In the world of investment strategies, the concept of a one-size-fits-all approach is a rare find. At Everalls Wealth Management, our extensive financial planning experience brings us into regular contact with a diverse array of investors, from high-achieving professionals and savvy business owners to individuals with substantial wealth. Regardless of their backgrounds, one common thread emerges: each of our clients possesses distinct financial needs and aspirations. Recognising this diversity, we embrace a philosophy centred on bespoke financial solutions, a philosophy that accommodates the individual needs of our clients. Among the strategies we often explore with our clients, there is one that consistently stands out as both effective and versatile—the Core-Satellite investment strategy.
This strategy combines the stability and cost-effectiveness of a ‘core’ portfolio with the potential for higher returns, downside protection, and a smoother investment journey through ‘satellite’ investments. In this article, we’ll dive into the components of this strategy, offering insights into its mechanics and the manifold benefits it brings to investors seeking a personalised and holistic approach to wealth management.
What is the Core-Satellite Strategy?
The Core-Satellite strategy is a strategic blend of passive and active investment strategies.
The Core: At the heart of this strategy is the core. It is composed of stable, low-cost, and diversified investments, usually accounting for a significant portion of the portfolio. Typically, it involves index funds or ETFs that mirror broad market indices. The primary objective of the core is to provide steady, long-term growth with minimal expenses.
The Satellites: On the other hand, the satellite components are more dynamic in nature. These could be actively managed funds, individual stocks, niche sectors, or alternative investments. Satellites aim to outperform the market, target specific growth opportunities, or hedge against particular risks.
Benefits of the Core-Satellite Strategy for Our Clients
Diversification: Diversification is a fundamental tenet of investing. The Core-Satellite strategy ensures broad market exposure through the core while allowing for a diversified selection of active or niche strategies in the satellites.
Potential for Outperformance: While the core seeks to match market returns, the satellite components offer the possibility of enhanced returns by tapping into specialised areas of the market or leveraging the expertise of active managers.
Flexibility: Each investor’s core and satellite can be customised based on their unique goals, risk tolerance, and interests. For instance, a tech-savvy professional might choose satellite investments in emerging technology sectors, while a business owner with in-depth knowledge of the real estate market might prefer property-focused investments.
Cost Efficiency: The core, often comprising passive investments, keeps overall portfolio costs low. This is crucial because lower costs can lead to better net returns over time. At the same time, the potential outperformance of satellite investments can justify their higher costs.
Risk Management: This strategy allows investors to take calculated risks with their satellite investments while maintaining a stable core. If a satellite investment underperforms, it won’t necessarily derail the entire portfolio because of the stability provided by the core.
Ease of Monitoring and Rebalancing: With a clear distinction between core and satellite investments, it’s easier to review performance and make adjustments as necessary. For example, if a satellite investment soars in value and becomes a more significant portion of the portfolio than desired, it can be trimmed back to maintain the desired balance.
Alignment with Financial Goals: The core can be seen as the workhorse, aiming to achieve long-term financial goals with steady growth. In contrast, satellites can be aligned with shorter-term objectives or specific interests, such as impact investing or sector-specific growth.
For our valued clients in Canberra, whether you’re a busy professional juggling a hectic schedule, a business owner with unique insights into specific industries, or a high net wealth individual with diverse interests, the Core-Satellite investment strategy can be tailored to meet your needs. It marries the best of passive and active investing, offering a balanced, flexible, and effective approach.
At Everalls Wealth Management, we pride ourselves on understanding your unique financial landscape. The Core-Satellite strategy is just one of the many tools in our toolkit, and we’re here to guide you in its implementation, ensuring it aligns seamlessly with your broader financial aspirations. Let’s collaboratively pave your path to financial prosperity. Talk to the team today!