What Are Core Holdings?

Core holdings are the central investments of a long-term portfolio. When building your portfolio, it's essential that the core holdings have a history of reliable service and consistent returns.

A common strategy that investors use is to hold an asset that tracks the overall market for an extended time horizon, such as an S&P 500 index fund. They will then augment that asset with specific stocks or exchange-traded funds (ETF) to create opportunities for gaining better risk-adjusted returns.

These secondary investments are called satellite or non-core holdings. They focus on growth stocks or specific sectors of the market that are poised to outperform. Once an investor has built a strong core holding for their investment portfolio, they have more flexibility to take on risk in other areas of their portfolio.

Key Takeaways

  • Core holdings are the central investments of a long-term portfolio so it's essential that they have a history of reliable service and consistent returns.
  • An exchange-traded fund (ETF) that tracks an index fund or a group of blue-chip stocks are examples of core holdings.
  • Core holdings don't make up the entirety of a portfolio; they are typically held alongside secondary investments that target a specific sector or industry group.

How Core Holdings Work

Core holdings in a well-diversified portfolio tend to outperform a portfolio consisting entirely of growth stocks. A portfolio with core holdings that are consistent and reliable will benefit from stable growth in safer sectors of the economy, while also taking advantage of growth opportunities in its non-core investments.

When you build a long-term portfolio with core holdings, it is also easier to monitor and rebalance because it only contains a few investments. Furthermore, with this type of strategy, investors can expect less volatility and drawdowns than in an actively managed portfolio. This can help limit any negative effects of taxes and trading commissions on returns.

Typical Core Holding Investments

Core holdings often consist of index funds like the Dow 30 and S&P 500. There are also some individual stocks that can anchor the long-term performance of a portfolio. For example, Apple (AAPL), Amazon (AMZN), and Google (GOOGL) have all performed well over the past decade and should remain competitive for the coming years. 

Other Attributes of Core Holdings

Core holdings are critical to the long-term performance of an investor's portfolio. Therefore, assets that make up the core holdings component of a portfolio should exhibit certain characteristics. The company should have a track record of redistributing excess profits to shareholders through buybacks or dividend payments. The company should record consistent earnings growth each passing quarter. The company may also have a high market share, strong brand recognition, and be pursuing future growth opportunities. For example, they may have plans to introduce new products to the market or expand their market. These decisions often lead to increased growth potential and greater stock returns.