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Building Wealth with Defense First – The Core and Satellite Investment Approach

The Core and Satellite Approach

In the world of finance, there’s a common belief that consistently outperforming the market in bull years is the key to building wealth. However, we challenge this notion and advocate for a more balanced and strategic approach. At Harding Financial Group, we believe that the ability to defend investment capital in down markets with a “”defense first” approach is far more valuable in the pursuit of long-term wealth accumulation.

Let’s explore why this philosophy holds true, backed by both theory and mathematics, as well as our underlying Core & Satellite portfolio construction process.

Understanding the Power of Compounding

The power of compounding is a fundamental concept in investing. It’s the idea that your investment returns generate earnings, which are reinvested to generate even more earnings over time. However, what many investors overlook is that compounding works in both directions – it can amplify gains but also magnify losses.

Consider this: if an investment experiences a -20% loss in a down market year, it needs a +25% gain in the following year to break even over a 2-year period. Similarly, a -30% loss requires a staggering +43% gain to recover! These numbers illustrate the uphill battle investors face when trying to bounce back from significant losses.

Riding the Wave vs. Preserving Capital

Now, let’s put these concepts into perspective using real-world data. The S&P 500, a widely used benchmark for the U.S. stock market, has delivered an average annual return of +10% over the last 50 years. While this might sound promising, it’s crucial to recognize the potential pitfalls of “riding the wave” of the market.

Imagine an investor who experiences a -30% loss in a given year while following the market’s ups and downs. Despite the market’s historical performance, it could take this investor four or more years just to recover their initial investment. This scenario underscores the importance of capital preservation, especially during turbulent market conditions.

The Formula for Long-Term Investing Success

At Harding Financial Group, we believe that a “defense first” approach is the cornerstone of successful long-term investing. Instead of chasing high-risk, high-reward strategies, we focus on protecting our clients’ capital during downturns while capturing a portion of the market’s upside during upswings.

By deploying risk management techniques and diversifying portfolios, we aim to shield our clients from excessive losses during market downturns. At the same time, we position their portfolios to capture significant gains when markets rebound. This balanced approach not only safeguards wealth but also sets the stage for sustainable growth over time.

Tailored Portfolios for Unique Goals

At Harding Financial Group, we understand that every client is unique, with their own set of financial goals, risk tolerance, and lifestyle aspirations. That’s why we take a personalized approach to portfolio construction and retirement planning, ensuring that each client household has a tailored investment strategy designed to achieve their specific objectives.

While no two clients have the same investment portfolio, the underlying investment strategy remains consistent across all clients – the “defense first” approach. This approach is the foundation of our investment philosophy and guides every decision we make on behalf of our clients.

Core and Satellite Investment Strategy

Our “Core and Satellite” strategy is the backbone of our “defense first” approach to investing. It’s a strategic framework that combines the stability of core holdings with the flexibility of satellite positions to achieve long-term wealth accumulation while minimizing downside risk.

Core Holdings: Diversification and Stability

The core of the investment portfolio serves as a stabilizer, providing resilience during market downturns. Depending on the specific client’s needs and preferences, the core may consist of concentrated positions in individual equities, top 1 percentile institutional-share mutual funds, or a combination of both.

These core holdings are carefully selected based on rigorous research and analysis, focusing on companies with strong fundamentals, solid financials, and a history of consistent performance. By building a robust core, we aim to protect our clients’ capital and provide a solid foundation for their investment portfolios.

Satellite Positions: Flexibility and Adaptability

In addition to the core holdings, we introduce satellite positions to the portfolio to lean it in certain directions based on macroeconomic data and the client’s specific needs. Satellite positions are designed to complement the core holdings and provide additional diversification and flexibility.

These satellite positions may include sector ETFs to gain exposure to specific areas of the market, such as technology, energy, or consumer staples. Alternatively, they could consist of private equity, hedged equity, or other alternative investments that offer unique opportunities for growth and income generation.

How It Works in Practice

Imagine a client who is nearing retirement and prioritizes capital preservation while still seeking opportunities for growth. For this client, we might allocate a larger portion of their portfolio to stable, dividend-paying stocks and hedged equity investments that provide protection against market loss.

To complement the core holdings, we might introduce satellite positions in defensive sectors like consumer staples and aerospace & defense. These satellite positions provide additional diversification and downside protection, helping to cushion the portfolio against market volatility.


The Core and Satellite approach is a powerful tool for implementing our “defense first” investment strategy at Harding Financial Group. By combining the stability of core holdings with the flexibility of satellite positions, we aim to achieve long-term wealth accumulation while minimizing downside risk for our clients.

If you’re ready to take a proactive approach to wealth management and safeguard your financial future, contact us today to learn more about our personalized investment solutions tailored to your unique goals and needs. Together, we can build a strong and resilient investment portfolio that stands the test of time.

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