Core & Satellite Investing for Balanced Growth

A core investment portfolio is typically made up of low-cost index funds or ETFs that track the overall market, providing broad diversification and low fees.

By investing in a core portfolio, you can achieve a solid foundation for your investments.

Core portfolios often include a mix of domestic and international stocks, as well as bonds, to provide a well-rounded asset allocation.

A satellite portfolio, on the other hand, is used to add a bit of extra excitement and potential for growth to your core investments.

A portfolio is a collection of investments that work together to achieve your financial goals. It's like a puzzle, with different pieces that fit together to create a complete picture.

The core and satellite investment strategy divides a portfolio into two main components: the core and the satellite. The core is a stable, diversified foundation that focuses on wealth preservation and steady growth.

The core and satellite approach is widely used by top private banks to manage the complex needs of ultra-high-net-worth (UHNW) clients. This is because it allows for a balance between stability and flexibility.

Here's a breakdown of the core and satellite components:

This strategy is designed to combine the benefits of diversification with the potential for enhanced returns. By separating your portfolio into core and satellite components, you can enjoy a stable foundation while also taking calculated risks to grow your wealth.

Constructing a portfolio is a crucial step in building a solid investment strategy. The core portfolio is the foundation of your investments and should provide stability and consistent returns across economic cycles.

The core portfolio is typically diversified, passively managed, and multi-asset, including equities, bonds, and alternative investments. It's designed to be long-term in nature, seeking out reliable and consistent returns from a broad range of sources.

For a $2 million portfolio, a typical core might consist of 45% diversified global equities, 20% fixed income such as high-grade bonds, and 5% private credit or real estate for alternative exposure.

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The core should form most of your investment portfolio, usually between 60% and 80% of your investible funds or capital. This allocation depends on your risk tolerance and financial planning aims and targets.

An 80/20 allocation is a common split when taking the core-satellite approach. In this case, the core forms 80% of the portfolio and is made up of ETFs that track major indices, such as the S&P 500 and the Straits Times Index, as well as globally diversified unit trusts.

The core can be used to invest in various styles, such as value-focused or growth-focused investments, and can have a heavier focus on foreign stocks over local stocks.

The satellite portion of the portfolio can be invested in higher risk products that could give you better-than-normal market returns. This can be done through individual stock picking or through ETFs and unit trusts that are sector- and industry-specific.

Here's an example of how the core and satellite can be allocated:

Remember, the key is to find a balance between stability and growth, and to be flexible and adjust your portfolio as your needs change.

A core-satellite investment strategy allows you to diversify your portfolio widely by dividing it among asset classes such as stocks, bonds, and cash.

Stocks provide a higher appreciation potential than bonds and cash, but are also higher risk, as stock prices constantly fluctuate.

You can choose to invest in thematic stocks, such as technology or renewable energy, which can be a good way to tap into high-growth sectors.

For example, you might allocate 10% of your portfolio to AI-related equities as a satellite investment if you believe artificial intelligence will be a long-term growth driver.

Sector-specific ETFs can also be used to hedge risks, such as investing in consumer staples ETFs during economic downturns.

Structured products like yield-enhancing notes can be used to amplify returns or generate income.

Here are some examples of satellite investments:

Satellite investments are typically smaller allocations, making up 20-40% of the total portfolio, and can shift based on market views or trends.

The core of a core-satellite investment portfolio is where the magic happens. It's the foundation upon which you build your financial future.

A core-satellite approach allows you to have a broad-based passive investment, which can range from 50 percent to 80 percent of your portfolio. This type of investment provides diversification and flexibility that can protect you against risk.

The core is usually chosen because it has demonstrated reliability and consistency over time. It isn't necessary to trade the core a great deal over either the short or long term.

Having a core invested in a broad-based index or ETF for the long term is simply efficient. It can lead to cost-effectiveness, lower transaction fees, and tax efficiencies, such as lower capital gains taxes.

Here are some key characteristics of a core investment:

The core is the backbone of your investment portfolio, and it's essential to choose investments that align with your risk profile and financial objectives.

Alternative Investments can be a game-changer for your Core & Satellite portfolio. They can help you diversify your investments and reduce risk.

