The Core Satellite investing approach provides a framework for investors to allocate their investments across different asset classes, investing strategies and instruments. An Investment Plan can be formulated using the Core Satellite approach that ensures structure, rigour, process, appropriate capital allocation and personalised risk management according to a prepared plan rather than deferring to gut feel and social defaults, such as balanced mutual/managed funds, where 75% of workers͛ long-term core investments reside.
The Core Satellite approach has two key segments:
a) passive or near-passive portion called the core, which should have at least 50% of capital allocated to it, and
b) the satellite portion, which is more active and has less capital than the core portion allocated to it.
The core portion deploys strategies that should at least match the performance of the stock market, while the satellite portion of capital deploys strategies that can provide higher returns than mainstream stock market indices, and hence better than the core.
Combined, the two portions should outperform the market while still limiting risk, so the overall risk-adjusted-return is improved.The core can be 100% of investing capital and the satellites 0% on occasion, or all of the time, the mix depending on a number of criteria including an investor͛s objectives, return goals, regular time availability for investing, age, investing strategy horizon, tolerance for risk and the amount of capital that is invested.
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