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

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

Post by watchnerd » Sat Feb 08, 2020 10:29 pm

willthrill81 wrote:
Sat Feb 08, 2020 10:03 pm


I don't see how you've reached that conclusion.
Take, for example, the last 10 years.

It loses to the Vanguard Balanced Index (60/40)


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

Post by watchnerd » Sat Feb 08, 2020 10:30 pm

Lee_WSP wrote:
Sat Feb 08, 2020 10:15 pm
watchnerd wrote:
Sat Feb 08, 2020 8:46 pm
Lee_WSP wrote:
Sat Feb 08, 2020 7:53 pm

It has back tested well, but we don't have great data either. What we do know is that gold is volatile and can provide a a hedge against both bonds and stocks tanking.
It back tests well over very long periods.

GB doesn't look so hot in many shorter range scenarios.
Which periods in particular? I'll need to brush up on gb bad times
Last 10 years it loses to a simple 60/40.


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

Post by Lee_WSP » Sat Feb 08, 2020 10:52 pm

watchnerd wrote:
Sat Feb 08, 2020 10:30 pm
Lee_WSP wrote:
Sat Feb 08, 2020 10:15 pm
watchnerd wrote:
Sat Feb 08, 2020 8:46 pm
Lee_WSP wrote:
Sat Feb 08, 2020 7:53 pm

It has back tested well, but we don't have great data either. What we do know is that gold is volatile and can provide a a hedge against both bonds and stocks tanking.
It back tests well over very long periods.

GB doesn't look so hot in many shorter range scenarios.
Which periods in particular? I'll need to brush up on gb bad times
Last 10 years it loses to a simple 60/40.


https://www.portfoliovisualizer.com/bac ... tion5_1=20
It's not supposed to outperform during bull markets.

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

Post by willthrill81 » Sat Feb 08, 2020 11:05 pm

watchnerd wrote:
Sat Feb 08, 2020 10:29 pm
willthrill81 wrote:
Sat Feb 08, 2020 10:03 pm


I don't see how you've reached that conclusion.
Take, for example, the last 10 years.

It loses to the Vanguard Balanced Index (60/40)


https://www.portfoliovisualizer.com/bac ... tion5_1=20
Oh, you mean on a relative basis.

It's worthwhile to note that 100% of the BI's outperformance was since 2013.

How about the decade prior (e.g. 2000-2009)? GB outperformed 7.62% to 2.64%.

If you compare the rolling returns of the GB and the BI, it's not even a contest.
watchnerd wrote:
Sat Feb 08, 2020 10:30 pm
Last 10 years it loses to a simple 60/40.
Did you expect a portfolio with 60% stocks to not beat one with 40% stocks in a long, big stock run-up?
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by Kbg » Sun Feb 09, 2020 12:06 am

Lol, these threads are so fun. Screw the objective data, gold sucks. The rolling returns link was great, no contest on which is the superior portfolio.

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

Post by watchnerd » Sun Feb 09, 2020 2:40 am

willthrill81 wrote:
Sat Feb 08, 2020 11:05 pm


Did you expect a portfolio with 60% stocks to not beat one with 40% stocks in a long, big stock run-up?
No.

But that's the point that people who are looking at it don't get. And a 60/40 balanced port is not considered aggressively risky by most.

Gold is a *major* drag on portfolio performance during bull markets.

And since there are more positive earning years in stocks than negative ones....that means gold is a drag more often than not.

I don't think people understand that, in the end, this also leads to much lower CAGR over time, and much less net money.

1/5 of a port to gold is *radical* and with a high cost.

Not even Dalio goes that high....because it's bad math in the long run.
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by Lee_WSP » Sun Feb 09, 2020 9:59 am

watchnerd wrote:
Sun Feb 09, 2020 2:40 am
willthrill81 wrote:
Sat Feb 08, 2020 11:05 pm


Did you expect a portfolio with 60% stocks to not beat one with 40% stocks in a long, big stock run-up?
No.

But that's the point that people who are looking at it don't get. And a 60/40 balanced port is not considered aggressively risky by most.

Gold is a *major* drag on portfolio performance during bull markets.

And since there are more positive earning years in stocks than negative ones....that means gold is a drag more often than not.

I don't think people understand that, in the end, this also leads to much lower CAGR over time, and much less net money.

1/5 of a port to gold is *radical* and with a high cost.

Not even Dalio goes that high....because it's bad math in the long run.
I agree with you that the expected returns of the GB are lower. I'm not sure I agree that those of us discussing using it as an E-fund replacement do not understand that, though.

I also agree that the hedge against both stocks & bonds tanking comes at a cost, but if the goal is to reduce max drawdowns while maintaining a modicum of return, the GB is pretty good.

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

Post by willthrill81 » Sun Feb 09, 2020 10:45 am

watchnerd wrote:
Sun Feb 09, 2020 2:40 am
willthrill81 wrote:
Sat Feb 08, 2020 11:05 pm


Did you expect a portfolio with 60% stocks to not beat one with 40% stocks in a long, big stock run-up?
No.

