Many investors spend most of their time worried about picking individual stocks that will beat the market. Research shows that even mutual fund managers have struggled to pick individual stocks to beat their peers consistently.
If you can’t beat the market, you might be tempted to ‘join it’ by investing only in broad index exchange-traded funds like the SPDR S&P 500 ETF, which invests in the overall market.
Fortunately, an investment strategy offers the best of both worlds, easy index investing with the chance for higher returns. I call it my sleep-at-night investing strategy, but most know it as core-satellite investing.
A core-satellite investing strategy means investing most of your money (the 60% to 80% core) in broad funds and the rest of your money around individual stocks.
The core portion of your portfolio exposes you to the entire market, reduces your overall risk, and limits your loss to fees. The satellite portion of your portfolio allows you to pick a few winning stocks and put your market analysis to work.
Setting up the core portion of your core-satellite investing strategy is pretty easy. Some exchange-traded funds to consider for your core-satellite investing strategy.
Vanguard Total World Stock ETF (VT) might be the broadest fund available, providing access to 7,391 stocks across the globe. The fund charges a management fee of just 0.17% annually and spreads investments across countries.
SPDR S&P 500 (SPY) is what most people think about when they think of the stock market. The fund invests in 500 of the largest and most stable companies in the United States and charges a super-low of 0.11% annually.
Vanguard REIT ETF (VNQ) might be part of your real estate investing strategy, but I had to mention the fund. It’s an excellent resource for investors, providing access to 144 companies that invest and manage real estate properties.