Nordsight — learn to invest, properly

In Module 3 you split your money into a stable core and a few smaller satellites — the higher-conviction bets you take deliberately. This lesson is about a confusion that quietly wrecks otherwise sensible plans: treating the risk of a single satellite as if it were the risk of your whole portfolio. They live on different levels, and the number you should care about is the one that survives the roll-up.

Two different levels of risk

A satellite can be genuinely high-risk on its own and still be almost irrelevant to your total wealth — as long as it's small. That's the whole point of the core/satellite structure. The question is never just "how volatile is this thing?" It's "how volatile is this thing, and how much of my plan is riding on it?" Those two questions multiply together.

Level one

Satellite-level risk

How much this one positioncan swing. A single emerging-markets fund or a thematic bet might drop 40-50% in a bad stretch. That's a real, intrinsic property of the asset — and on its own, it sounds frightening.

Level two

Portfolio-level risk

How much your whole potcan swing. A satellite that's 5% of the portfolio and halves only costs you 2.5% of total wealth. The scary 50% number gets diluted by the small weight. This is the number that actually changes your life.

The one equation worth memorising

Impact on the whole = how volatile × how big. A wild asset held tiny can be safer for your portfolio than a tame asset held huge. Beginners obsess over the first factor and ignore the second. The second is the one you fully control.

A per-satellite risk budget has two dials

Before you fund any satellite, you decide — in writing — how much risk it's allowedto carry. Not how much you hope it makes. How much it's permitted to cost you. That budget has two independent dials:

Dial one

How much of the plan

The weight. What share of your total portfolio this satellite gets — say 3%, 5%, maybe 8% for your highest-conviction one. Caps how much damage it can do no matter how badly it behaves. This is just position sizing from Module 3 L4, applied per satellite.

Dial two

How volatile

The asset's own behaviour. A broad regional index fund is calmer than a single small-cap; a sector ETF is calmer than one company; anything leveraged is wilder still. A more volatile satellite should usually get a smaller weight, so the two dials offset.

Why two dials and not one

You can run a high-volatility satellite at a low weight, or a low-volatility one at a higher weight, and end up with the same contribution to portfolio risk. The budget is the product, not either dial alone. That's what gives you room to hold something genuinely spicy without betting the house.

How satellite risk rolls up

Each satellite contributes a slice of risk to the total. The honest way to size a satellite is to ask what happens to your whole portfolioif this position has a bad year — then check you can live with that number, not just the position's own drawdown.

1
Pick the weight
Decide the share of total portfolio. Illustration only: a €20,000 portfolio, one satellite at 5% = €1,000.
2
Estimate the realistic bad case
Not the worst imaginable — a plausible rough patch. Say this satellite could fall 50% in a poor stretch.
3
Multiply to get the portfolio hit
5% weight × 50% fall = a 2.5% dent in total wealth. €500 of €20,000. That's the number that matters, and it's far calmer than "down 50%" sounds.
4
Sum across all satellites
Do this for each satellite and add the bad-case hits. If three satellites could each cost ~2.5%, your satellite sleeve might drag the portfolio ~7-8% in a rough year — before the core even moves. Decide if that combined number is one you can hold through without panic-selling.

Numbers are method, not forecasts

Every figure here is a worked example to show the arithmetic — not a prediction, not a target, and not a claim about any real asset. Real losses can be larger; correlations can bunch up so several satellites fall together. Treat the roll-up as a discipline for thinking, not a guarantee.

Decide the budget before you fund it

The sequence matters. You set the risk a satellite is allowed to carry first, then you fund it to fit that budget. Doing it the other way round — buying the amount that feels exciting, then rationalising the risk after — is how a "small satellite" quietly becomes a third of your portfolio. Write the weight and the bad-case number down before any money moves.

Try first

You want two satellites: a broad emerging-markets index fund (calmer) and a single thematic small-cap (wilder). You've allotted 10% of the portfolio to satellites in total. How would you think about splitting that 10% between them?

How this connects to the rest of the course

This isn't a new technique — it's two earlier ideas pointed at one satellite. The core/satellite split (Module 3 L1) gave you the structure: a stable centre and a few deliberate bets. Position sizing(Module 3 L4) gave you the weight dial. Setting a satellite's risk tolerance is just applying both, per satellite, before you fund it — and always checking the number that survives the roll-up to the whole portfolio.

What's next

Lesson 3 turns the budget into a funding decision: actually deciding the euro amount for your first satellite, and the simple rules for adding to it over time without quietly letting it outgrow its allotted weight.

Set risk tolerance for this satellite