What are your thoughts on the "Golden Butterfly" portfolio?

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sunflash
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by sunflash » Sat Sep 24, 2016 7:52 am

soboggled wrote:
technovelist wrote:
Engineer250 wrote:
technovelist wrote:
Engineer250 wrote: I haven't written out my IPS formally...but it would definitely include "do not invest in Gold." I don't think gold has any more value than Bitcoin, stained glass, or African parrots. I acknowledge the market currently thinks it has a value, and there are some industrial uses for it, I just think most of the value attributed to gold by the market has nothing to do with its current role in commerce. I'm not sure why it has become the "gold standard" (haha) as a currency hedge.
I'm not sure why you put "haha" in your comment. By definition, gold is the gold standard for currency hedging.
Just amusing to use the phrase we use for such things in exactly the place it originated from and is defined by.

I understand why a lot of people would be convinced gold would be a really good hedge and diversification against investments in the USD. Past performance has shown this to be true. I'm just not convinced investing in a single asset like that isn't incredibly risky, no moreso than a single stock. And as people like to point out on here, past performance is no indicator of future results. I would never have more than 5% of my portfolio invested in a single stock or a single commodity. And I would consider that the riskiest 5% of my portfolio. Obviously all these folks investing in gold could turn out to be right. It's perfectly reasonable to expect it to continue to be a relatively safe hedge and it's possible people who invest in it will do better in their portfolios than I will in mine. I just don't see why it's any different than having 5% of my portfolio in platinum, oil, coffee, or frozen concentrated orange juice. I understand it had historic connotations to currency. So does Bitcoin today. Maybe Bitcoin is a safe investment for the next 500 years, I don't know. Hopefully those who are pro-Gold will excuse my risk aversion in this case.
What about having 20% of your portfolio in US dollar-denominated debt securities? Is that too concentrated a risk?

Because that is what having 20% of your portfolio in gold is like.

Gold is money that isn't reliant on government.
Absolutely ridiculous. Gold is NOT money.
Tell that to the central banks that hold tonnes of it. It has been a store of value and a medium of exchange for thousands of years. Thousands of government issued currencies have gone to zero but gold never has.

sunflash
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by sunflash » Sat Sep 24, 2016 8:28 am

APB wrote:Agreed that back testing to find portfolios doesn't convince me of future results. It's the investing form of P-hacking. The 3-fund portfolio has the best rationale of any portfolio I've ever seen. If the golden butterfly outperformed the 3-fund historically, I believe that to have occurred due to random chance.

I believe purchasing gold is speculating, not investing, as it has no intrinsic rate of return. Perhaps, MAYBE, gold could be viewed as insurance against global collapse. But, in that event, I believe guns, defensible / arable land, and years worth of powdered food would be better insurance. (I have not purchased any of these items, in case you are wondering).

Perhaps gold will prove a valuable portfolio addition over future decades. Outcomes are generally somewhat random. :D
I would really recommend this book - it is a great background on all the assets and basically a BH style of investing.

https://www.amazon.ca/Permanent-Portfol ... 1118288254

You have to remember that in MPT even having a NIL real return can improve results if there are negative or low correlations. Maybe you don't want to have 20% GLD, but it is very simple to have 10k of Eagles in a safety deposit box and 10k in seg storage at the Perth mint.

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by sunflash » Sat Sep 24, 2016 8:32 am

Theoretical wrote:
mcgugrah wrote:
in_reality wrote:The average gold-CPI ratio since the early 1970s is 3.46-to-1
Currently, that ratio translates into a gold price of $824 an ounce.
Inflation would have to rise at a 9.4% annualized rate over the next five years for gold’s fair value to merely rise to where bullion currently trades.

At any rate, I believe that gold is a decent inflation hedge only when viewed over the very long term — measured over many decades, even centuries — rather than a few years.

***obviously talking about viewing gold over many decades or even centuries and quoting an estimate of current value since the 1970's doesn't make a lot of sense but that's financial news you know.

Anyway, gold and the portfolio isn't for me. I don't have that many decades in my investing timeline. If I was thinking about my great-great grandchildren then perhaps that's another story. But I am not.

http://www.marketwatch.com/story/golds- ... 2016-04-19
The biggest thing is sticking with any system (including BH). BH is just a trend following system with a very long-to-infinite look back period.

You are making a massive all in bet on this:

http://humblestudentofthemarkets.blogsp ... y-and.html

People who did the same in Russia, China, Germany, Argentina... the list is long (and includes dominant world powers) went to zero. So yeah - putting 10-20% of my money in portable format and keeping a portion outside the country seems like a perfectly good choice. Black swans are just that - they are completely unpredictable and have massively asymmetric payoffs. Jews who successfully got of out Germany were happy they were not 100% long German equities.

The gold in the PP and GB is there b/c of low correlation (even zero real returns can benefit an allocation if correlations are low or negative) and because it is a portable and permanent store of wealth. Why do you think the central banks all hold it? Maybe it is speculative, but there are few ways to be able to have a few 10k in my pocket in the event of a disaster or dislocation. Also easy to store in other countries for geographic diversification.
It's not so easy to do that when you're a US citizen or resident alien, due to the tax reporting laws.

Some place like Poland or South Korea has the risk of destruction or confiscation as a bit higher of a deep risk. With the US, I'd call it deep^2 risk, because we have by far the largest scope of financial and tax enforcement in the world and that reaches anywhere in the world. The reason deep is squared is because the political stability and financial incentives are such that it makes confiscation or destruction 1 stage lower than even is typical in a lot of other countries. The downside is that if it does trigger, most of us Bogleheads are extra hosed without somewhere else to go.

Gold alone is speculative, but I see the virtue of in conjunction with taking more term risk in bonds, for example. That's why the Permanent Portfolio isn't a disaster even when gold goes all over the place and has no long term rate of return.
Did you read that article? Many here are suffering from 100 years of recency bias. Look at the charts - the major world powers that went to zero (and the world kept on ticking). Argentina and Iceland (2008) are both examples of developed economies where stocks and currency went to zero. Having a GLD allocation saved people big time.

Read this:

https://www.amazon.ca/Permanent-Portfol ... 1118288254

They go into detail about the full extent of losses on 'safe' money market funds and the like in 2008. There is no reason not to hold an allocation to GLD as insurance. Even in MPT holding a zero return asset (which gold probably is close to, except in negative real rate environment) with neg correlations can be a big plus to a portfolio...

