The question
I want most of my money in something broad and cheap, but I also want a piece in a theme I believe in. How big should that piece be, and how do I check what it does?
The idea
- A core and satellite portfolio has two parts:The core: most of the money, in broad, low-cost funds that hold the market (Beginner lesson 1).Satellites: small slices in focused funds, such as a theme, chosen to hold something the core holds little of.
- The satellite's size is the main decision. Size it by three numbers: what it adds that the core lacks, what it costs, and what it could lose.
Worked example
Core: VOO, the S&P 500. Satellite: ARKK, ARK's innovation fund from lesson 1. Mix: 90% VOO, 10% ARKK, on $10,000. (ARKK is an example, not a pick.)
1. What it adds. ARKK and VOO overlap by just 14% by weight (Beginner lesson 2). So 100% − 14% = 86% of ARKK's money is in weight VOO doesn't share. In the mix: 10% × 86% = 8.6% of your money in something new. That is a satellite doing its job: it adds what the core lacks.
But look-through weights (lesson 4) still stack. Tesla is 1.52% of VOO and 10.91% of ARKK:
90% × 1.52% + 10% × 10.91% = 1.37% + 1.09% = 2.46% in Tesla, against 1.52% in VOO alone
(VOO's holdings are dated Sep 30, 2026; ARKK's Nov 9, 2026.)
2. What it costs. VOO charges 0.03% a year, ARKK 0.75%.
- Core, 90% of $10,000: $9,000 × 0.03% = $2.70
- Satellite, 10% of $10,000: $1,000 × 0.75% = $7.50
- Total: $10.20 a year, or 0.10%
Ten percent of the money pays $7.50 ÷ $10.20 = 74% of the fees.
3. What it could lose. ARKK's worst fall on ETFIQ's risk scorecard (lesson 1) was −80.1%, Feb 12, 2021 to Dec 23, 2022. A hypothetical what-if: if the satellite fell that far while the core stood still, the whole portfolio would lose:
- At 10%: 10% × 80.1% = 8.0%
- At 25%: 25% × 80.1% = 20.0%
The satellite's weight caps what it can do to you. That cap is the reason satellites stay small.
What it did last year. Over the year to Nov 10, 2026, ARKK returned −6.9% and VOO +11.3%. The mix, held without trading:
90% × 11.3% + 10% × (−6.9%) = 10.20% − 0.69% = 9.51%, 1.83 points behind all VOO
One year proves nothing either way. It shows the satellite's result arrives in your total at its weight.
The common mistake
"It's only 10%, so it can't matter much." It can matter most in the places people don't look: three quarters of the fees here, and an 8-point loss in a bad stretch, from a tenth of the money.
The opposite mistake: a satellite that overlaps the core heavily. If a theme fund mostly holds the core's largest companies, it adds weight to what you own instead of adding something new. Check its overlap with your core before its story.
Check your understanding
Pick an answer to see why. Two of three right passes the lesson.
1. A satellite is 15% of a portfolio. Its worst fall was 60%. If it fell that far again and the core stood still, what would the whole portfolio lose?Answer: B. 9%. 15% × 60% = 9%. Not D: 60% is the satellite's own fall; your loss is scaled by its weight.2. A core at 80% charges 0.05%; a satellite at 20% charges 0.60%. What is the portfolio's yearly fee?Answer: A. 0.16%. 80% × 0.05% + 20% × 0.60% = 0.04% + 0.12% = 0.16%. Not B: a plain average of the two fees ignores how much money is in each.3. A theme fund overlaps your core by 90%. As a satellite at 10%, how much new exposure does it add?Answer: C. About 1% of your money. 10% × (100% − 90%) = 1%. Not D: 90% of its weight is already in the core.
Takeaways
- Before adding a satellite, check its overlap with your core: new exposure is weight × (100% − overlap).
- Work out the satellite's share of your total fees, in dollars.
- Size a satellite by its worst fall times its weight, and ask whether you could live with that loss.