Balance Risks and Returns: Use Core Satellite Method

You must align this strategy with your goals and monitor your portfolio periodically

- Atul Shinghal

In the short run, the market is a voting machine, but in the long run, it is a weighing machine." This quote holds significance, especially in building a balanced portfolio, which offers both growth and stability. One way to achieve this is through core-satellite investing, a strategy developed by Fischer Black and Jack Treynor in 1973. Blending active and passive investing, core-satellite investing is based on Harry Markowitz's modern portfolio theory (MPT) introduced in the 1950s, emphasizing diversification and strategic asset allocation.

Initially popular among institutional investors in the 1990s, it gained traction with retail investors in the 2000s, driven by the rise of index funds and exchange-traded funds (ETFs). By aligning this approach with their risk appetite and financial goals, investors can effectively balance stability and growth.

Achieving financial goals
The core-satellite investment approach is a portfolio management strategy that divides investments into two distinct components: the core and the satellite. The core comprises 60-80% of the portfolio and consists of stable, low-cost investments that track broad market indices. This core consists of investment instruments such as index funds, ETFs, and blue chip stocks.