Theoretical
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by Theoretical » Sat Sep 24, 2016 9:00 am

mcgugrah wrote:
Theoretical wrote:
mcgugrah wrote:
in_reality wrote:
Gold alone is speculative, but I see the virtue of in conjunction with taking more term risk in bonds, for example. That's why the Permanent Portfolio isn't a disaster even when gold goes all over the place and has no long term rate of return.
Did you read that article? Many here are suffering from 100 years of recency bias. Look at the charts - the major world powers that went to zero (and the world kept on ticking). Argentina and Iceland (2008) are both examples of developed economies where stocks and currency went to zero. Having a GLD allocation saved people big time.

Read this:

https://www.amazon.ca/Permanent-Portfol ... 1118288254

They go into detail about the full extent of losses on 'safe' money market funds and the like in 2008. There is no reason not to hold an allocation to GLD as insurance. Even in MPT holding a zero return asset (which gold probably is close to, except in negative real rate environment) with neg correlations can be a big plus to a portfolio...
mgugrah, I was partially agreeing with you. To me, gold alone is pointless, except as the get out of dodge hedge. So someone who had gold as 50% of the portfolio is closer to a speculator than an investor. However, Gold as a smaller piece of the portfolio can be extremely valuable, because of its low correlations, even with a no-to-low expected return. One important note for US taxpayers at least is that if you're using it as both a volatility damper (shallow risk) and as a deep risk shield that you should treat it as two separate investments and not mix them, because rebalancing into gold is pricey due to the "collectibles" capital gains tax rate, while the deep risk shield is deliberately only expanded and not withdrawn for the most part.

If it's being used for deep risk purposes, I think a combination of coinage and certificates tied to several different foreign vaults is the way to go.

The difference is that for the ultra-deep risk of the US going down and taking its populace with it as a kleptocracy, there's relatively little that can be done to protect yourself the way an Argentinian investor would have been because of the worldwide scope of the IRS for both income and estate tax purposes. The foreign asset and income reporting requirements are incredibly strict, and even minor errors can subject you to enormous penalties well beyond the value of the asset. Yet, full compliance to avoid the very real risk of minimum security prison, exposes assets to the very risks someone's trying to avoid. That's what I meant by it being "complicated" for US folks.

In fact the only countries likely to tell a rogue state US's IRS to jump into a lake have above average deep risks of confiscation themselves for either being rivals/enemies of the US now or for being corrupt and politically unstable.

JuniorRob
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by JuniorRob » Sat Sep 24, 2016 10:13 am

I think this portfolio makes more sense. 40% is whole world stock market. 10% TIPS to reduce some risk of gold tanking and still fighting inflation. I will use this during retirement. Not accumulation.

20% Total US Stock Market
20% Total International Stock Market
20% Long Term Treasuries
20% Short Term Treasuries
10% Gold
10% Short Term TIPS

APB
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by APB » Sat Sep 24, 2016 12:19 pm

mcgugrah wrote:
APB wrote:Agreed that back testing to find portfolios doesn't convince me of future results. It's the investing form of P-hacking. The 3-fund portfolio has the best rationale of any portfolio I've ever seen. If the golden butterfly outperformed the 3-fund historically, I believe that to have occurred due to random chance.

I believe purchasing gold is speculating, not investing, as it has no intrinsic rate of return. Perhaps, MAYBE, gold could be viewed as insurance against global collapse. But, in that event, I believe guns, defensible / arable land, and years worth of powdered food would be better insurance. (I have not purchased any of these items, in case you are wondering).

Perhaps gold will prove a valuable portfolio addition over future decades. Outcomes are generally somewhat random. :D
I would really recommend this book - it is a great background on all the assets and basically a BH style of investing.

https://www.amazon.ca/Permanent-Portfol ... 1118288254

You have to remember that in MPT even having a NIL real return can improve results if there are negative or low correlations. Maybe you don't want to have 20% GLD, but it is very simple to have 10k of Eagles in a safety deposit box and 10k in seg storage at the Perth mint.
I've read many books on assets classes, though not that one. In IPS fashion, I believe all investments should have an intrinsic rate of return. I'd need to shed this belief to justify gold. For now I hold nothing where the return is 100% dependent on selling that asset in the future, as-is, for a higher price. I hold the market cap weight of publicly traded gold mining stocks. :P

MPT is a good, but not sufficient tool for me, as past data is only directionally helpful. In March 1637, MPT would have great past data on the returns of Tulip bulbs.

I may reconsider gold in the bucket of "deep risk" insurance once I have "won the game".

P.S. I understand that "Tulip Bulb Mania" is the most extreme bubble ever. Nevertheless, it is a great research item for those who intend to hold assets without an inherent rate of return.
My posts represent my own opinion and do not constitute financial advice. I am simply a hobbyist. :)

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by APB » Sat Sep 24, 2016 12:22 pm

Edit: February was the tulip bulb peak, not March. Wikipedia has a great write up on it, if you want the abbreviated version.

https://en.m.wikipedia.org/wiki/Tulip_mania
My posts represent my own opinion and do not constitute financial advice. I am simply a hobbyist. :)

sunflash
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by sunflash » Sat Sep 24, 2016 6:28 pm

APB wrote:Edit: February was the tulip bulb peak, not March. Wikipedia has a great write up on it, if you want the abbreviated version.

https://en.m.wikipedia.org/wiki/Tulip_mania
I do not think that your comparison of Tulips to Gold is entirely acurate. A few thousand years of human money and the fact that central banks keep the stuff does make gold a form of money (a medium of exchange; a unit of account; a store of value). I understand the limitations of MPT (I am not a EMH person myself - I really enjoy behavioral finance), but the fact remains that an allocation to gold makes sense from a number of perspectives not the least of which is that in a negative real rate enivronment Gold actually does store value.

