Portfolio Construction and Maintenance · ETFs

A portfolio needs a coherent allocation before it needs more tickers. Broad core holdings and limited satellites can make each fund's role easier to evaluate.

Start with the allocation rather than the products

Decide how much exposure belongs in equities, bonds and other assets based on goals and loss capacity. A core is the part intended to carry the main allocation through different conditions. Satellites are smaller deliberate exposures such as a sector or factor tilt. These are portfolio design terms, not official product categories.

Assign one clear job to each holding

Describe what a proposed fund adds and why existing holdings do not already provide it. A second broad equity fund may improve access or reduce a specific concentration, but it may also duplicate the first. Adding a popular theme without changing the allocation budget increases risk even if the number of tickers looks more diversified.

Translate a proposed structure into money

A hypothetical $50,000 portfolio could assign $30,000 to broad equities, $15,000 to bonds and $5,000 to a deliberate satellite. This is an illustration, not a recommended allocation. If the satellite doubles while the other holdings stay unchanged, it becomes $10,000 of $55,000, or about 18.2%. Without a maintenance rule, a modest initial idea can become a major portfolio driver.

Document limits and review conditions

Specify target weights, acceptable ranges and reasons to replace a fund. Review total geographic, currency, sector and issuer exposures. Include assets held outside the brokerage account where relevant. A core and satellite structure does not protect against all losses, especially when several holdings respond to the same economic shock. Its value is clarity about intentional risks and a process for controlling their size.

Try it yourself

A satellite is intended to remain below 10% of a portfolio but has grown to 17%. What should guide the next decision?

Show the worked answer

Apply the prewritten allocation and review rules, considering tax and transaction costs. Recent gains alone are not a reason to abandon the risk limit.

Further reading

Educational material, not a recommendation to transact. All numerical examples are hypothetical and exclude costs unless stated. Actual terms, eligibility, tax treatment and broker procedures depend on the security and jurisdiction.

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