Investment Objectives & Advice

Retirement Planning 4.0: Core & Satellite Portfolio Investing

Last post on the Path of financial freedom (Investment required calculator: Link) triggered the question by many about how their portfolio should be? Most of them take high risk synonymous to higher returns and build portfolio heavy on Small/Mid-cap funds etc. Though building a core portfolio is like building your physique. You do not join gym and do only biceps or squats alone, It has to start with strengthening the core and then build the holistic physique. Similarly While exercising with heavy weights you need to protect your core by using the waist belts etc, same way you need to protect your core portfolio as well from sudden risks.

Core & Satallite Portfolio

How to build core portfolio?

Core portfolio should be followed with discipline of investing regularly and should have limited volatility with sufficient growth to beat inflation and should not be tapped into unless extremely critical. This will provide you the stability needed to build sustained wealth over time. This is given with healthy mix of Debt and Equity.

For employed people, Employee Provident Fund (EPF) is a great investment avenue and still least talked about. It gives good stable returns as well as disciplined investing of 12% of basic salary (additional 12% added by employer). The 24% of basic salary is getting invested automatically as well as for long term build a great corpus together. If you are not not employed, you can chose options like PPFs, Sukanya Samridi, FDs or Debt Mutual funds etc. (To know how to build your debt portfolio: Link)

On the strength of the Debt portfolio, you should top it up with equity investments of similar amount to help you beat the inflation by good margin. My suggestion will be to Large-cap mutual funds or Index funds/ ETFs. Though if you are risk averse you can use a Hybrid Equity/ Balanced advantage fund and if you are aggressive, you can opt for multi-cap funds. In any scenario, you should not get Mid or small cap funds in core portfolio.

How much money to invest in your core portfolio?

For employed people roughly 45-50% of the basic salary or you can check the amount required for your financial freedom. If you are self employed or a business person, you should aim to invest 30-40% of the net monthly income (Monthly Income – EMIs/House rent – insurance premiums) into core portfolio.

How to protect your core portfolio?

Your core portfolio is not only to provide for your retirement years but also to take care of your dependents.  There are two main risks to your core portfolio, health risk and mortality risk. Most of us feel uncomfortable buying health or pure term plans as in case of no event the premium paid is lost. We do not feel the same for buying the bike/car insurance as it is mandatory. We should consider the health and pure term cover as mandatory only for healthy and happy life.

This basic construction of portfolio will help you get a great foundation to build your overall wealth. (Check the Portfolio built using Cor portfolio: Link) If and when you can save more, then only you should create satellites in your portfolio in form of Small, Mid-caps, Direct Stocks, Futures & options, PMS, real estate, gold and other options.

Happy Investing!

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