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by APB » Sat Sep 24, 2016 9:11 pm

mcgugrah wrote:
APB wrote:Edit: February was the tulip bulb peak, not March. Wikipedia has a great write up on it, if you want the abbreviated version.

https://en.m.wikipedia.org/wiki/Tulip_mania
I do not think that your comparison of Tulips to Gold is entirely acurate. A few thousand years of human money and the fact that central banks keep the stuff does make gold a form of money (a medium of exchange; a unit of account; a store of value). I understand the limitations of MPT (I am not a EMH person myself - I really enjoy behavioral finance), but the fact remains that an allocation to gold makes sense from a number of perspectives not the least of which is that in a negative real rate enivronment Gold actually does store value.
Holding value w/ gold in a 0% interest rate environment is interesting. Considering treasuries return around 0% real, and I'd expect the EV of gold to be 0% real, they may accomplish similar ends. Gold still has far higher volatility than TIPS, so even if it's uncorrelated, 20% is a high allocation. 0% real, what a depressing thought!

Would you continue to hold gold if the real interest rate on treasuries rose 1-2 percentage points?
My posts represent my own opinion and do not constitute financial advice. I am simply a hobbyist. :)

sunflash
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by sunflash » Sat Sep 24, 2016 9:56 pm

APB wrote:
mcgugrah wrote:
APB wrote:Edit: February was the tulip bulb peak, not March. Wikipedia has a great write up on it, if you want the abbreviated version.

https://en.m.wikipedia.org/wiki/Tulip_mania
I do not think that your comparison of Tulips to Gold is entirely acurate. A few thousand years of human money and the fact that central banks keep the stuff does make gold a form of money (a medium of exchange; a unit of account; a store of value). I understand the limitations of MPT (I am not a EMH person myself - I really enjoy behavioral finance), but the fact remains that an allocation to gold makes sense from a number of perspectives not the least of which is that in a negative real rate enivronment Gold actually does store value.
Holding value w/ gold in a 0% interest rate environment is interesting. Considering treasuries return around 0% real, and I'd expect the EV of gold to be 0% real, they may accomplish similar ends. Gold still has far higher volatility than TIPS, so even if it's uncorrelated, 20% is a high allocation. 0% real, what a depressing thought!

Would you continue to hold gold if the real interest rate on treasuries rose 1-2 percentage points?
Yeah sure. I cannot see the future. Its like asking would I hold long bonds if rates went down a percent. The PP is totally agnostic. It holds gold and the anti-gold

RE: zero real return, yeah may be 20% is too high for some ppl, but again - negative correlation, portability etc etc.

How do I post Excel on here? - I can show you the Golden going back to 1926 in real terms. Long story short it performs like a 40/60 with 5% real returns, but less volatility and higher Sharpe. During most of this time gold was pegged.

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by boglerdude » Sun Sep 25, 2016 7:46 pm

Image

Gold vs stocks last 10 years. Stocks throw off dividends and companies expand and adapt...gold sits there...what explains these returns...

Edit: I'm asking. I'd rather there not be any reason to own gold.
Last edited by boglerdude on Sun Sep 25, 2016 10:08 pm, edited 1 time in total.

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by njboater74 » Sun Sep 25, 2016 9:53 pm

boglerdude wrote:
Gold vs stocks last 10 years. Stocks throw off dividends and companies expand and adapt...gold sits there...what explains these returns...
When you look at the chart of an ETF in Morningstar, the chart is comparing the price.

If you look at it from the perspective of VTSAX, then it compares the growth. It's a bit closer, but GLD still edges out VTSAX since GLDs inception.

What do you think explains the returns? It looks like a few main factors:
1. High inflation due to the housing bubble
2. Fear of an economic collapse in 2008
3. Fear of rampant inflation due to loose monetary policy after the housing market collapse

The rampant inflation never materialized, so it looks like GLD came back to Earth. Are you asking or making a point? I really don't have an answer myself, just a guess based on my unqualified opinion :?

Either way...valid point.
When the mob and the press and the whole world tell you to move, your job is to plant yourself like a tree beside the river of truth and tell the whole world - 'No, YOU move'--Captain America, Boglehead

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njboater74
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by njboater74 » Sun Sep 25, 2016 10:02 pm

My bigger concern about Golden Butterfly is the long term bonds.

How would they perform in this monetary environment? Say the Fed finally raises rates, and that also causes LTT yields to go up. Now you have a situation with:
1. Low inflation - Bad for gold
2. Rising rates - Bad for LT Treasuries
3. Economic Slowdown - Bad for Stocks

It looks like conditions that PP/GB haven't been through yet. When interest rates spiked in the 70's, it was bad for bonds, but there was also rampant inflation, so good for gold.
When the mob and the press and the whole world tell you to move, your job is to plant yourself like a tree beside the river of truth and tell the whole world - 'No, YOU move'--Captain America, Boglehead

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by sunflash » Mon Sep 26, 2016 10:54 am

njboater74 wrote:My bigger concern about Golden Butterfly is the long term bonds.

How would they perform in this monetary environment? Say the Fed finally raises rates, and that also causes LTT yields to go up. Now you have a situation with:
1. Low inflation - Bad for gold
2. Rising rates - Bad for LT Treasuries
3. Economic Slowdown - Bad for Stocks

It looks like conditions that PP/GB haven't been through yet. When interest rates spiked in the 70's, it was bad for bonds, but there was also rampant inflation, so good for gold.
Have a look at the Japanese PP. 2.5% Nominal (maybe 3-3.5 real) since their bubble burst. Golden butterfly would fare better with global stock exposure.

http://gestaltu.blogspot.ca/2012/09/the ... anese.html

You are unlikely to get rising rates without inflation. PP is based on 2 economic (prosperity, recession) and 2 monetary (inflation, deflation) scenarios. Each asset is tailored to each scenario.

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by sunflash » Mon Sep 26, 2016 11:01 am

njboater74 wrote:My bigger concern about Golden Butterfly is the long term bonds.

How would they perform in this monetary environment? Say the Fed finally raises rates, and that also causes LTT yields to go up. Now you have a situation with:
1. Low inflation - Bad for gold
2. Rising rates - Bad for LT Treasuries
3. Economic Slowdown - Bad for Stocks

It looks like conditions that PP/GB haven't been through yet. When interest rates spiked in the 70's, it was bad for bonds, but there was also rampant inflation, so good for gold.
What would be your idea asset allocation here? 100% Tbill?

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njboater74
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by njboater74 » Mon Sep 26, 2016 11:26 am

mcgugrah wrote:
njboater74 wrote:My bigger concern about Golden Butterfly is the long term bonds.

