Three Strategies Every Investor Should Know, Part 3: Core-Satellite

If you've been following along, you now have two solid investing strategies under your belt.

Part one was buy and hold, the strategy of staying invested through the ups and downs.

Part two was dollar-cost averaging, a way to build your portfolio steadily over time.

Now for the final piece: a strategy when you have a solid foundation and start wondering if you can do a little more.

Some investors who are comfortable shouldering a little extra risk get curious about pairing a core of diversified, lower-risk funds with a handful of more interesting, higher-risk investments on the side - ones that complement the foundation and open the door to potentially higher returns.

If that’s you, the core-satellite strategy is worth exploring. Let’s dig in.

From Foundation to Flexibility

There’s something that happens to a lot of investors once they have their core in place.

The funds are bought, the contributions are set up, and things are quietly ticking along. And then a theme catches their eye - maybe it’s clean energy, or a country whose economy is growing fast, or a company they believe in. Suddenly the "set it and forget it" approach feels a little restrictive.

That is where the core-satellite strategy comes in. It is a way to act on that curiosity, to follow a trend or back a specific idea, without turning your whole portfolio into a gamble.

The Idea in One Image

The strategy is built on an 80/20 split, imagining your portfolio split like a planet with satellites.

The core sits at the centre, large and gravitationally stable, making up around 80 percent of your investments.

The satellites orbit around it, smaller and livelier, representing the remaining 20 percent.

The diagram above shows what this looks like. Individual stocks, sector ETFs, country ETFs, commodities: these are all examples of satellites.

They sit at the edges of the portfolio, adding risk and potential return, while the core quietly holds everything together.

The 80/20 split is a useful starting point, not a rule. What matters is the principle: a stable foundation plus a smaller, more experimental layer.

The Core: Your Home Base

If you read part one of this series, the core will feel familiar. It’s where buy-and-hold comes in: the diversified, long-term foundation that follows the broad market rather than trying to beat it.

For most investors, this means a mix of broad funds that match their risk profile and time horizon.

For some investors, this core might also include a small allocation to defensive assets like gold, which tend to hold up better in certain downturns.

The core comes first, and everything else builds on top of it.

It might not be the most exciting part of your portfolio, but it's what steadies the ship and does most of the heavy lifting while you get on with your life.

The Satellites: Where You Add Your Personal Touch

This is where it gets more interesting. Satellites are the smaller, higher-risk positions you add around the core based on specific ideas, convictions, or curiosity.

A satellite could be a handful of individual company stocks.

It could be a sector ETF focused on something like clean energy or technology, or a country-specific ETF for a market you think is undervalued.

Or, commodities like silver.

The common thread is that each satellite is chosen for its individual potential, and each one is a bit riskier on its own than your broad core holdings.

This is where you get to be an investor with a point of view. The core quietly tracks the market while the satellites let you back your own ideas.

It's also what makes the strategy appealing to anyone who gets a little bored with pure buy and hold. The satellites give you something to research and follow, without putting your whole portfolio on the line.

The Pros

One of the biggest emotional challenges in investing is FOMO, the feeling that you are missing out on something exciting while your index fund just plods along.

Core-satellite is a structured response to that feeling. Instead of abandoning your diversified core to pile into a trend, you allocate a defined slice to it. You participate without overexposing yourself.

It also gives you a controlled way to turn the risk up or down. If a satellite goes badly, only a small portion of your portfolio is affected. You lose some, but you have not jeopardised everything. That means you can try things, learn from them, and adjust, without the kind of catastrophic losses that come from going all in on a single idea.

For investors who find pure buy and hold a little boring, satellites also give you something to research and follow.

The Downsides

On the other hand, the fact is that most people who try to pick investments that outperform the market do not succeed. History is full of clever investors who thought they had spotted the next big thing, only to watch it underperform a simple global index fund.

Even professional fund managers, with entire research teams behind them, fail to beat the market consistently over the long run.

So while your satellites might outperform, the evidence suggests they probably won’t. The real value of the core-satellite approach is not guaranteed extra return. It’s risk management, engagement, and a structured way to scratch the curiosity itch without losing the plot.

There is also a cost to consider. Satellites tend to be traded more frequently than the core, which means more platform fees and potentially more taxes in markets where capital gains are taxed when you sell. These costs eat into returns, sometimes more than people realise.

A Few Guardrails Worth Setting

One of the most useful things you can do with satellites is decide in advance how you’ll manage them.

How many individual positions is too many? What is the maximum percentage of your total portfolio any single satellite will represent? What will you do if one drops significantly, and when will you sell?

Before you make your first satellite investment, you should have a plan for when you'll sell - we've linked a guide to selling strategy in Resources below.

Think these through before you make the first satellite investment, not during a market panic.

The most important guardrail: keep an eye on your proportions.

If your satellites start to creep up and take over from the core, the whole strategy changes. A portfolio that started as 80/20 and has drifted to 50/50 no longer has a stable foundation. Rebalancing regularly helps prevent that drift; you’ll find another guide to rebalancing linked below.

And if a satellite performs badly, you don’t need to abandon your whole approach - look at whether the position size was too large, whether the idea was sound, and whether the research process needs refining. The core is still there, doing its job.

Putting It All Together

Buy and hold gave you the idea of a long-term diversified core. Dollar-cost averaging showed you how to build it gradually. Core-satellite adds a structured way to experiment at the edges while keeping the foundation intact.

The strategy does exactly what it promises: a steady core of long-term investments surrounded by a small ring of higher-risk ideas, so you can be both sensible and curious at the same time.

Investing doesn’t have to be a choice between playing it safe and following your instincts. With the right structures, you can do both.