A “core-satellite” approach involves putting the majority of your money into safe, lower-risk investments – the core – and then diversifying into smaller, higher-risk (and potentially higher-reward) ventures – the satellites. Consider it a representation of the solar system. All of the planets are satellites of the sun, which is your core. The sun dwarfs all of the planets that orbit it by multiple orders of magnitude.
Similarly, your core assets should make up the majority of your investment portfolio, while satellites are a series of minor stock bets aimed at boosting your profits on the margins. The idea with this technique is that none of the satellite assets are large enough that if anything goes wrong with any of them, it would have a significant impact on the entire value of your portfolio.
Just like having a strong core is crucial for creating a healthy body, asset allocation as a part of your investment portfolio in a diversified passive core strategy is also very important. And to achieve your goal, you need to track your portfolio constantly. For this, a stock tracker app can be beneficial. With this application, you can invest and track your core and satellites independently on this platform. It helps you stay updated and take necessary actions to improve your investments on the go.
The essence of core-satellite strategy and a stock tracker app
Costs
Because passive investments are nearly usually less expensive than their active counterparts, the core section of the portfolio helps to reduce costs. Because passive investments follow indexes, the portfolio only changes when the index does. Transaction costs and capital gains tax are minimized because indices change infrequently. Trading, on the other hand, is at the heart of active portfolio management. Execution costs and potential tax liabilities in the form of capital gains are associated with each trade.
Volatility
The volatility of the stock market is measured by beta. Many investors would rather not deal with volatility. When a considerable amount of a portfolio is dedicated to passive investments, the overall portfolio’s beta should be lower than the stock market’s beta. When the markets are volatile, adding investments that are not tied to the stock market as a whole, such as a commodities fund, can help decrease overall volatility. And to track such volatilities you must be tracking the market at all times with the Delta app. The application allows you to track all investments, and that too with a smart move.
Returns
Proactive managers strive to outperform their peers. By dedicating a small portion of the portfolio to active management, the chance for an active manager to outperform the benchmark is developed, adding to the whole portfolio return through trackers like the Delta app, resulting in benchmark-beating returns for the entire portfolio.
Hence, the core-satellite strategy allows you to make use of the best of both worlds. Better-than-average performance, low volatility, and cost control are all part of a flexible package that develops as per your specific requirements.
Additional resources:
- Browser-based platform user? Take note of the Benzinga Pro Review
- Correlation between gold and the stock market
- How to invest in stocks