How would they perform in this monetary environment? Say the Fed finally raises rates, and that also causes LTT yields to go up. Now you have a situation with:
1. Low inflation - Bad for gold
2. Rising rates - Bad for LT Treasuries
3. Economic Slowdown - Bad for Stocks

It looks like conditions that PP/GB haven't been through yet. When interest rates spiked in the 70's, it was bad for bonds, but there was also rampant inflation, so good for gold.
What would be your idea asset allocation here? 100% Tbill?
No, just wanted your thoughts on how the GB/PP would perform if you had the unusual scenario of rising interest rates and low inflation. It doesn't seem so unlikely given the low interest rate environment and low inflation.
When the mob and the press and the whole world tell you to move, your job is to plant yourself like a tree beside the river of truth and tell the whole world - 'No, YOU move'--Captain America, Boglehead

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by sunflash » Mon Sep 26, 2016 11:28 am

njboater74 wrote:
mcgugrah wrote:
njboater74 wrote:My bigger concern about Golden Butterfly is the long term bonds.

How would they perform in this monetary environment? Say the Fed finally raises rates, and that also causes LTT yields to go up. Now you have a situation with:
1. Low inflation - Bad for gold
2. Rising rates - Bad for LT Treasuries
3. Economic Slowdown - Bad for Stocks

It looks like conditions that PP/GB haven't been through yet. When interest rates spiked in the 70's, it was bad for bonds, but there was also rampant inflation, so good for gold.
What would be your idea asset allocation here? 100% Tbill?
No, just wanted your thoughts on how the GB/PP would perform if you had the unusual scenario of rising interest rates and low inflation. It doesn't seem so unlikely given the low interest rate environment and low inflation.
I am not aware of such a situation occurring in central bank history (not to say that it cannot happen). Could you provide an example so we could look at the data?

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by siamond » Mon Sep 26, 2016 11:49 am

AlohaJoe wrote:My general thoughts are that portfolios that only show data back to 1972 are of limited interest given the short history. My personal belief is that those asset classes, for historical reasons, happened to be very productive while also being uncorrelated during the time period in question. I am not 100% confident (who can be?), but I have little faith that it will repeat in the future.
Yes, I share the feeling.

Gold is an important key to this portfolio, and there is no usable pre-1972 data (US or International) to look at because of the parity between the US dollar and the price of gold by then. So there is no way to test gold out of the 1972-now sample. It gets worse as clearly gold's performance in the mid 70s is highly tainted by the termination of parity in 1971 (an event that will not occur again). And I would venture to guess that gold's negative correlation with everything else might very well be essentially a remnant of the time where gold truly mattered, instead of something truly fundamental. My mother's instinct was to go to gold in time of crisis, my instinct tells me none of the same, and it will probably never cross my children's minds to even ponder about it. In addition, gold has little reason to return much on its own, as many people pointed out. Its only value is its negative correlation... so far!

As to long-term government bonds, the 2nd key to the portfolio, it is really hard to go over the fact that in a world of low-interest rates or rising interest rates, this is NOT going to go well for this asset class for at least a decade if not more.

In other words, in both cases, I am afraid that the 1972-now (US) period really doesn't tell us much that would probably apply to the future, and broadening the lens to pre-1972 data or International data doesn't help much either. I wish good luck to whoever wants to try, but I see it as a real big shot in the dark...

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by Kevin K » Mon Sep 26, 2016 7:22 pm

I suggest poking around the Portfolio Charts site and looking not just at the PP and GB but all of the other portfolios that have delivered optimal risk:reward numbers over any holding period you care to test. Most of them include at least a 10% allocation to gold, but there are plenty of decent exceptions, from Merriman's Ultimate Buy & Hold to Bernstein's Coward's Portfolio and Larry Swedroe's Larry Portfolio. When you take a careful look at the Heat Map and Witdrawal Rates tables for all of these allocations though you very quickly see just how superior the allocations that include gold have been over all holding periods from 1972 onwards, while in comparing any of the above to, say, the Three Fund or other Boglehead classics there is simply no comparison in risk-adjusted performance.

The standard Boglehead views of, and objections to, gold as an asset class are based on a oversimplifications that essentially boil down to it not having any inherent rate of return and not really being a viable inflation hedge. Tyler over at Portfolio Charts shared a link to this article recently, and I think it does a great job of explaining just how complex gold is as an asset:

https://snbchf.com/swissgold/gold/gold-silver-prices/

A much shorter read and probably more to the point for confirmed Bogleheads are the few paragraphs on "gold" in this article by Steven Evanson, principal of one of the better DFA fund advisors:

https://www.evansonasset.com/64.htm

For me the Golden Butterfly, like the Permanent Portfolio, isn't of interest only because of its spectacular backtested results (though it would be as disinegnous to say they aren't a factor as it would in looking at any other portfolio). Rather both of these approaches are "bunkers" constructed of volatile but truly un-correlated asset classes and are designed to perform very well during Black Swan/SHTF circumstances.

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by Tyler9000 » Mon Sep 26, 2016 8:56 pm

I've found that the Golden Butterfly is a pretty good personality test for how you think about risk mitigation. One person will see it as holding multiple assets with negative outlooks and avoid it like the plague because they fear loss in those assets and believe they can do better. Another person will look at the same portfolio and see a well-diversified asset allocation that has proven it can sustain remarkably consistent positive performance -- with no action required -- even when one or more assets suffer a severe drop. Stocks included. :wink:

I'm not here to argue that one approach is more valid than the other. Every investor is different, and both methods deserve consideration. The most important thing is simply to understand what motivates you most and to invest in a way that you can personally stick with through thick and thin no matter what happens in the markets. I personally find the resilience of portfolios like the Golden Butterfly (and other well-diversified options) to be exactly what I need to confidently invest while sleeping like a baby. No matter your ultimate choice, I hope others find the data just as useful as I do.

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by njboater74 » Mon Sep 26, 2016 9:09 pm

Tyler9000 wrote:I've found that the Golden Butterfly is a pretty good personality test for how you think about risk mitigation. One person will see it as holding multiple assets with negative outlooks and avoid it like the plague because they fear loss in those assets and believe they can do better. Another person will look at the same portfolio and see a well-diversified asset allocation that has proven it can sustain remarkably consistent positive performance -- with no action required -- even when one or more assets suffer a severe drop. Stocks included. :wink:
Thank you, Tyler.

