Case study 3: Enjoying steady growth with low volatility
A retiree relies on his core portfolio to provide steady growth with low volatility, and uses his satellite portfolio for short-term, opportunistic investments.
James Wong is in his mid-sixties and does not want to loose sleep over his investments. A former executive in an investment company, Mr. Wong is, however, a sophisticated investor who appreciates the ability to make short-term investments using his satellite portfolio.
"Because of Mr. Wong's background in finance, he likes to be continuously updated about the markets and also take advantage of opportunities that pop up," says his client advisor. "This is why Core-Satellite really works for him."
Seventy per cent of Mr. Wong's funds reside in the core portfolio. He views this as the money he will pass on to the younger generation, and is happy if it provides high single digit returns with low volatility. The core is highly diversified, and includes global equity and fixed income exposure, as well as alternative investments such as hedge funds and commodities.
The remaining 30% of Mr. Wong's funds are in his satellite portfolio. It contains investments with time horizons from 1 month to 2 years. It includes bonds issued by companies Mr. Wong is familiar with, as well as equity funds with a country or sector bias.
"Mr. Wong likes the idea that the major portion of his investments are in core assets, where they are very diversified and the volatility is very low," says his client advisor. "And as a retiree, he likes the idea that he won't loose sleep when the markets turn."
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