beware of emotional bias

The first rule is never to make a rebalancing decision in the heat of the moment. When markets drop sharply, fear pushes many savers to sell their UC at the lowest point to take refuge in the euro fund. This is exactly the opposite of what should be done. This behavioral bias, called "loss aversion," is responsible for considerable value destruction among retail savers. Conversely, the euphoria of a bullish market can tempt you to excessively increase the UC share at the worst time. To avoid these traps, define your target allocation calmly, in advance, and stick to it. Switches should be planned, never reactive. Always ask yourself: "Would I have made this decision three months ago in a neutral market context?"

Recommended frequency: 1 to 2 rebalances per year

Studies on portfolio management show that too-frequent rebalancing (monthly) does not significantly improve performance and can even generate unnecessary costs. Conversely, never rebalancing lets the allocation drift, increasing risk in an uncontrolled manner. The professional consensus recommends one or two rebalances per year, typically in January and July, or after a market movement exceeding 15-20%. This semi-annual pace captures major market movements without reacting to daily noise. Some experts also recommend rebalancing only when the gap between actual and target allocation exceeds 5 percentage points, regardless of the calendar.

Rebalancing costs: choose contracts with 0% switching fees

The cost of rebalancing is a major criterion in choosing your life insurance contract. The best online contracts (Linxea Spirit 2, Lucya Cardif, Boursorama Vie) charge no switching fees, whether as a flat amount or percentage. However, some traditional bank contracts charge between 0.5% and 1% of the switched amount, which can represent several hundred euros on a substantial capital. Over 20 years, two annual switches at 0.5% on a capital of 100,000 euros represent a cumulative cost of 20,000 euros, a considerable deadweight loss. If your current contract charges switching fees, it may be worth opening a new contract with an online broker. Unfortunately, transferring is not always possible without losing tax seniority (except under the PACTE law for PER plans).

Automatic switching: managed allocation with minimal effort

Many contracts now offer automatic switching options that allow you to implement a strategy without manual intervention. The most common are:

• Profit-locking:As soon as a unit-linked fund generates a gain above a defined threshold (e.g., +10%), the profit is automatically transferred to the euro fund. This allows you to "take profits" without having to monitor markets constantly.
• Progressive investment: Rather than investing a large amount at once in UC, this option gradually transfers an amount from the euro fund to UC over several months (usually 6 to 12 months). This smooths the entry price and reduces the risk of bad timing.
• Automatic rebalancing: The contract automatically returns to your target allocation at a defined frequency (quarterly or semi-annually). This is the most disciplined method, eliminating all emotional bias and any risk of forgetting.
• Relative stop-loss: If a UC loses more than a certain percentage from its peak (e.g., -15%), it is automatically switched to the euro fund to limit losses. This option should be used with caution as it can trigger sales at the bottom during temporary high volatility.

These options are generally free on online contracts and constitute an excellent way to rationalize the management of your allocation, especially if you have neither the time nor the inclination to follow markets daily.

Sophie, 48, a self-employed doctor, holds a multi-fund life insurance contract worth 180,000 euros. Her target allocation is 50% in unit-linked funds (mainly global equity ETFs) and 50% in the euro fund. After an exceptional stock market year in which equity markets rose 22%, her actual allocation has shifted to 58% UC and 42% euro fund. The capital invested in UC now represents 104,400 euros, while the euro fund stands at 75,600 euros.

The rebalancing switch: To return to her 50/50 target allocation, Sophie needs to transfer 14,400 euros from UC to the euro fund (104,400 - 90,000 = 14,400 euros). After the switch, she holds 90,000 euros in UC and 90,000 euros in the euro fund, restoring her initial risk profile.

The benefit of this discipline:By securing 14,400 euros of gains in the euro fund, Sophie locks in a portion of her profits before a potential correction. If markets correct by 15% the following year, her capital loss will be limited to 13,500 euros (90,000 x 15%) instead of 15,660 euros (104,400 x 15%) without rebalancing, a saving of 2,160 euros. In return, if markets continue to rise, she will have slightly lower gains. Over the long term, this disciplined annual rebalancing systematically "sells high and buys low," improving the risk-adjusted return of the portfolio by 0.3 to 0.5 percentage points per year according to academic studies.