It was my discovery of Golden Butterfly on Portfolio Charts that made me first think 'maybe it doesn't have to be this way, maybe we don't have to suffer massive losses whenever the economy goes on a roller coaster'.

Regardless of whether you adopt GB or PP, or stick with stocks and bonds, it would do anyone good to look at the portfolios and the logic behind them.

As I've mentioned before, my trepidation is with the Long Term Treasuries. I've wanted to add them to my portfolio because of the way they've responded to bear markets in the past, but am not sure they'd be able to provide the same safety in this very low interest rate environment.

What are your thoughts? How do you feel LTT would respond to a rise in the Fed Funds rate in such a low inflation environment?
When the mob and the press and the whole world tell you to move, your job is to plant yourself like a tree beside the river of truth and tell the whole world - 'No, YOU move'--Captain America, Boglehead

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by sunflash » Mon Sep 26, 2016 9:16 pm

njboater74 wrote:
Tyler9000 wrote:I've found that the Golden Butterfly is a pretty good personality test for how you think about risk mitigation. One person will see it as holding multiple assets with negative outlooks and avoid it like the plague because they fear loss in those assets and believe they can do better. Another person will look at the same portfolio and see a well-diversified asset allocation that has proven it can sustain remarkably consistent positive performance -- with no action required -- even when one or more assets suffer a severe drop. Stocks included. :wink:
Thank you, Tyler.

It was my discovery of Golden Butterfly on Portfolio Charts that made me first think 'maybe it doesn't have to be this way, maybe we don't have to suffer massive losses whenever the economy goes on a roller coaster'.

Regardless of whether you adopt GB or PP, or stick with stocks and bonds, it would do anyone good to look at the portfolios and the logic behind them.

As I've mentioned before, my trepidation is with the Long Term Treasuries. I've wanted to add them to my portfolio because of the way they've responded to bear markets in the past, but am not sure they'd be able to provide the same safety in this very low interest rate environment.

What are your thoughts? How do you feel LTT would respond to a rise in the Fed Funds rate in such a low inflation environment?
Look what has happened in Japan. Everyone thought that their bonds are gonna crash for decades

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by sunflash » Mon Sep 26, 2016 9:20 pm

njboater74 wrote:
Tyler9000 wrote:I've found that the Golden Butterfly is a pretty good personality test for how you think about risk mitigation. One person will see it as holding multiple assets with negative outlooks and avoid it like the plague because they fear loss in those assets and believe they can do better. Another person will look at the same portfolio and see a well-diversified asset allocation that has proven it can sustain remarkably consistent positive performance -- with no action required -- even when one or more assets suffer a severe drop. Stocks included. :wink:
Thank you, Tyler.

It was my discovery of Golden Butterfly on Portfolio Charts that made me first think 'maybe it doesn't have to be this way, maybe we don't have to suffer massive losses whenever the economy goes on a roller coaster'.

Regardless of whether you adopt GB or PP, or stick with stocks and bonds, it would do anyone good to look at the portfolios and the logic behind them.

As I've mentioned before, my trepidation is with the Long Term Treasuries. I've wanted to add them to my portfolio because of the way they've responded to bear markets in the past, but am not sure they'd be able to provide the same safety in this very low interest rate environment.

What are your thoughts? How do you feel LTT would respond to a rise in the Fed Funds rate in such a low inflation environment?
Look what has happened in Japan. Everyone thought that their bonds are gonna crash for decades

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by njboater74 » Mon Sep 26, 2016 9:22 pm

mcgugrah wrote:
Look what has happened in Japan. Everyone thought that their bonds are gonna crash for decades
Is it wrong to ask this question? You seem defensive that I'm even suggesting the idea that LTT might not do well over the next decade.
When the mob and the press and the whole world tell you to move, your job is to plant yourself like a tree beside the river of truth and tell the whole world - 'No, YOU move'--Captain America, Boglehead

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by sunflash » Mon Sep 26, 2016 9:29 pm

njboater74 wrote:
mcgugrah wrote:
Look what has happened in Japan. Everyone thought that their bonds are gonna crash for decades
Is it wrong to ask this question? You seem defensive that I'm even suggesting the idea that LTT might not do well over the next decade.
They could do terrible, that is why the PP holds stocks, cash and gold. Have you read the Permanent portfolio book? I am just saying that we cannot predict the future - bonds could do great, they could tank who knows. If there are rapidly rising rates that will also mean higher inflation so gold or stocks should pick up the slack

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by njboater74 » Mon Sep 26, 2016 9:43 pm

mcgugrah wrote:
njboater74 wrote:
mcgugrah wrote:
Look what has happened in Japan. Everyone thought that their bonds are gonna crash for decades
Is it wrong to ask this question? You seem defensive that I'm even suggesting the idea that LTT might not do well over the next decade.
They could do terrible, that is why the PP holds stocks, cash and gold. Have you read the Permanent portfolio book? I am just saying that we cannot predict the future - bonds could do great, they could tank who knows. If there are rapidly rising rates that will also mean higher inflation so gold or stocks should pick up the slack
No, I haven't read the book. I may, but I've read about the principles and I've watched a lot of videos and interviews with Craig Rowland.

Since 1972, PP has done it's job, no more than 1 asset class has tanked at the same time. It performed brilliantly in the 00's. I don't see how you could look at that performance and not want to take a deeper look.

I just wonder if the PP performance can keep up, and maybe if there's a better choice to use in PP/GB than LTT. It's performance seemed so dependent on the high returns of LTT, that with rates so low, I don't see how that could continue. I don't see any reason why it shouldn't continue to be a stable, low drawdown portfolio, however.
When the mob and the press and the whole world tell you to move, your job is to plant yourself like a tree beside the river of truth and tell the whole world - 'No, YOU move'--Captain America, Boglehead

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by sunflash » Mon Sep 26, 2016 9:53 pm

njboater74 wrote:
mcgugrah wrote:
njboater74 wrote:
mcgugrah wrote:
Look what has happened in Japan. Everyone thought that their bonds are gonna crash for decades
Is it wrong to ask this question? You seem defensive that I'm even suggesting the idea that LTT might not do well over the next decade.
They could do terrible, that is why the PP holds stocks, cash and gold. Have you read the Permanent portfolio book? I am just saying that we cannot predict the future - bonds could do great, they could tank who knows. If there are rapidly rising rates that will also mean higher inflation so gold or stocks should pick up the slack
No, I haven't read the book. I may, but I've read about the principles and I've watched a lot of videos and interviews with Craig Rowland.