For instance, integrating alternatives like private equity or real estate into your Core Portfolio can offer enhanced return potential with lower correlation to public markets. A 10% allocation to private equity can complement traditional equities and bonds, providing resilience across market cycles.

Structured products are ideal for the Satellite Portfolio, allowing targeted growth or income opportunities. They can potentially deliver regular high income or amplify upside while offering downside protection, balancing risk in dynamic markets.

Some examples of alternative investments that can be used in the Satellite Portfolio include:

These asset classes can help you balance risk and potentially increase returns. By incorporating alternative investments into your Core & Satellite portfolio, you can unlock new opportunities for growth, income, and risk management.

Arta offers tools and strategies tailored to building core and satellite portfolios. This means you can create a portfolio that's as dynamic or stable as you need.

Arta provides expert guidance to help you make informed investment decisions. Their mix of technology and expertise empowers you to build a portfolio that works harder for you.

Arta's core strategies are designed to provide a solid foundation for your portfolio. They offer automated rebalancing to ensure your investments stay on track.

Arta's satellite opportunities allow you to diversify your portfolio and take advantage of new markets. With their expert-designed products, you can invest with confidence.

Arta's tools and strategies can be used to build a portfolio that meets your individual needs. Whether you're a seasoned investor or just starting out, Arta has the resources to help you succeed.

Here are some key benefits of using Arta's tools and strategies:

The core and satellite portfolio strategy is a powerful framework to navigate today's dynamic markets. By balancing a stable foundation with tactical growth opportunities, you can achieve your financial goals with confidence.

Arta provides the tools and expertise to make it happen. Whether you're just starting out or looking to refine your strategy, they can guide you every step of the way.

You can achieve your financial goals with confidence by balancing a stable foundation with tactical growth opportunities. This is the core and satellite portfolio strategy in a nutshell.

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The Core-Satellite strategy is a popular investment approach that offers several advantages and disadvantages.

One of the main pros is that it requires a high one-time effort to pick your core and satellites, as well as choose their allocation. This initial investment of time and energy can pay off in the long run.

However, ongoing effort is required to rebalance your core and satellites, which can be a medium-level task. This means you'll need to regularly review and adjust your portfolio to ensure it remains aligned with your investment goals.

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The Core-Satellite strategy also involves a medium level of turnover, which can be beneficial for tactical use of satellites. This means you can quickly adapt to changing market conditions and make the most of new opportunities.

Market opinion and research are required for short to medium-term satellite plays, which can be a challenge for some investors. However, having access to quality research and analysis can help you make more informed decisions.

The holding period for a Core-Satellite portfolio is typically medium-term, aiming for investment success over several months or years. This can help you ride out market fluctuations and avoid making impulsive decisions.

One of the benefits of the Core-Satellite strategy is that it's easily customizable, allowing you to spread your bets and avoid over-concentration. This can help you manage risk and protect your portfolio from significant losses.

However, backtesting a Core-Satellite portfolio can be a costly and time-consuming process, susceptible to data-mining biases. This means you'll need to carefully evaluate the results of any backtesting you do and consider multiple scenarios before making investment decisions.

Here's a summary of the pros and cons of the Core-Satellite strategy at a glance:

The core-satellite approach is a well-diversified investment strategy that aims to achieve market average returns with a stable core of long-term investments.

By using passive investment instruments like exchange-traded funds (ETFs) that track equity indices, you can form a solid core for your portfolio. This includes tracking indices like the S&P 500 and Straits Times Index.

The core-satellite approach provides flexibility as every investor has a different risk appetite. You can construct your portfolio with your individual goals, personal situation, preferences, and risk tolerance in mind.

Employing a combination of ETFs and unit trusts can minimize trading costs and volatility. This makes it a more hassle-free way for individuals to manage their investments.

Investing in growth and income assets at both ends of the risk spectrum can help achieve a balance between risk and reward. This is known as the Barbell Strategy, which forms the core of your portfolio.

The Barbell Strategy helps capture superior returns from long-term, irreversible growth trends while generating stable income to mitigate short-term market volatility.

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