But that's the point that people who are looking at it don't get. And a 60/40 balanced port is not considered aggressively risky by most.

Gold is a *major* drag on portfolio performance during bull markets.

And since there are more positive earning years in stocks than negative ones....that means gold is a drag more often than not.

I don't think people understand that, in the end, this also leads to much lower CAGR over time, and much less net money.

1/5 of a port to gold is *radical* and with a high cost.

Not even Dalio goes that high....because it's bad math in the long run.
If you move the starting year to 1993 (all available data in PV), then the returns of the GB and the BI were nearly identical.

Using data going back to 1970 in PV, the returns of the GB and a 60/40 slightly favored the GB (6.4% vs. 6.1%).

Over the long-term, I would say that it's reasonable for investors to expect the GB to have similar returns to a 60/40 or 50/50 AA but with a smoother ride.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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

Post by watchnerd » Sun Feb 09, 2020 11:04 am

willthrill81 wrote:
Sun Feb 09, 2020 10:45 am

If you move the starting year to 1993 (all available data in PV), then the returns of the GB and the BI were nearly identical.

Using data going back to 1970 in PV, the returns of the GB and a 60/40 slightly favored the GB (6.4% vs. 6.1%).

Over the long-term, I would say that it's reasonable for investors to expect the GB to have similar returns to a 60/40 or 50/50 AA but with a smoother ride.
As I said...it backtests well over long time frames.

And it often lags over intermediate timeframes (10 yr).

And it's too volatile (as expected for any port that is 40% stocks, 20% gold) over short (5 yr) timeframes.

GB's / All Season's whole construction philosophy centers around risk matching to economic regime changes that take multiple decades to play out. To see the benefit of its design, you're looking at a 20+ year commitment to those assets.
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by willthrill81 » Sun Feb 09, 2020 11:15 am

watchnerd wrote:
Sun Feb 09, 2020 11:04 am
willthrill81 wrote:
Sun Feb 09, 2020 10:45 am

If you move the starting year to 1993 (all available data in PV), then the returns of the GB and the BI were nearly identical.

Using data going back to 1970 in PV, the returns of the GB and a 60/40 slightly favored the GB (6.4% vs. 6.1%).

Over the long-term, I would say that it's reasonable for investors to expect the GB to have similar returns to a 60/40 or 50/50 AA but with a smoother ride.
As I said...it backtests well over long time frames.

And it often lags over intermediate timeframes (10 yr).

And it's too volatile (as expected for any port that is 40% stocks, 20% gold) over short (5 yr) timeframes.

GB's / All Season's whole construction philosophy centers around risk matching to economic regime changes that take multiple decades to play out. To see the benefit of its design, you're looking at a 20+ year commitment to those assets.
I still don't see how you're claiming that it's "too volatile" over 5 year periods. It's been in the black in every 5 year period since 1970, which cannot be said of a 60/40 AA. The start-date sensitivity of a 60/40 has objectively been far higher.
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by watchnerd » Sun Feb 09, 2020 11:19 am

willthrill81 wrote:
Sun Feb 09, 2020 11:15 am


I still don't see how you're claiming that it's "too volatile" over 5 year periods. It's been in the black in every 5 year period since 1970, which cannot be said of a 60/40 AA. The start-date sensitivity of a 60/40 has objectively been far higher.
I think anything with 40%+ stocks, including 60/40, is too volatile if your timeframe is 5 years.

5 year target windows shouldn't have anything in stocks.

I'm not talking about rolling returns.
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by willthrill81 » Sun Feb 09, 2020 11:36 am

watchnerd wrote:
Sun Feb 09, 2020 11:19 am
willthrill81 wrote:
Sun Feb 09, 2020 11:15 am


I still don't see how you're claiming that it's "too volatile" over 5 year periods. It's been in the black in every 5 year period since 1970, which cannot be said of a 60/40 AA. The start-date sensitivity of a 60/40 has objectively been far higher.
I think anything with 40%+ stocks, including 60/40, is too volatile if your timeframe is 5 years.

5 year target windows shouldn't have anything in stocks.

I'm not talking about rolling returns.
We'll just have to agree to disagree on that point. I don't know of a 'safe' asset class that hasn't had multiple periods of negative or at least flat real returns over a five year period, though the GB has had positive real returns in every five year period on record.

I think that you're focusing a bit too much on the individual components of the GB like stocks and gold and not enough on the portfolio as a whole when the latter is what really matters.
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by watchnerd » Sun Feb 09, 2020 11:41 am

willthrill81 wrote:
Sun Feb 09, 2020 11:36 am

We'll just have to agree to disagree on that point. I don't know of a 'safe' asset class that hasn't had multiple periods of negative or at least flat real returns over a five year period, though the GB has had positive real returns in every five year period on record.

