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Core Satellite Portfolio

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Financial Instruments
Investment Risk
Common Stock Definition
Prepare an Investor Package
Fixed Income Securities
Treasury Stock
Venture Capitalists Definition

Core Satellite Portfolio Definition

Core Satellite asset allocation is an investment strategy that consists of two parts the “core” and the “satellite.” The first part is known as the core portfolio. It invests in traditional fixed income securities like index funds, mutual funds, and other passive strategy investments. The second is known as the satellite portfolio. It invests a percentage of the available funds in individual stocks and other actively traded investment.

Core Satellite Portfolio Explained

The core-satellite strategy has been around for a while. It has been useful to many investors who take full advantage of the core satellite approach. It allows investors to reduce their risk in a passive well diversified portfolio, while allowing these investors to seek out higher expected returns. The core satellite investment strategy is beneficial because the investor takes on little extra risk but can normally expect higher returns in the market.

Core Satellite Portfolio Example

Jacob has some extra cash that is sitting in a savings account at a bank. He has recently decided that he wants to invest this amount in the market. Jacob has also decided that he will use the core satellite investment approach. Jacob has thus decided that he will invest 80% of the cash in a passive mutual fund, and the other 20% in individual stocks that he believes will perform above the market. By doing this Jacob is safe from any huge downfalls in the market because he has a well diversified portfolio in the mutual funds, but he also expects a higher return from the individual stocks.

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401k

See Also:
Pension Plans
How to select a PEO
Gross Up
Payroll Accounting
Keogh Plan
W2 Form

401k Account Definition

A 401k plan is a retirement plan that allows employees to contribute pre-tax earnings to a group company account. The 401k account or the funds in the account are invested for the employees in stocks, bonds, or money market instruments. These contributions are then taxed as they are withdrawn when the employee decides to retire. Often times there is an employer contribution percentage that is associated with the employee contributions.

401k Explained

401k plans have several benefits to investors or employees. First of all, it allows employees to contribute pre-tax earnings. This allows the fund to make more over time even if it is taxed when withdrawn. Generally, it is better to pay taxes later and contribute more to a fund up front.

Another great thing about 401k plans is that they invest with a pool of money from all the employees in that company with a 401k plan. Like the pre-tax earnings this allows the fund to make more over time than if one employee were investing for him/herself. This type of fund is not only contributed by the employee, but often times by the employer as well. Again this allows an employee to max his 401k benefits, and gives him/her a wonderful retirement. A disadvantage is the fact that there is only a certain amount that you are allowed to contribute. It limits for the years 2009 and 2010 the amount is equal to $16,500.

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