Core-Satellite Strategy

Core-Satellite Strategy

The core-satellite strategy is a portfolio construction method that divides your investments into two parts: a "core" holding of broad, low-cost index funds (typically 60-80% of the portfolio) and "satellite" positions in specialized investments that aim to add extra returns or specific exposure.

Portfolio Structure

Component	Allocation	Purpose	Typical Investments
Core	60-80%	Market returns, low cost, broad diversification	Total market index funds, S&P 500 ETFs
Satellites	20-40%	Alpha generation, specific themes, tactical bets	Sector ETFs, individual stocks, REITs, alternatives

Benefits of Core-Satellite

• Lower overall costs -- core holds minimize fees while satellites are targeted
• Broad diversification with the opportunity for outperformance
• Risk management -- core provides stability; satellites are sized for manageable risk
• Flexibility -- adjust satellite positions without disrupting the entire portfolio
• Tax efficiency -- core rarely trades, minimizing capital gains

Example Portfolio

Core (70%):

• 40% -- Vanguard Total Stock Market ETF (VTI)
• 20% -- Vanguard Total International (VXUS)
• 10% -- Vanguard Total Bond Market (BND)

Satellites (30%):

• 10% -- Technology sector ETF (for growth conviction)
• 8% -- REIT index fund (for real estate exposure)
• 7% -- Dividend aristocrats fund (for income)
• 5% -- Emerging markets fund (for higher growth potential)

Key Points

• The core provides market-matching returns at minimal cost
• Satellites allow you to express investment convictions without betting the whole portfolio
• If satellite bets fail, the core protects the majority of your wealth
• This approach works well for investors who want some active involvement without full active management

Why It Matters

Core-satellite gives investors the best of both worlds: the reliability and low cost of passive investing with the opportunity to pursue additional returns through targeted positions.