I think that you're focusing a bit too much on the individual components of the GB like stocks and gold and not enough on the portfolio as a whole when the latter is what really matters.
We're talking past each other.

Two completely different situations.

I'm referring to this:
mtskibum16 wrote:
Sat Feb 08, 2020 3:40 pm
I'm looking for a vehicle for short-mid term savings. Money I may want anywhere from 2-10 years from now
Nothing with 40%+ stocks, 60/40, GB, whatever, is a good choice where the liquidity window is as short as 2 years.
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by Lee_WSP » Sun Feb 09, 2020 12:06 pm

watchnerd wrote:
Sun Feb 09, 2020 11:41 am
willthrill81 wrote:
Sun Feb 09, 2020 11:36 am

We'll just have to agree to disagree on that point. I don't know of a 'safe' asset class that hasn't had multiple periods of negative or at least flat real returns over a five year period, though the GB has had positive real returns in every five year period on record.

I think that you're focusing a bit too much on the individual components of the GB like stocks and gold and not enough on the portfolio as a whole when the latter is what really matters.
We're talking past each other.

Two completely different situations.

I'm referring to this:
mtskibum16 wrote:
Sat Feb 08, 2020 3:40 pm
I'm looking for a vehicle for short-mid term savings. Money I may want anywhere from 2-10 years from now
Nothing with 40%+ stocks, 60/40, GB, whatever, is a good choice where the liquidity window is as short as 2 years.
Please identify the multiple two year periods where anything other than near or 100% bonds had a lower drawdown.

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

Post by watchnerd » Sun Feb 09, 2020 12:11 pm

Lee_WSP wrote:
Sun Feb 09, 2020 12:06 pm


Please identify the multiple two year periods where anything other than near or 100% bonds had a lower drawdown.
That's my point -- for 2 year periods, you should be 100% cash equivalents if you want to really be sure the money is there in 2 years.
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by Lee_WSP » Sun Feb 09, 2020 12:13 pm

watchnerd wrote:
Sun Feb 09, 2020 12:11 pm
Lee_WSP wrote:
Sun Feb 09, 2020 12:06 pm


Please identify the multiple two year periods where anything other than near or 100% bonds had a lower drawdown.
That's my point -- for 2 year periods, you should be 100% cash equivalents if you want to really be sure the money is there in 2 years.
I think you made your message less clear by bringing up 60/40 or pointing out the volatility instead of just saying "you should be in STT".

But I understand your point now.

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

Post by mtskibum16 » Sun Feb 09, 2020 12:22 pm

watchnerd wrote:
Sun Feb 09, 2020 11:41 am
willthrill81 wrote:
Sun Feb 09, 2020 11:36 am

We'll just have to agree to disagree on that point. I don't know of a 'safe' asset class that hasn't had multiple periods of negative or at least flat real returns over a five year period, though the GB has had positive real returns in every five year period on record.

I think that you're focusing a bit too much on the individual components of the GB like stocks and gold and not enough on the portfolio as a whole when the latter is what really matters.
We're talking past each other.

Two completely different situations.

I'm referring to this:
mtskibum16 wrote:
Sat Feb 08, 2020 3:40 pm
I'm looking for a vehicle for short-mid term savings. Money I may want anywhere from 2-10 years from now
Nothing with 40%+ stocks, 60/40, GB, whatever, is a good choice where the liquidity window is as short as 2 years.
I also stated that there was no specific trigger date. So it doesn't have to be 2 years. Wouldn't even have to have to necessarily need all of the money. Again, I have no specific plans for it. The goal is not to be 100% sure the money will be there in 2 years. I'm willing to accept some risk that the time horizon shifts in order to get some returns. So other than cash or 100% bonds, what are my best options? There's a very real chance I wouldn't touch it for 5-10 years and the comparison should be to the performance of a cash account.

I appreciate the conversation from everyone though.

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

Post by watchnerd » Sun Feb 09, 2020 12:38 pm

mtskibum16 wrote:
Sun Feb 09, 2020 12:22 pm

I also stated that there was no specific trigger date. So it doesn't have to be 2 years. Wouldn't even have to have to necessarily need all of the money. Again, I have no specific plans for it. The goal is not to be 100% sure the money will be there in 2 years. I'm willing to accept some risk that the time horizon shifts in order to get some returns. So other than cash or 100% bonds, what are my best options? There's a very real chance I wouldn't touch it for 5-10 years and the comparison should be to the performance of a cash account.

I appreciate the conversation from everyone though.
We keep funds for working capital that we use for "outside the portfolio" investments -- private equity, private infrastructure, venture capital.

We also have illiquid funds that are locked in to things like private infrastructure, which generate their own IRR.

The easiest way to model it is to use the NPV of the cash versus the investment returns options and divide it into tranches.

