Core Position 

Investing can seem complicated, especially for beginners. One key strategy for creating a strong, stable portfolio is building a core position. A core position consists of long-term investments that offer steady growth, low risk, and diversification. These investments form the foundation of a portfolio, allowing investors to balance stability with potential growth from other assets. This article explores the importance of core positions, their role in different investment strategies, risk management benefits, and real-world examples to help beginners understand how to structure their portfolios effectively. 

What is the Core Position? 

A core position refers to the central or foundational investments in a portfolio. These are typically long-term holdings that provide stability, consistent returns, and lower risk. Core positions often comprise diversified, low-cost assets such as index funds, exchange-traded funds (ETFs), or blue-chip stocks. They act as the anchor of a portfolio, ensuring it remains resilient during market fluctuations. 

For example, an investor might hold an S&P 500 index fund as their core position, which provides exposure to a broad range of large-cap U.S. companies. This forms the stable base of their portfolio while allowing room for additional investments in higher-risk assets. 

Understanding Core Position 

A core position is building a portfolio that balances stability and growth. Here are some key characteristics: 

• Long-Term Focus: Core positions are designed to be held over an extended period, minimising the need for frequent trading. 

• Diversification: These investments often cover broad market indices or sectors to reduce risk. 

• Consistency: Core positions aim for steady growth rather than rapid gains. 

• Low Costs: They typically involve low management fees, making them cost-effective for investors. 

For instance, ETFs tracking indices like the S&P 500 or Dow Jones Industrial Average are common choices for core positions due to their broad diversification and historical performance. 

Core Position in Different Investment Strategies 

Core positions play a pivotal role in various investment strategies. Below are some approaches where they are prominently used: 

1. a) Core-Satellite Strategy

This strategy divides a portfolio into two components: 

• Core: Stable, low-risk investments such as index funds or bonds form 70-90% of the portfolio. 

• Satellite: Higher-risk investments like sector-specific stocks or thematic ETFs comprise the remaining portion. 

For example: 

A U.S.-based investor might allocate 80% to an S&P 500 index fund (core) and 20% to technology ETFs or emerging market stocks (satellite). This mix ensures stability while allowing for higher returns from dynamic investments. 

1. b) Trading Around a Core Position

In this strategy, investors maintain a long-term core holding while engaging in short-term trades around it to capitalise on market fluctuations.  

For instance: 

• An investor may hold a blue-chip stock like Apple (AAPL) as their core position while executing short-term trades based on market trends. 

1. c) Passive vs Active Management

Due to their long-term nature, core positions are often associated with passive investing. However, some investors actively manage their core holdings by periodically rebalancing or adjusting allocations based on market conditions. 

Risk Management and Core Positioning 

Risk management is integral to any investment strategy, and core positions contribute significantly by providing stability and predictability. Here’s how they help: 

• Diversification: Core positions typically include assets spread across sectors or regions, reducing exposure to specific risks. 

• Volatility Control: Core positions minimise the impact of market downturns by anchoring a portfolio with low-risk investments. 

• Flexibility: Satellite investments around the core can be adjusted without compromising the portfolio’s stability. 

For example: 

A balanced portfolio might include 70% in government bonds and index funds (core) for stability and 30% in renewable energy stocks (satellite) for growth opportunities. 

Tools like stop-loss orders and position sizing can further mitigate risks associated with satellite investments. 

Examples of Core Position 

Here are practical examples of core positions in real-world scenarios: 

Example 1: U.S.-Based Portfolio 

An investor allocates: 

• 80% to an S&P 500 index fund (core), offering broad exposure to large-cap U.S. companies. 

• 20% to thematic ETFs focusing on artificial intelligence or healthcare (satellite) sectors. 

This approach ensures steady returns from the core while leveraging growth opportunities from emerging sectors. 

Example 2: Singapore-Based Portfolio 

A growth-oriented investor holds: 

• 70% in regional equity ETFs and fixed-income securities (core). 

• 30% in REITs or technology-focused ETFs (satellite). 

This mix balances stability from the core with higher returns from satellite investments targeting Singapore’s growing real estate and tech industries. 

Frequently Asked Questions