CORE-SATELLITE INVESTING
Overview
Pair a stable 'core' of broad index funds with a smaller 'satellite' of high-conviction active positions. You capture most of the market's return while leaving room to express specific views — the best of passive and active in one framework.
Setup
- 1.Allocate 70-80% of the portfolio to low-cost broad index funds (VTI, VOO, VXUS).
- 2.Allocate 20-30% to satellite positions: individual stocks, sector ETFs, or thematic funds you believe in.
- 3.Rebalance annually — let winners run but trim satellites that grow too large.
- 4.Judge each satellite against a simple question: would I rather own this than more of the index?
- 5.Keep satellite positions to 5-10 individual names to stay diversified within the active sleeve.
Max profit
Core captures full market return; satellites can significantly outperform in favorable environments.
Max loss
Satellites can underperform or lose value, but the core limits total portfolio damage.
Breakeven
Weighted blended cost basis across core and satellite positions.
When to use
For investors who want market exposure but still enjoy stock-picking. Ideal as a structure for most long-term investors.
When to avoid
Don't expand the satellite sleeve beyond 30% — you stop benefiting from diversification and start running a concentrated active portfolio.