Or to put it more concretely, it's a game theory exercise:

"If I have $100K right now, how much of it am I willing to put into an investment I can't touch for 10 years, and what return would I need to justify locking it up for that long?" in a blind fashion (i.e. you don't know if it will be a 10 year CD, stocks, a private equity investment, real estate, etc).

If the answer is less than 100% of the funds, then continue on with 5 and 2 year tranches for the remainder.

This is a very simplified variation of the kind of the kind of analysis we would do when I worked with venture capital where there is always something potentially interesting to invest funds in.
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by willthrill81 » Sun Feb 09, 2020 2:09 pm

watchnerd wrote:
Sun Feb 09, 2020 11:41 am
willthrill81 wrote:
Sun Feb 09, 2020 11:36 am

We'll just have to agree to disagree on that point. I don't know of a 'safe' asset class that hasn't had multiple periods of negative or at least flat real returns over a five year period, though the GB has had positive real returns in every five year period on record.

I think that you're focusing a bit too much on the individual components of the GB like stocks and gold and not enough on the portfolio as a whole when the latter is what really matters.
We're talking past each other.

Two completely different situations.

I'm referring to this:
mtskibum16 wrote:
Sat Feb 08, 2020 3:40 pm
I'm looking for a vehicle for short-mid term savings. Money I may want anywhere from 2-10 years from now
Nothing with 40%+ stocks, 60/40, GB, whatever, is a good choice where the liquidity window is as short as 2 years.
Gotcha. I agree that a two year horizon is too short for about anything other than cash equivalents.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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

Post by willthrill81 » Sun Feb 09, 2020 2:24 pm

mtskibum16 wrote:
Sun Feb 09, 2020 12:22 pm
I also stated that there was no specific trigger date. So it doesn't have to be 2 years. Wouldn't even have to have to necessarily need all of the money. Again, I have no specific plans for it. The goal is not to be 100% sure the money will be there in 2 years. I'm willing to accept some risk that the time horizon shifts in order to get some returns. So other than cash or 100% bonds, what are my best options? There's a very real chance I wouldn't touch it for 5-10 years and the comparison should be to the performance of a cash account.

I appreciate the conversation from everyone though.
If you're willing to take on some risk and may not need the funds for 5-10 years, then something like the GB could be fine. You might want to tone down the stock and gold exposure though, perhaps to something like 15/15/30/30/10.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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

Post by mtskibum16 » Mon Feb 10, 2020 3:37 pm

willthrill81 wrote:
Sun Feb 09, 2020 2:24 pm
mtskibum16 wrote:
Sun Feb 09, 2020 12:22 pm
I also stated that there was no specific trigger date. So it doesn't have to be 2 years. Wouldn't even have to have to necessarily need all of the money. Again, I have no specific plans for it. The goal is not to be 100% sure the money will be there in 2 years. I'm willing to accept some risk that the time horizon shifts in order to get some returns. So other than cash or 100% bonds, what are my best options? There's a very real chance I wouldn't touch it for 5-10 years and the comparison should be to the performance of a cash account.

I appreciate the conversation from everyone though.
If you're willing to take on some risk and may not need the funds for 5-10 years, then something like the GB could be fine. You might want to tone down the stock and gold exposure though, perhaps to something like 15/15/30/30/10.
Mentioned it above, but what about something like a Vanguard Wellesley or LifeStrategy Income fund for this purpose? Or what would be a reasonable bond/equity mix for this time period with flexible need date?

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

Post by willthrill81 » Mon Feb 10, 2020 3:44 pm

mtskibum16 wrote:
Mon Feb 10, 2020 3:37 pm
willthrill81 wrote:
Sun Feb 09, 2020 2:24 pm
mtskibum16 wrote:
Sun Feb 09, 2020 12:22 pm
I also stated that there was no specific trigger date. So it doesn't have to be 2 years. Wouldn't even have to have to necessarily need all of the money. Again, I have no specific plans for it. The goal is not to be 100% sure the money will be there in 2 years. I'm willing to accept some risk that the time horizon shifts in order to get some returns. So other than cash or 100% bonds, what are my best options? There's a very real chance I wouldn't touch it for 5-10 years and the comparison should be to the performance of a cash account.

I appreciate the conversation from everyone though.
If you're willing to take on some risk and may not need the funds for 5-10 years, then something like the GB could be fine. You might want to tone down the stock and gold exposure though, perhaps to something like 15/15/30/30/10.
Mentioned it above, but what about something like a Vanguard Wellesley or LifeStrategy Income fund for this purpose? Or what would be a reasonable bond/equity mix for this time period with flexible need date?
Wellesley is, IMHO, a fine fund for intermediate holding periods. Since 1985, the worst nominal three year returns it's had were 1.95% (2006-2008).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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

Post by Forester » Mon Feb 10, 2020 7:52 pm

Ultimate lazy 2 fund portfolio, 50% in each ETF, would have aced every decade from the 60s onward.

