3.1 What Is the Core–Satellite Model?
The core–satellite strategy balances long-term stability with opportunistic gains using ETFs. The core (70–90% of capital) anchors your wealth in diversified, passive funds. The smaller satellite portion (10–30%) targets alpha through tactical trades or niche assets.
With your medium risk tolerance, you’ll lean toward a conservative allocation — around 80% core, 20% satellite – giving you stability while still enabling swing and thematic plays.
3.2 Building the Core Sleeve (≈ 80%)
Fill your core with broad, liquid, low-cost ETFs:
Global Equity (40–50%)
Choose world or multi-region ETFs tracking MSCI World, FTSE Developed, or S&P 500 (ex-US). Aim for TER < 0.10%, AUM > $1 billion, and tight spreads.Fixed Income (15–20%)
Add short to intermediate-duration government or corporate bond ETFs to dampen equity volatility.Commodities/Real Assets (10–15%)
Include inflation hedges like gold, broad commodity ETFs, or REITs.
Together, this core aligns with your 7% CAGR growth assumption and offers downside protection.
3.3 Designing the Satellite Sleeve (≈ 20%)
The satellite portion allows tactical swings and theme plays:
Sector Swing Trades (10%)
Select 2–3 liquid sector ETFs (e.g., tech, consumer discretionary). Use momentum/RSI triggers from Chapters 4–6 to enter and exit trades.Geographic Themes (5%)
Target emerging markets or country-specific opportunities when macro indicators align.Specialty Assets (up to 5%)
Think commodity leverage or thematic ESG/mining ETFs—but only if liquidity and signal clarity are strong.
This setup gives flexibility for short-medium term opportunities with limited risk to your total capital.
3.4 Position Sizing & Mix Overview
| Portfolio Sleeve | % of Capital | Role |
|---|---|---|
| Core Equity | 45% | Long-run growth |
| Core Bonds | 20% | Volatility buffer & income |
| Core Real Assets | 15% | Inflation hedge & diversification |
| Satellite – Sectors | 10% | Tactical swing / momentum |
| Satellite – Themes/Geos | 5% | Opportunistic alpha potential |
| Satellite – Specialty | 5% | Higher-conviction trades |
This structure reflects an 80/20 split, keeping long-term focus front and center while allowing tactical upside.
3.5 Milestone Modeling Under This Allocation
Assuming a 7% annual return:
Year 1:
Invested: $6,500 → ≈$6,800.
Satellite swings may outperform (e.g., 15%+ returns), modestly boosting portfolio value.Year 5:
Portfolio: ≈$37,000.
Core compounds steadily; disciplined rebalancing of satellite gains adds extra ~0.3–0.5% annual return.Year 10:
≈$93,000.
Satellite alpha may contribute several percentage points in high-volatility years; core cushions downswings.
3.6 Quarterly Rebalancing Protocol
Each quarter:
Calculate current weighting of each sleeve.
Identify overshoots (e.g., equity > 50%).
Trim excess and inject into underweight sleeves.
Reinvest satellite profits into core or redeploy in new theme trades.
Keep commission cost < 0.1%. Regular rebalancing captures “sell high, buy low” premium.
3.7 Action Plan for Chapter 3
Finalize ETF choices: 1–2 leading ETFs per sleeve (core equity, bonds, real assets, plus several sector/theme candidates).
Note fund details: TER, AUM, tracking, liquidity, replication.
Assign weights as per table.
Simulate your first quarter: Allocate $1,500 (month 1–3), then rebalance at end of Q1.
Prepare for tactical signals: Watch sector/theme ETFs; practice identifying similar setups.
Not Financial Advice
This article is for informational purposes only and does not constitute financial advice. Always conduct your own research before making any investment decisions.
