Are Your Core Holdings Really 'Core'?
Sometimes funds in traditional core areas are better used as supporting players.
Anyone who's ever built a house knows the importance of a strong foundation. No matter how sturdy the structure above it might be, if the foundation is weak, you could be looking at major problems down the road.
In investing, we refer to certain types of assets as core holdings: These are the bedrock of your portfolio, the foundation upon which you build a collection of holdings appropriate to your goals. Core holdings typically are lower in volatility than other investments and provide broad exposure to a large market segment. For example, you probably wouldn't want to look at an emerging-markets stock fund as a core holding because of the category's high degree of volatility. A large-cap domestic- or foreign-stock fund with broad exposure to developed markets is likely to provide more stability--if less potential for spectacular gains--than a fund made up of stocks whose performance is less predictable.
Adam Zoll does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.