Strategy Shares Newfound/ReSolve Robust Momentum ETF ROMO
https://www.thinknewfound.com/nrromot

iShares Edge MSCI Min Vol Global ETF ACWV
https://www.ishares.com/us/products/239 ... tility-etf

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

Post by CULater » Tue Feb 11, 2020 10:12 am

Not sure if anyone has mentioned, but I like I-Bonds / ST TIPS for the "Cash" allocation. That way you get better inflation protection. Gold has been shown to not be a great inflation hedge. But I like it as a USD currency hedge. If you're mostly in U.S. stocks and bonds, denominated in USD, gold may be a more meaningful asset.
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by willthrill81 » Tue Feb 11, 2020 10:49 am

CULater wrote:
Tue Feb 11, 2020 10:12 am
Not sure if anyone has mentioned, but I like I-Bonds / ST TIPS for the "Cash" allocation. That way you get better inflation protection. Gold has been shown to not be a great inflation hedge. But I like it as a USD currency hedge. If you're mostly in U.S. stocks and bonds, denominated in USD, gold may be a more meaningful asset.
I agree with you regarding I-bonds and ST TIPS.

Gold has actually been a pretty good long-term inflation hedge. The short-term is where the I-bonds and ST TIPS shine.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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

Post by Portfolio7 » Tue Feb 11, 2020 11:44 am

Forester wrote:
Mon Feb 10, 2020 7:52 pm
Ultimate lazy 2 fund portfolio, 50% in each ETF, would have aced every decade from the 60s onward.

Strategy Shares Newfound/ReSolve Robust Momentum ETF ROMO
https://www.thinknewfound.com/nrromot

iShares Edge MSCI Min Vol Global ETF ACWV
https://www.ishares.com/us/products/239 ... tility-etf
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by Blue456 » Tue Feb 11, 2020 7:14 pm

CULater wrote:
Tue Feb 11, 2020 10:12 am
Not sure if anyone has mentioned, but I like I-Bonds / ST TIPS for the "Cash" allocation. That way you get better inflation protection. Gold has been shown to not be a great inflation hedge. But I like it as a USD currency hedge. If you're mostly in U.S. stocks and bonds, denominated in USD, gold may be a more meaningful asset.
I mentioned it awhile ago I think. Im going to replace gold/short term treasuries with TIPS and balance with long term treasuries to get total duration of BND. Which is pretty much what GB does with the combination of short term treasuries and long term treasuries. I will probably keep minimal gold in the future more so as insurance policy than part of my portfolio.

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

Post by All Seasons » Tue Feb 11, 2020 7:22 pm

Gold is, I think, better viewed as a general chaos hedge.

If inflation is more than a minor irritant, then gold will respond positively to it. To that extent, it is a good inflation hedge. Putting it another way, if inflation is causing actual systemic problems (chaos), you can rely on gold.

Gold will not protect you against benign background inflation. Because, by definition, that’s not chaotic.
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by CULater » Tue Feb 11, 2020 9:36 pm

The interesting thing about Gold is that the longer the time horizon, the less benefit it has provided when held with stocks and bonds. Rolling returns in the neighborhood of 20 years or so don't show that Gold improved risk-adjusted portfolio returns at all. Over shorter horizons it has, but you had to be in one of those periods. If I were a long-term investor I think it would be a little too overdone to have 20% - 25% in gold, as does the Golden Butterfly or Permanent Portfolio. If I had 20+ years ahead of me, and I was contributing new capital to my portfolio, I'd probably go at least 75% stocks and the rest in bonds (Ben Graham recommended no more than 75% and that seems prudent). But those with a shorter horizon who have reason to be suspect of stock and bond returns over the near term might have a stronger rationale for gold. I'm one of those because my biological horizon falls in the shorter term area and I'm real nervous about stock and bond returns forthcoming. It's more important for me to avoid large drawdowns than to catch big bull markets. So, I have some.
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by willthrill81 » Tue Feb 11, 2020 9:42 pm

CULater wrote:
Tue Feb 11, 2020 9:36 pm
The interesting thing about Gold is that the longer the time horizon, the less benefit it has provided when held with stocks and bonds. Rolling returns in the neighborhood of 20 years or so don't show that Gold improved risk-adjusted portfolio returns at all. Over shorter horizons it has, but you had to be in one of those periods. If I were a long-term investor I think it would be a little too overdone to have 20% - 25% in gold, as does the Golden Butterfly or Permanent Portfolio. If I had 20+ years ahead of me, and I was contributing new capital to my portfolio, I'd probably go at least 75% stocks and the rest in bonds (Ben Graham recommended no more than 75% and that seems prudent). But those with a shorter horizon who have reason to be suspect of stock and bond returns over the near term might have a stronger rationale for gold. I'm one of those because my biological horizon falls in the shorter term area and I'm real nervous about stock and bond returns forthcoming. It's more important for me to avoid large drawdowns than to catch big bull markets. So, I have some.
I largely agree. The GB makes more sense for those in the withdrawal phase than for those in the accumulator phase IMHO.

