How Big Should Your Core Be?

Clearly, a core holding for one investor may not be a core holding for another investor.

Core holdings take up 100% of some portfolios. In others, these investments account for 70% to 80% of assets. There's no set rule for how large your core ought to be, but Morningstar suggests that core holdings take up at least two-thirds of a portfolio. After all, you're relying on these solid, long-term investments to help you reach your goals.

Once you've established a core, you can use noncore investments for diversification and growth potential. For instance, if your core is made up exclusively of large-cap stocks, you might want to add small-cap or international stocks to the noncore portion of your portfolio for diversification.

If you limit the riskier portion of your portfolio, you're less likely to threaten the bulk of your nest eggs. When using this or any other strategy, it's important that you carefully consider how much risk you're taking on and how that risk may impact your end goal. You don't want more thrills than your portfolio, or your risk tolerance, can stand.

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