Since 1972, PP has done it's job, no more than 1 asset class has tanked at the same time. It performed brilliantly in the 00's. I don't see how you could look at that performance and not want to take a deeper look.

I just wonder if the PP performance can keep up, and maybe if there's a better choice to use in PP/GB than LTT. It's performance seemed so dependent on the high returns of LTT, that with rates so low, I don't see how that could continue. I don't see any reason why it shouldn't continue to be a stable, low drawdown portfolio, however.
The real question is can you have the kind of rising rate enviroment seen the in 1970's without the inflation? LTT got hammered 1972 - 1980, but gold carried the day. It think the answer to that is no... but not sure (I would love to see any example in central bank history). The PP is basically the embodiement of Austrian business cycle - if you believe that the economic underpinnings are sound, then the portfolio is a top down response to the 4x4 matrix of economic and monetary conditions.

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by Tyler9000 » Mon Sep 26, 2016 10:25 pm

njboater74 wrote: I've mentioned before, my trepidation is with the Long Term Treasuries. I've wanted to add them to my portfolio because of the way they've responded to bear markets in the past, but am not sure they'd be able to provide the same safety in this very low interest rate environment.

What are your thoughts? How do you feel LTT would respond to a rise in the Fed Funds rate in such a low inflation environment?
Regarding LTTs specifically, rates today are certainly really low but because of the way bond convexity works even small variations in rates can still provide nice rebalancing opportunities. It's not all about yield. Also, keep in mind that the LTT/STT bond barbell in the GB has a similar average maturity to a traditional intermediate bond fund. Think of it as having 40% intermediate bonds and it may not feel so controversial. In fact, try plugging that into the calculators and you'll probably like those results as well.

If you really want to get to the heart of the matter, assume that each one of your portfolio assets will respond very poorly looking forward. How will that affect your portfolio choice, and why? And what can you do today to mitigate the downside of each negative possibility? There are different ways to approach that problem, but the investing experience is a whole lot more pleasant if you're honest about which type of investor you are ahead of time and plan accordingly. For reference, the Golden Butterfly takes the Harry Browne & Ray Dalio approach of covering each macroeconomic base so that you're likely to realize a positive real return with minimum potential downside no matter what happens in the markets.
Last edited by Tyler9000 on Tue Sep 27, 2016 2:20 pm, edited 13 times in total.

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by AlohaJoe » Mon Sep 26, 2016 10:29 pm

Kevin K wrote:The standard Boglehead views of, and objections to, gold as an asset class are based on a oversimplifications that essentially boil down to it not having any inherent rate of return and not really being a viable inflation hedge.
I would have thought it more accurate to say that the standard Bogleheads views of gold are aligned with those of Erb & Harvey's papers on the subject -- The Golden Dilemma (2013), The Golden Constant (2015), An Impressionic View of the 'Real' Price of Gold Around the World (2012):
We found little evidence that gold has been an effective hedge against unexpected inflation, whether measured in the short term or the long term. The gold-as-a-currency-hedge argument does not seem to be supported by the data. The fluctuations in the real price of gold are much greater than the changes on foreign exchanges. We suggest that the argument that gold is attractive when real returns on other assets are low is problematic. Low real yields—say, on TIPS—do not mechanically cause the real price of gold to be high. Although there is possibly some rational or behavioral economic force—perhaps a fear of inflation—influencing variation in both TIPS yields and the real price of gold, the impact may be more statistically apparent than real. We also parsed the safe haven argument and came up empty-handed. We examined data on hyperinflation in both major and minor countries and found that it is certainly possible for the purchasing power of gold to decline substantially during a highly inflationary period.
I've never seen a gold advocate conduct a similarly thorough or thoughtful analysis.

Evanson's article is typical:
The primary argument for the ownership of gold is that over long time frames it tracks inflation closely and protects against the erosion of purchasing power fiat money always produces. In terms of portfolio design, it also offers an asset uncorrelated with equity and fixed investments. From 1802-1997, gold turned in a virtually identical number to inflation. Its returns, like all asset classes, can veer upwards or downwards for long periods of time. From 1972-1982 gold returned an inflation adjusted 11.4% per year, more than 10% above all other asset classes.
So it tracks inflation over long time frames but has tracking error of 11.4% a year for over a decade? (Which is nearly half of the average retirement.) He also neglects to mention that gold hasn't tracked inflation since 1972. I know that's only half a century but as Keynes said, "the long run is a misleading guide to the current state of affairs".

He cherry picks the start and end dates to make his case. He uses 1802 as the start date, even though gold prices go back to 1791. He uses 1997 as the end date, even though he's writing in 2015 (a full 18 years after his cherry picked end date!)

All of that said, I'm actually very sympathetic towards the Permanent Portfolio and the Golden Butterfly. I see them as attempts to make risk parity strategies available to the individual investor. Whenever I read something by, say, AQR on risk parity I come away convinced by their arguments but don't see an option to put it in place other than extremely high-fee funds. I may disagree strongly with the particular assets chosen by the Permanent Portfolio and the Golden Butterfly but I think they're on the right track and have a lot more promise than the sole reliance on intermediate-term bonds as a diversifier from US equities.

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by APB » Mon Sep 26, 2016 11:25 pm

Kevin K wrote:The standard Boglehead views of, and objections to, gold as an asset class are based on a oversimplifications that essentially boil down to it not having any inherent rate of return and not really being a viable inflation hedge.
The first condition is enough for me. In my mind, it's a pretty good rule of thumb.

I have confidence that any portfolio created by backtesting will outperform a 3-fund portfolio in the past. Otherwise, it wouldn't make a very good book. Going forward, who knows?

This may be a good opportunity for a Buffett style 10 year bet between a comparable 3-fund portfolio and the GB or PP. Is a 60/40 stock bond 3-fund portfolio a fair comparison?