That said, you could substitute 'gold' for 'bonds' in your first three sentences (i.e. usually was a drag but sometimes helped).
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by CULater » Tue Feb 11, 2020 10:12 pm

Despite the idea that the "Permanent Portfolio" is a set-and-forget lifetime strategic allocation, because it will do well over the long run which encompasses various economic regimes, the data don't support that. Using Portfolio Visualizer, it appears that over the 28 20-year rolling return periods since 1972 the PP provided better risk-adjusted returns than an allocation of 25% stocks + 75% intermediate treasuries in just 2 of those periods: beginning in 1972 and 1973. As the rolling time periods shorten, the PP fares much better in risk-adjusted returns vs. 25% stocks/75% treasuries. This suggests that Gold is a better tactical investment than it is a buy-and-hold strategic investment; at least in terms of providing predictably better risk-adjusted returns than simply having a low allocation to stocks (25%) combined with a high allocation (75%) to bonds. But the problem with tactical investment is that you have to get the tactics right.
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by CULater » Tue Feb 11, 2020 10:45 pm

Unfortunately, the same is true of the Golden Butterfly portfolio as the Permanent Portfolio, regarding risk-adjusted returns over longer time periods such as 20 years. Using Portfolio Visualizer, I compared the Golden Butterfly to an allocation of 20% TSM, 20% SCV, 30% LTT, 30% STT (in other words I simply eliminated the 20% Gold allocation and put half of that (10%) into Long Treasuries and half (10%) into Short Treasuries. The starting date for the first 20-year period was 1978 (as far back as the data go for LTT). It turns out that there were no 20-year period where the risk-adjusted returns for the Golden Butterfly were better than the alternative portfolio with no Gold (replaced with Treasuries). In fact, for nearly all the periods, the Sharpe Ratio for the Golden Butterfly was distinctly lower than for the alternative portfolio.

I hadn't looked at this before, but it suggests to me that the "Golden" part of the Golden Butterfly hasn't done you much good if you are looking at risk-adjusted returns over long time periods such as 20 years. You would have been better off putting that money into U.S. Treasuries with an average intermediate duration.
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by manuvns » Wed Feb 12, 2020 12:53 am

gold has no IRR , I would rather invest in a exotic car than gold or cheap fixer uppers !

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

Post by Lee_WSP » Wed Feb 12, 2020 9:15 am

CULater wrote:
Tue Feb 11, 2020 10:45 pm
Unfortunately, the same is true of the Golden Butterfly portfolio as the Permanent Portfolio, regarding risk-adjusted returns over longer time periods such as 20 years. Using Portfolio Visualizer, I compared the Golden Butterfly to an allocation of 20% TSM, 20% SCV, 30% LTT, 30% STT (in other words I simply eliminated the 20% Gold allocation and put half of that (10%) into Long Treasuries and half (10%) into Short Treasuries. The starting date for the first 20-year period was 1978 (as far back as the data go for LTT). It turns out that there were no 20-year period where the risk-adjusted returns for the Golden Butterfly were better than the alternative portfolio with no Gold (replaced with Treasuries). In fact, for nearly all the periods, the Sharpe Ratio for the Golden Butterfly was distinctly lower than for the alternative portfolio.

I hadn't looked at this before, but it suggests to me that the "Golden" part of the Golden Butterfly hasn't done you much good if you are looking at risk-adjusted returns over long time periods such as 20 years. You would have been better off putting that money into U.S. Treasuries with an average intermediate duration.
But that's the point, you trade returns for stability.

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

Post by Hydromod » Wed Feb 12, 2020 9:27 am

CULater wrote:
Tue Feb 11, 2020 10:45 pm
Unfortunately, the same is true of the Golden Butterfly portfolio as the Permanent Portfolio, regarding risk-adjusted returns over longer time periods such as 20 years. Using Portfolio Visualizer, I compared the Golden Butterfly to an allocation of 20% TSM, 20% SCV, 30% LTT, 30% STT (in other words I simply eliminated the 20% Gold allocation and put half of that (10%) into Long Treasuries and half (10%) into Short Treasuries. The starting date for the first 20-year period was 1978 (as far back as the data go for LTT). It turns out that there were no 20-year period where the risk-adjusted returns for the Golden Butterfly were better than the alternative portfolio with no Gold (replaced with Treasuries). In fact, for nearly all the periods, the Sharpe Ratio for the Golden Butterfly was distinctly lower than for the alternative portfolio.

I hadn't looked at this before, but it suggests to me that the "Golden" part of the Golden Butterfly hasn't done you much good if you are looking at risk-adjusted returns over long time periods such as 20 years. You would have been better off putting that money into U.S. Treasuries with an average intermediate duration.
I'd be interested in your reaction if you do the same comparison in Portfolio Charts. I come up with different conclusions using that platform, and it would appear to be a no-brainer to do the Golden Butterfly over the allocation you suggest.

