Investment strategies are generally associated with Core, Tactical, or Alternative approaches. A core investment strategy serves as the central, long-term framework for building a diversified portfolio. It typically provides broad market exposure, focusing primarily on stocks and bonds. Driven by long-term capital market assumptions, a core strategy is periodically adjusted to maintain efficiency over time. Consequently, investors should expect a core strategy to rise and fall with market fluctuations. Core strategies often form the foundation of a comprehensive investment strategy, which may incorporate additional approaches to enhance returns or mitigate losses.
Advantages of Core Strategy
Low Fees. Since core investment strategies requires minimal management and research, when implemented with passive investments they typically have lower fees compared to comprehensive investment approaches that are actively managed.
Tax Efficiency. Core strategies involve minimal reallocation and typically trigger fewer capital gains taxes.
Simplicity. Passive approaches are the easiest to supervise.
Disadvantages of Core Strategy
Restricted Risk Management. Core strategies are passively managed. There are no tactical adjustments to actively limit loss or accomodate prolonged market turndowns. Investors must expect performance to rise and fall with the market, and to experience deep declines on occasion.
Limited Performance. Because you’re essentially matching the market’s performance ther's no chance of outperforming up or down markets.
Elevating Core Strategies
In my experience, core strategies are ideal for cost-conscious investors who prefer to keep things simple. Core strategies are particularly popular among young, inexperienced investors who are less concerned about risk. However, as investors become more mindful of risk they will often seek an all-weather strategy that integrates tactical and alternative approaches.