Weekly Buzz: How to build a core-and-satellite portfolio 🛠️

Investing is about balance: achieving growth without too much risk. A core-and-satellite portfolio can help. The idea is simple: a core group of stable assets serves as your foundation for long-term returns, while satellite holdings offer the potential to enhance those returns. What you end up with is a cost-effective, diversified core for steady growth, plus the flexibility to explore higher-risk, higher-reward opportunities on the side. Here’s how you can build one.

Getting right to the core

A strong core is your portfolio's backbone, consisting of low-cost, diversified investments that deliver consistent returns over time. ETFs tracking indexes like the S&P 500 or global stock markets make excellent core holdings because they spread risk across hundreds or thousands of companies. Other assets like bonds and gold also play a role here, further diversifying your core portfolio.

Look for simplicity and cost efficiency. ETFs typically have lower fees than actively managed alternatives, making them ideal for your portfolio's foundation (any of our General Investing portfolios work for this). Your core will do most of the heavy lifting, growing your wealth steadily with minimal maintenance.

Zooming out to the satellites

With your core providing stability, you can take some calculated risks with satellite investments. These allow you the flexibility to target assets with higher potential – whether in specific industries, emerging markets, or cutting-edge technologies.

Thematic ETFs make good satellite holdings – they work well when you believe in a long-term trend but don’t want to try picking individual winners. Focused on industries like artificial intelligence, clean energy, or healthcare, they offer instant diversification within high-growth areas without the risk of betting on a single company (and yes, any of our Thematic Portfolios work for this).

Word to the wise: you’ll want to keep the satellite portion of your portfolio on the smaller side, about 20%–30% of your total portfolio, depending on the level of risk you’re comfortable with. This way, even if a particular asset underperforms, your core holdings keep your long-term financial plans on track.

What’s the takeaway here?

Balance is important. Satellite investments can carry higher risk, so you might want to put up some added safeguards. While thematic ETFs and high-growth sectors present exciting opportunities, keep in mind that market trends can shift – what was a strong theme one year might lose momentum the next.

Over time, as assets perform differently, your core-and-satellite portfolio can drift off course and increase your exposure to riskier assets. You can consider trimming positions that have grown too large and redistributing the proceeds back into your core every so often.

Whether you're a cautious investor looking to add some growth potential or a risk-taker wanting to balance out volatility, the core-and-satellite approach offers a structured, flexible strategy. After all, investing isn't about simply choosing between safety and growth – it's about finding the right balance of both.

This article was written in collaboration with Finimize.

📖 A Little Context: Origins of the core-and-satellite

The core-and-satellite strategy evolved alongside the rise of passive investing, and gained further traction after the dot-com bubble burst – a market correction that cautioned against overconcentration. Some of the world's largest sovereign wealth funds, like Norway's $1.4 trillion Government Pension Fund, employ this strategy at scale, maintaining a broad market core while making targeted allocations.