I love investing. I enjoy the chase of the research and the cut and thrust of the markets. It really is a process like no other.
For years I have actively manged my own ASX portfolio. But after adding two young boys to the mix, most of the 'active management' I do now involves naps and nappies! Try as I do, I just don't have the time to dig deep and scrutinise the 12-20 companies required to construct a diversified portfolio right now.
A great solution for me has been to set up a 'core-satellite' portfolio. This is an approach to stay diversified while still holding shares in my favourite companies like Pushpay Holdings Ltd (ASX: PPH) and Xero Limited (ASX: XRO).
What is a core-satellite portfolio?
In a core-satellite portfolio, the majority of your money is allocated to passive, low-cost funds, with smaller 'satellite' amounts of money allotted to specific investments that you keep a close eye on.
The ratio of core-to-satellite is up to you, but it might be something like an 80:20 mix of ETFs to satellite holdings. The mix will depend on how much energy you have to keep track of individual companies.
Building a solid 'core' portfolio
The 'core' of the core-satellite portfolio is often made up of very low-cost exchange-traded funds (ETFs) which track the returns of major indexes.
For example, I could put half of my core allocation in the Vanguard Australian Shares Index ETF (ASX: VAS). This ASX listed index fund provides good local exposure and aims to track the return of the S&P/ASX 300 Index. Like all good Vanguard funds, the fees are low. At the time of writing, the fund had a tiny 0.10% per annum management fee.
The other half I could allocate to the iShares S&P 500 ETF (ASX: IVV). This fund tracks the United States S&P 500 Index and also has a ridiculously low management fee of just 0.04% per annum. A worthy addition in my view.
Juicing returns with market beating 'satellites'
The 'satellites' that surround the core are investments in companies that you think have a good chance of outperforming the wider market. In my case, because I think Xero has strong long-term prospects, I would want to hold some of its shares as a 'satellite'.
However, it's worth being mindful of not doubling up. For example, CSL Limited (ASX: CSL) makes up almost 8% of the holdings in the Vanguard ASX ETF. Adding CSL shares as a satellite as well might create more exposure to this one company than you want.
One kind of solution to one kind of problem
Now, you may be thinking 'why don't I just own a portfolio full of market beating satellites and be done with it?'. Remember that the problem I was trying to solve was to free up time. For me, this has been a way to keep a close eye on what is happening in the investing world, while still juggling naps and nappies.
