What is a core/satellite investment approach?

Picking winners is hard. It is so hard in fact, that it is surprisingly rare. Regardless of what people may say, picking the best investments is something that is rarely managed even by experts, and in fact, research tends to show that most investors (including professionals) underperform the average, due to making more bad decisions than good ones (regardless of what their marketing might say).

It is our philosophy then at Viridian Wealth, that the initial focus of a client is on the strategy and structures they use to meet their goals. The next most important decision is asset allocation. The vast majority of the return (about 90%) you can expect is based on the asset allocation you choose, and not the actual assets.

So then, as a key plank in our investment philosophy, we discuss how you can make sure you receive what is on offer by way of returns, and avoid the mistakes of the majority by getting poor performance, while chasing performance.

We do that utilising a core/satellite approach to investing.

We start with a broadly diversified, low cost investment that has exposure to multiple asset classes, at as low a price as possible. This is the core of your portfolio. It is designed to provide the bulk of your return, and take up approximately 70% – 80% of your portfolio. Around the edges, we add ‘satellites’, to ensure that your asset allocation is appropriate, and to add some value where there is evidence that adding value is ‘likely’, and not just probably (again,backed up by research).

Then we stick with those investments over the long term.

This is not nearly as ‘exciting’ as buying and selling or trading in investments, but it is an evidence backed approach to ensuring you get the return ‘promised’ by what the markets can offer, and is not eroded by unnecessary costs, and bad decisions.

To get a copy if our full investment philosophy document, showing the links to the academic research, feel free to get in touch.

Talk soon.

 

 

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