I'll ping the thread on Oct 1 2026, and we'll see what happened. :)

By the way, I understand 10 years is too short. But I'd take the test of 10 years in the future over backtesting any day.
My posts represent my own opinion and do not constitute financial advice. I am simply a hobbyist. :)

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by siamond » Tue Sep 27, 2016 8:59 am

Tyler9000 wrote:I've found that the Golden Butterfly is a pretty good personality test for how you think about risk mitigation. One person will see it as holding multiple assets with negative outlooks and avoid it like the plague because they fear loss in those assets and believe they can do better. Another person will look at the same portfolio and see a well-diversified asset allocation that has proven it can sustain remarkably consistent positive performance -- with no action required -- even when one or more assets suffer a severe drop. Stocks included. :wink:
Hey Tyler. You always find a way to surprise me with your clever tack on things. You're right, the GB portfolio is indeed a great personality test, and many people totally overreact to judgment calls on individual assets and miss the big picture of low/negative correlation which made for such great historical record with this portfolio. If anything, the Golden Butterfly is the ultimate proof that a portfolio-level perspective is decidedly NOT the same as the sum of (individual) asset perspectives.

On the other hand, this is precisely the reason for which I would find very hard to make a bet on this portfolio. The primary (only?) reason to believe in this portfolio is the low/negative correlation bit, and the dynamics that make it so. And I fear that the evidence is very weak in this respect, as I tried to touch on in my previous post. Gold's success as a negative correlator appears quite circumstantial, and just cannot be assessed beyond the narrow frame of 1972-till-now. I find the pairing of LT bonds with SCV (and International) more convincing based on historical evidence, but it is really hard to project it working in the coming decade or two (not only LTT per se, but the pairing). Plus the spurts of growth of LTT, SCV (and to an extent International, notably the EM part of it) seemed just so randomly distributed in the past, only occurring once every other decade or so, that although they nicely complemented each other at times, who is to say that the stars will continue to align, I see no fundamental reason for that.

Still, this is really good food for thought, and a great lesson in portfolio construction.

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by Kevin K » Tue Sep 27, 2016 11:13 am

The leeriness about gold and long-term treasuries is of course completely understandable - and something I share! Here's an interation of not the PP but rather Larry Swedroe's "Larry" portfolio that a knowledgeable poster over on the PP forums uses. It's essentially Larry's most recent iteration (in his book "Reducing the Risk of Black Swans") but with a 10% slice of gold for SHTF insurance. The treasuries are all intermediate rather than the PP barbell. IMHO it's a pretty impressive allocation for, say, a risk-averse retiree. The backtesting here is 1975-2015 but you can run it for any time period you like and the risk-adjusted returns are better than the PP or GB:

https://www.portfoliovisualizer.com/bac ... 0&Gold1=10

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by siamond » Tue Sep 27, 2016 11:48 am

Kevin K wrote:It's essentially Larry's most recent iteration (in his book "Reducing the Risk of Black Swans") but with a 10% slice of gold for SHTF insurance. The treasuries are all intermediate rather than the PP barbell. IMHO it's a pretty impressive allocation for, say, a risk-averse retiree. The backtesting here is 1975-2015 but you can run it for any time period you like and the risk-adjusted returns are better than the PP or GB
That is a pretty cool 'retiree' portfolio indeed. Very decent returns and an impressively stable trajectory. And I would be more inclined to believe the underlying fundamentals than the PP or GB portfolios. Still, we can't backtest it pre-1972, as gold is meaningless by then, and EM isn't easily available. Also, 60% in intermediate government bonds, that is introducing a severe inflation risk, and I guess that in real life, once would actually introduce a good chunk of TIPS (and might have cringed a bit in 2008!).

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by Kevin K » Tue Sep 27, 2016 4:47 pm

I think the backtesting "snapshot" Portfolio Charts provide is useful, but I don't see any point in the endless discussions one sees about backtesting not being useful owing to data only going back to x date. What's usually left out of those discussions/arguments is that most of the investable asset classes we take for granted today don't have enough real world history of actually being investable assets for backtesting to be of much more than entertainment value. FWIW I purposely did the backtest I offered from 1975 rather than 1972 to eliminate any effect from the gold standard transition, but this 60/10/10/10/10 allocation performs impressively over any time period you care to look at, as Tyler shows here:

Image


Larry Swedroe provides ample and I think pretty compelling data and arguments for the highly tilted allocations of the very modest ((30%) equity allocation in the Larry Portfolio in his "Black Swans" book. I personally don't see any reason to own TIPS today and Mssrs. Rowland and Larson make a pretty compelling case for never buying them in their book "The Permanent Portfolio." The stock portion ought to take care of the inflation risk just fine.

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by siamond » Wed Sep 28, 2016 9:04 am

Kevin K wrote:I think the backtesting "snapshot" Portfolio Charts provide is useful, but I don't see any point in the endless discussions one sees about backtesting not being useful owing to data only going back to x date.
Well, in the precise case of bonds, if you only looks at the last few decades, and notably skips what happened during world wars (in the US and in Europe), you would miss crucial information. I dearly hope that world wars are things of the past, but I'm not going to bet on it. Also, the past couple of decades saw a big bull market for bonds, and backtesting with a very large allocation to bonds since 1972/75 is probably quite skewed by it.
Kevin K wrote:I personally don't see any reason to own TIPS today and Mssrs. Rowland and Larson make a pretty compelling case for never buying them in their book "The Permanent Portfolio." The stock portion ought to take care of the inflation risk just fine.
I am no big fan of TIPS either, and I don't have any in my portfolio, and never plan to do so. Same argument as yours, stocks will take care of it, in a loosely correlated way, and that's fine. This reasoning only works if one has significant equity exposure though. With 60% bonds, I would get quite nervous that this isn't enough. And then I would consider TIPS inclusion as much more reasonable.

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by stemikger » Wed Sep 28, 2016 9:10 am

I am quoting John Bogle here:

"Just stick with the balanced index fund and get on with it"
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by pkcrafter » Wed Sep 28, 2016 9:53 am

mcgugrah wrote:
BH is just a trend following system with a very long-to-infinite look back period.
No, it isn't a trend following system.

Gold, what is it good for? Isn't gold just a highly speculative momentum strategy? It's value fluctuates purely on the perceptions of its value. It goes up when investors worry, and it goes down when the worries don't materialize.

