Core vs Satellite


So, you have completed your financial profile, worked out your base currency and risk profile, and committed to a strategic asset allocation that fits. You should be feeling pretty good about your investments. However, isn’t this all a little bit…boring? You just read that gold mining stocks are about to go on a tear, or your friend showed you a cool biotech fund you want to get into, or how about cryptocurrency? There are always going to be some more exciting investments out there with potentially big returns, but where do they fit into your strategic asset allocation? The answer is, they don’t!

Firstly, you should be very careful investing in “the next big thing”. Often, by the time you hear about a cool new opportunity from your friend at the bar, the smart money has already been invested for some time and is looking for suckers coming in late to sell to. Having said that, at any given time there may be really exciting long term investment opportunities for people willing to tolerate some extra risk. They are just a little “niche”.

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This is where you need to understand the concept of a core/satellite approach. Simply put, the core of your assets, that is 80-90% of your investments, should be in your strategic asset allocation. This is serious money that you are planning to spend later on important things like your kid’s education and your retirement. If you really want to invest in platinum, or alternative energy, or bitcoin then this should be considered a “satellite” holding. It’s perfectly ok to allocate 5% of your investments to something more speculative, just don’t go all in! Over time we will look at some potential satellite holdings that you may want to consider.


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