Different data source? Different approaches?

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

Post by CULater » Wed Feb 12, 2020 9:35 am

Hydromod wrote:
Wed Feb 12, 2020 9:27 am
CULater wrote:
Tue Feb 11, 2020 10:45 pm
Unfortunately, the same is true of the Golden Butterfly portfolio as the Permanent Portfolio, regarding risk-adjusted returns over longer time periods such as 20 years. Using Portfolio Visualizer, I compared the Golden Butterfly to an allocation of 20% TSM, 20% SCV, 30% LTT, 30% STT (in other words I simply eliminated the 20% Gold allocation and put half of that (10%) into Long Treasuries and half (10%) into Short Treasuries. The starting date for the first 20-year period was 1978 (as far back as the data go for LTT). It turns out that there were no 20-year period where the risk-adjusted returns for the Golden Butterfly were better than the alternative portfolio with no Gold (replaced with Treasuries). In fact, for nearly all the periods, the Sharpe Ratio for the Golden Butterfly was distinctly lower than for the alternative portfolio.

I hadn't looked at this before, but it suggests to me that the "Golden" part of the Golden Butterfly hasn't done you much good if you are looking at risk-adjusted returns over long time periods such as 20 years. You would have been better off putting that money into U.S. Treasuries with an average intermediate duration.
I'd be interested in your reaction if you do the same comparison in Portfolio Charts. I come up with different conclusions using that platform, and it would appear to be a no-brainer to do the Golden Butterfly over the allocation you suggest.

Different data source? Different approaches?
I've been trying to use Portfolio Charts but for some reason it is very slow and chokes, so I've not been able to get results yet. Still working on it.
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by aschafer1984 » Wed Feb 12, 2020 10:07 am

I like this portfolio and my wife and I (mid 30s) have used it's foundation when deciding on our asset allocation for the rest of our lives. It follows the same 40/40/20 principles but is more tilted towards international assets and riskier assets since we are still young, live abroad and plan to retire outside the US as well. We've sliced this into 10 equal weighted classes; every month we use my 401k contribution to purchase the worst performing of the 10 and we repeat this every month re-balancing when an asset falls above/below 13%/7%. When we retire, we will simply liquidate funds from the best performing asset class each month. We have settled on the following:

Stocks:
10% Total US Stock Market (VTI)
10% US Small Cap Value (IJS)
10% Developed Market Equities (VEA)
10% Emerging Market Equities (VWO)

Bonds:
10% Long-Term US Treasury (VGLT)
10% Short-Term US Treasury (VGSH or iBonds)
10% International Treasuries unhedged (BWX)
10% Emerging Market Treasuries unhedged (LEMB)

Real Assets;
10% Global REITs (REET)
10% Gold (SGOL or physical coins)

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

Post by willthrill81 » Wed Feb 12, 2020 10:18 am

Hydromod wrote:
Wed Feb 12, 2020 9:27 am
CULater wrote:
Tue Feb 11, 2020 10:45 pm
Unfortunately, the same is true of the Golden Butterfly portfolio as the Permanent Portfolio, regarding risk-adjusted returns over longer time periods such as 20 years. Using Portfolio Visualizer, I compared the Golden Butterfly to an allocation of 20% TSM, 20% SCV, 30% LTT, 30% STT (in other words I simply eliminated the 20% Gold allocation and put half of that (10%) into Long Treasuries and half (10%) into Short Treasuries. The starting date for the first 20-year period was 1978 (as far back as the data go for LTT). It turns out that there were no 20-year period where the risk-adjusted returns for the Golden Butterfly were better than the alternative portfolio with no Gold (replaced with Treasuries). In fact, for nearly all the periods, the Sharpe Ratio for the Golden Butterfly was distinctly lower than for the alternative portfolio.

I hadn't looked at this before, but it suggests to me that the "Golden" part of the Golden Butterfly hasn't done you much good if you are looking at risk-adjusted returns over long time periods such as 20 years. You would have been better off putting that money into U.S. Treasuries with an average intermediate duration.
I'd be interested in your reaction if you do the same comparison in Portfolio Charts. I come up with different conclusions using that platform, and it would appear to be a no-brainer to do the Golden Butterfly over the allocation you suggest.
I agree.

Here are the 20 year rolling returns of the GB from Portfolio Charts.

Image

Here are the 20 year rolling returns of CULater's portfolio (i.e. 20% TSM, 20% SCV, 30% LTT, 30% STT).

Image

The average real return of the GB was 6.4% with an 8.0% std. dev., and it lost money 20% of the time. CULater's portfolio had a real return of 5.8% but with an 8.8% std. dev, and it lost money 26% of the time.

