The Core-Satellite Strategy is a Sales Strategy for Financial Institutions, Not an Investment Strategy

Since the start of the new NISA, there has been an increase in talk about investing, for better or worse. Amidst this, a term that has become frequently heard is the "core-satellite strategy," whose origins are unknown.

It is a name that sounds like something a cool foreign consultant would use, as shown in the image above. Japanese people, including you, are susceptible to such stylish English terms.

And you are gullible, and on top of that, investment beginners don't know much about investing, so I think you should be careful not to be taken for a ride.

When you search for this cool name on the web, the following definition appears. It is also posted on the websites of securities companies, but the explanation is generally the same.

As you search further, securities companies, banks, independent fund managers, and economists explain it with a knowing look.

Not only that, they are very kind because they casually recommend the targets for the so-called satellite portion.

In that case, the explanation often recommends index funds for the core portion, and individual stocks, active funds, or high-dividend stocks for the satellite portion (index funds vary, such as TOPIX, All Country, or S&P 500).

Perhaps in response to this, I occasionally see investment beginners on YouTube or blogs proudly showing off, "This is my satellite strategy!"

However, in the world of investing, very few active funds can beat index funds over the long term.

One might be misled by the word "average" in that indices track the market average, but as the article below shows, the deviation score of an index fund is 72, not the middle 50.

Needless to say, low-level domestic funds struggle, and even Wall Street residents who have graduated from world-class universities like Harvard or MIT and even have PhDs struggle to achieve performance that exceeds the index.
※MIT: Massachusetts Institute of Technology (one of the most prestigious schools in the US)

So why would a beginner who has just started NISA...
invest in asset classes that have the potential to achieve higher returns than the core in the satellite portion?

How does that happen?

Are they such confident people that they think their investment deviation score is 75 because their student-era deviation score was 75...
If so, that is fine (though they might regret it later when their attempt to be aggressive lowers the overall performance, including the defensive part).

Also... what is offensive or defensive?
Unlike corporations, the assets owned by most individuals are at most a few million to tens of millions of yen. In that context, they often hold savings, government bonds, insurance, or a home as defensive assets, and invest the rest.

For those people, even just index funds should be a fairly aggressive investment. So what does it mean to be even more aggressive?

So, as a Showa-era person, I imagine the following image. The kamikaze squad that is the most aggressive even among biker gangs (an obsolete term?). Are the satellites these people, by any chance...

The 'kamikaze' riders are the stars of a motorcycle gang, but it is the position with the highest risk of accidents or arrest. I just pray that you don't become an investment 'kamikaze' and cause an accident.

I've digressed, but the problem is being talked into by financial institutions and brainwashed into thinking that if you don't do anything other than index funds, you aren't a real investor or that you're uncool, leading you to dabble in unnecessary products.

Individual stocks and active funds often have high fees, meaning the costs are expensive. From the seller's perspective, they want you to buy high-fee products for the satellite portion.

To put it bluntly, the 'core-satellite strategy' is highly likely to be a sales strategy for financial institutions rather than an investment strategy.

If you absolutely cannot stand index funds and find them boring, it is safer to define that as an investment bucket for 'hobbies,' 'study,' or 'gambling.'

Alternatively, you should only do it if you have a clear purpose, such as really wanting regular dividends even if performance drops. (Though if that's the case, I think you should just invest everything in high-dividend stocks or high-dividend ETFs.)

It might be none of my business, but every time I see people who have been taken in by the seller's strategy and are showing off, as in the article below, 'This is my satellite strategy!' I worry that they have fallen into a trap.

Postscript
You will encounter this when you enter the workforce, but you should listen carefully to what smart people who use cool-sounding English terms say. If you carelessly go along with them, you might get burned.

*The information posted is not intended to solicit investment. Trading financial products such as stocks or real estate carries the risk of loss.

The articles posted are written as a personal hobby, and the information provided may not be appropriate for all readers. Furthermore, there is no guarantee regarding its truthfulness, completeness, accuracy, or timeliness for any specific purpose. Please make all investment decisions at your own discretion and risk. I cannot be held responsible for any losses incurred.