Disclaimer - There's a bit of the devil in this post. :happy





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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by Kevin K » Wed Sep 28, 2016 10:25 am

What gold is "good" for and why there are far better options than "just stick with the balanced index fund" can be ascertained by comparing the GB, PP and other such allocations including the 60/10/10/10/10 variant of the Larry Portfolio to this classic Boglehead one:

https://portfoliocharts.com/portfolio/classic-60-40/

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by banker22 » Sat Feb 18, 2017 3:39 am

Tyler,

What is the highest intrayear drawdown?

Thanks

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by Erwin » Sat Feb 18, 2017 4:37 am

azanon wrote:
PecuniaryPeccary wrote:Hail Bogleheads,

I don't post much, but follow these boards very closely, and was quite intrigued to read of the "Golden Butterfly" portfolio mentioned by @Tyler9000 in this thread: viewtopic.php?t=171019#p2811808

(Original description and analysis of the portfolio on portoliocharts.com here: https://portfoliocharts.com/portfolio/golden-butterfly/)

I'd be curious to know your collective thoughts.
I think its great. I don't use it personally, but I'm following a somewhat similar concept. I'm reminded of a central point made by Meb Faber in his book Global asset allocation: A Survey of the World's Top asset Allocation Strategies, which is that there are a lot of great portfolios out there that will get the job done, and by job I mean more than acceptable risk-adjusted return. I believe it was this book that found that the long term returns of all of the portfolios he looked at were within one percentage point of each other. His take-home message was pick one and then go fishing...... or something like that. Just be sure and stick to whichever you pick though.
I so much agree with what is stated here. Investors, and I am not different, continue looking for that optimal portfolio, when the answer is to pick one of the many offered by the so called "experts" and stay the course. The big challenge is not to find the right portfolio, but discipline and patience.
Erwin

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by hoops777 » Sat Feb 18, 2017 12:56 pm

Let me see....
Let's go back say 50 years to 1967 just for the heck of it.
The internet did not exist.
Computers for personal use did not exist.How about energy compared to today?Factories,manufacturing the global economy?I of course will not mention politics.
The world then compared to today and going forward was so different that it is apples to oranges.

Yet we still in all our wisdom use an outdated different reality to base our future investments on. :confused :confused :confused
K.I.S.S........so easy to say so difficult to do.

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by sunflash » Sat Feb 18, 2017 1:04 pm

hoops777 wrote:Let me see....
Let's go back say 50 years to 1967 just for the heck of it.
The internet did not exist.
Computers for personal use did not exist.How about energy compared to today?Factories,manufacturing the global economy?I of course will not mention politics.
The world then compared to today and going forward was so different that it is apples to oranges.

Yet we still in all our wisdom use an outdated different reality to base our future investments on. :confused :confused :confused
I am not sure that the comparison is totally accurate. While the performance specific asset classes over the past 50 years maybe somewhat of an anomaly, over very long periods of time ownership of gold, equity, land and debt instruments has provided a remarkable return.

Much of the multi-millennia dynastic wealth in Europe (Medici, Rothschild etc) is very heavy on gold and ownership of real assets. The wealth of these families have endured inflation, depression, financial collapse, the fall of empires and world wars.

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by hoops777 » Sat Feb 18, 2017 1:21 pm

Any bogleheads here that belong to European dynasties? :mrgreen:
K.I.S.S........so easy to say so difficult to do.

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by sunflash » Sat Feb 18, 2017 1:30 pm

hoops777 wrote:Any bogleheads here that belong to European dynasties? :mrgreen:
I am just suggesting that a longer timeline and broader asset base is beneficial context for portfolio construction.

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by billyv » Sat Feb 18, 2017 2:12 pm

Why do you think the central banks all hold it?
This strikes me as a fair question and one that any gold-skeptic should be prepared to answer. There was a story on Bloomberg the other day about Germany repatriating a sizable amount of its gold stock held by other central banks, presumably as a backstop against mounting EU and Eurozone pressures. If gold has value to governments, why not individuals?

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by sunflash » Sat Feb 18, 2017 2:31 pm

billyv wrote:
Why do you think the central banks all hold it?
This strikes me as a fair question and one that any gold-skeptic should be prepared to answer. There was a story on Bloomberg the other day about Germany repatriating a sizable amount of its gold stock held by other central banks, presumably as a backstop against mounting EU and Eurozone pressures. If gold has value to governments, why not individuals?
Absolutely. People are way too emotional about gold. Most are all or nothing which is totally irrational. Having 10% in physical gold seems like a totally reasonable and almost completely free (in terms of opportunity cost) insurance policy.

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by Tyler9000 » Sat Feb 18, 2017 2:34 pm

banker22 wrote:Tyler,

What is the highest intrayear drawdown?

Thanks
The deepest year-end drawdown (and multi-year compound drawdown) since 1970 was about 10%, but I don't have enough data to calculate the intra-year drawdown. Perhaps I'll get more granular data in the future, but in the meantime I believe that the year-end data is sufficient and valuable for relative comparisons between portfolios.

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by banker22 » Sat Feb 18, 2017 2:51 pm

Tyler9000 wrote:
banker22 wrote:Tyler,

What is the highest intrayear drawdown?

Thanks
The deepest year-end drawdown (and multi-year compound drawdown) since 1970 was about 10%, but I don't have enough data to calculate the intra-year drawdown. Perhaps I'll get more granular data in the future, but in the meantime I believe that the year-end data is sufficient and valuable for relative comparisons between portfolios.
Ok. I've just run on quantopian and the max intrayear drawdown is c.30%, and that's just since 2004. Looking at December to December is insufficient from a drawdown perspective.

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by EarlTheGreySnapper » Mon Dec 11, 2017 9:41 am

Sorry to resurrect an old thread, but I have been doing some research into the Golden Butterfly and think it is an excellent portfolio.

I have a question though...

I live in the UK. In order to match the portfolio summarised here: https://portfoliocharts.com/portfolio/golden-butterfly/

I'd need to invest in the following (which are available through my UK broker, Interactive Investor):
- SHY
- TLT
- VB / VBR (depending upon whether I pursue just small-cap, or small-cap value)
- VTI
- Gold (I'd buy physical gold)

Living in the UK (as a British citizen with no plans to move abroad any time soon), what are the downsides (if any) to investing in a US portfolio like this?

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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by sunflash » Mon Dec 11, 2017 10:12 am

In theory the Permenant portfolio (on which the GB is based) would have all your exposure to GBP assets. You would buy local stocks and bonds. This is because of currency and inflation risk in local vs. foreign markets.

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