Core and satellite is the foundation of everything we do at ETF Adviser, from our ETF selection to how we time entries. It’s simple enough to run with one ETF, and flexible enough to scale from $10,000 to $10 million. And right now, it’s doing exactly what it was designed to do.
Put most of your money in one diversified “core” ETF that holds thousands of companies and does the long-term compounding. Put a smaller share in 6–10 “satellite” ETFs that add what the core is missing (gold, Bitcoin, a booming region like South Korea) and manage them actively with entries and stops. The same structure works at $10,000 or $10 million; only the dollar amounts change.
What is core and satellite?
It splits your portfolio into two jobs:
- The core is the long-term foundation: broad, low-cost and diversified. You hold it through market cycles and keep adding to it.
- The satellites are smaller positions in opportunities the core doesn’t cover well. They’re actively managed: bought from a base, protected with a stop, and sold when the trend ends.
How much goes into each depends on the investor. Someone close to retirement might keep 90% in the core; a younger investor comfortable with volatility might go 60/40. Our own model is built around one core ETF and 6–10 satellites.
Why we use it, from $10k to $10m+
- It keeps the foundation simple. The core does the heavy lifting at low cost, with no need to predict anything.
- It gives you room for opportunity without betting the house. The big moves in markets often come from themes, regions and commodities that barely register in a broad index.
- It separates two very different decisions. “Do I own the world’s markets for the long run?” and “Is now the time to own gold, Korea or copper miners?” need different rules. Mixing them is where many investors go wrong.
- It controls behaviour. Knowing your core is untouched makes it easier to cut a satellite that isn’t working.
- It scales with you. The same two decisions work whether you have $10,000 or $10 million and beyond. A beginner can start with the core alone and add satellites as the portfolio grows; a large portfolio keeps the same simple structure, with just one core to monitor and a handful of satellites to manage. (See the numbers below.)
The core: why one ETF is enough
You only need one diversified ETF for your core. All-in-one ETFs such as DHHF, VDAL, VDHG or VDGR hold somewhere between 5,000 and 10,000 positions across 50 or more markets, covering Australian, developed and emerging market shares, and in some cases bonds. Adding more broad ETFs on top mostly buys the same companies again. (See VDHG vs VAS and VGS and how to buy your first ETF.)
The core isn’t completely “set and forget”, though. We watch whether it’s holding above its 200-day moving average. While it is, we keep dollar-cost averaging. If it breaks below in a serious way, that’s when to consider more defensive action.
The satellites: what’s missing from the core
Every satellite has to earn its place by adding something that is missing, overlooked or underweight in the core. Classic examples:
Here’s how some of those ideas performed over the past year, against a diversified core:
Two lessons in one table. The best satellites did many times better than the core, because a broad index holds only a sliver of Korea or semiconductors. But satellites can also go badly wrong (Bitcoin fell about 31%), which is why timing and stops matter so much for the satellite sleeve, and not for the core.
That’s the point: a diversified core will always have gaps, especially in market-cap-weighted indexes dominated by large US companies. The next cycle could favour something else entirely. Each satellite position is entered using our base and trend method with a stop set before buying.
“That doesn’t look diversified”
To a direct share investor, one core plus 6–10 satellites at 10–20% of the satellite sleeve each might sound concentrated. But look under the hood: each satellite ETF holds its own basket. Ten satellites could easily mean over 200 underlying exposures, on top of the thousands of companies in the core. You’re making a handful of decisions, but holding a very broad spread of investments.
From $10,000 to $10 million+
The structure doesn’t change with size; the dollar amounts and the practical details do. Using an 80/20 split as an example:
- Starting out ($10,000): the core does almost all the work. With satellites of a few hundred dollars, brokerage eats too much, so many investors start with the core alone, or one or two satellites, and add more as the portfolio grows.
- Around $100,000: keep brokerage in check. A $10 trade on a $2,000 position is 0.5%, so fewer, larger satellite positions can make sense.
- $500,000 to $1 million: the full structure works comfortably, and the low fee on a single core ETF really adds up compared with higher-cost managed funds.
- $3 million to $10 million and beyond: position sizes get large, so liquidity matters. Check each ETF’s size and bid-ask spread, use limit orders and consider splitting large trades. Structure (super, SMSF, trusts) and tax planning become a bigger part of the picture, so personal advice is worth considering.
Why satellites matter: what they’re telling us now
Satellites aren’t just about extra return. They do three important jobs for the whole portfolio:
- They give us feedback. If our satellite positions aren’t moving higher and keep getting stopped out, the market is telling us conditions are challenging, often before it shows up in the headlines. Our Market Health-O-Meter confirms it: most markets we track are below their 50 and 200-day averages.
- They let us raise cash simply. As each stop is hit, the position turns into cash automatically. No big call on “the market”, no selling the core. When conditions improve, that cash is ready for the strongest ETFs breaking out first.
- They keep us in touch with markets. Running satellites means watching themes, regions and commodities every week, so we see rotation as it happens and know where money is flowing.
In August, with the Market Health-O-Meter green, we bought six satellites and cash fell to 14%. As the reading slipped to orange and then red, one position after another hit its exit. Each loss was kept small, and by mid-October the satellite model portfolio was 100% cash.
See the individual trades
Cash is a position. A 70/30 investor whose satellites are fully in cash is effectively 70% invested and 30% in cash, a sensible defensive stance with no change to the long-term core. (Read 7 ETF investing lessons and why small losses matter.)
Our targets
Through a full market cycle, we target around 8% a year for the core and 10% a year for the satellite portfolio.
These are long-term targets, not guarantees or forecasts. Some years the satellites will do far better, and some years, like this one, they’ll spend time in cash.
General information only, not a recommendation to buy or sell any ETF or to adopt any particular asset allocation. ETFs named are examples only. Targets are not guarantees and returns are not assured. Past performance is not a reliable indicator of future performance. Stops may not limit losses if prices gap. Consider your objectives, financial situation and needs, read the PDS and consider personal advice, particularly for larger portfolios and different structures such as super or an SMSF.
Frequently asked questions
What is a core and satellite portfolio?
It splits a portfolio into a large, low-cost diversified “core” held for the long term, and smaller “satellite” positions in opportunities the core doesn’t cover well, such as gold, Bitcoin, specific regions or themes. Satellites are usually managed more actively.
How many ETFs do I need for the core?
One diversified all-in-one ETF can be enough, as funds like DHHF, VDAL, VDHG and VDGR hold thousands of positions across 50 or more markets.
What split between core and satellite should I use?
It depends on your risk tolerance and circumstances. Common illustrations range from 90/10 for more conservative investors to 60/40 for more aggressive ones.
Does core and satellite work for large portfolios?
Yes, the structure is the same from $10,000 to $10 million; the dollar amounts change. Larger portfolios need to pay more attention to ETF liquidity, spreads, order types, structure and tax.
Why would a satellite portfolio be 100% cash?
If satellite positions are stopped out one after another, it signals a difficult market. Holding cash keeps losses small, provides cash for future opportunities and lets you focus on whether the core is holding up.