Core-Satellite Approach

The core-satellite approach is a practical way to structure your investment portfolio for both stability and flexibility. In this model, you allocate the majority of your investment to the core, which usually consists of broad-market index funds or ETFs. These core holdings are designed to provide steady, long-term growth and reduce overall risk by spreading your investment across many companies and sectors.

The satellites are smaller positions you choose based on your interests, research, or desire to seek higher returns. These can include individual stocks, sector-specific ETFs, or even niche funds. The satellite portion allows you to express your opinions about certain industries or companies without exposing your entire portfolio to the higher risk that comes with concentrated bets.

A typical allocation might look like 80-90% in core holdings and 10-20% in satellites. This balance helps you stay grounded with a strong foundation, while still giving you room to experiment and potentially enhance returns.

Consider an example of a core-satellite portfolio for a new investor:

• Core (85%): A total market index fund and a bond index fund. This gives you exposure to thousands of companies and a mix of stocks and bonds, forming a resilient base;
• Satellites (15%): Three positions - one in a technology ETF, one in an individual stock you believe in, and one in a real estate investment trust (REIT). These satellites reflect your personal interests and provide potential for extra growth.

This structure ensures that even if your satellite picks underperform, your core keeps your portfolio steady and growing over time.