So the GB had a higher return and was less volatile.
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by CULater » Wed Feb 12, 2020 10:37 am

Finally got Portfolio Charts working for me. Here's my take. First, my data on risk-adjusted returns came from Portfolio Visualizer and the 20-year rolling time periods began in 1978. Portfolio Charts time periods begin in 1970. So you need to compare the 20-year rolling returns for the GB and the "alternative" portfolio (20% TSM, 20% SCV, 30% LTT, 30% STT) from 1978. It is clear that if your starting date is 1978 instead of 1970, the risk-adjusted returns from the alternative portfolio (without gold) are superior to the risk-adjusted returns for the GB for every 20-year period. You can't see risk-adjusted returns with Portfolio Charts; the rolling returns are not risk-adjusted.

The favorable comparative data for the Golden Butterfly, Permanent Portfolio, and other allocations that include Gold are very much skewed by the returns from Gold over the 1972-74 period; and also by the poor returns from both bonds and stocks due to the high inflation of the period. If you could merely change the starting year to around 1975 or 1976 using Portfolio Visualizer you could see this.

So, you have to ask yourself if you want to protect yourself from the possibility of a repeat of the high, unexpected inflation that occurred in the 1970s, which would negatively impact both stock and bond returns. You also have to ask yourself if you want to own Gold in order to do that; many believe that the huge returns from Gold were a "one-off" that occurred because the gold-dollar peg was removed in 1972. Inflation-linked bonds didn't exist back then but now can be used to hedge inflation more predictably than Gold.

My own opinion is that the positively skewed returns from Gold, accompanied by the negatively skewed returns from bonds, that occurred in the 1970s has a low probability of recurring. However, the risk of high, unexpected inflation cannot be disregarded, especially for retirees who are living off their nest egg. I think it's important to protect against that, especially for retirees, but I think TIPS and I-Bonds are preferable to Gold for that purpose. I don't think owning some Gold is a terrible idea, but I think 20% or more is too large an allocation to an asset with such poor long term returns in the hopes it will do what it did for your portfolio returns during a brief period 50 years ago. I'd be more comfortable splitting the 20% allocation to Gold in the GB between Gold and TIPS, with 10% going to each.
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by willthrill81 » Wed Feb 12, 2020 10:54 am

CULater wrote:
Wed Feb 12, 2020 10:37 am
Finally got Portfolio Charts working for me. Here's my take. First, my data on risk-adjusted returns came from Portfolio Visualizer and the 20-year rolling time periods began in 1978. Portfolio Charts time periods begin in 1970. So you need to compare the 20-year rolling returns for the GB and the "alternative" portfolio (20% TSM, 20% SCV, 30% LTT, 30% STT) from 1978. It is clear that if your starting date is 1978 instead of 1970, the risk-adjusted returns from the alternative portfolio (without gold) are superior to the risk-adjusted returns for the GB for every 20-year period. You can't see risk-adjusted returns with Portfolio Charts; the rolling returns are not risk-adjusted.

The favorable comparative data for the Golden Butterfly, Permanent Portfolio, and other allocations that include Gold are very much skewed by the returns from Gold over the 1972-74 period; and also by the poor returns from both bonds and stocks due to the high inflation of the period. If you could merely change the starting year to around 1975 or 1976 using Portfolio Visualizer you could see this.

So, you have to ask yourself if you want to protect yourself from the possibility of a repeat of the high, unexpected inflation that occurred in the 1970s, which would negatively impact both stock and bond returns. You also have to ask yourself if you want to own Gold in order to do that; many believe that the huge returns from Gold were a "one-off" that occurred because the gold-dollar peg was removed in 1972. Inflation-linked bonds didn't exist back then but now can be used to hedge inflation more predictably than Gold.

My own opinion is that the positively skewed returns from Gold, accompanied by the negatively skewed returns from bonds, that occurred in the 1970s has a low probability of recurring. However, the risk of high, unexpected inflation cannot be disregarded, especially for retirees who are living off their nest egg. I think it's important to protect against that, especially for retirees, but I think TIPS and I-Bonds are preferable to Gold for that purpose. I don't think owning some Gold is a terrible idea, but I think 20% or more is too large an allocation to an asset with such poor long term returns in the hopes it will do what it did for your portfolio returns during a brief period 50 years ago. I'd be more comfortable splitting the 20% allocation to Gold in the GB between Gold and TIPS, with 10% going to each.
From 1978 through last month, the two portfolios had very similar Sharpe ratios (.66 for GB and .71 for yours). Volatility was also quite similar as measured by std. dev. (8.22% vs. 7.64%, respectively).

You bring up the '1970s was a one-off event for gold', which perhaps it was, but perhaps it wasn't.

If you're concerned about one-off events, what about the bond bull market running from 1982-2012? Do you think that anything like that will happen again in the course of your investment horizon? I certainly don't.
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by CULater » Wed Feb 12, 2020 11:31 am

Here's another view. Using Portfolio Visualizer, I can find the asset weights that yield the highest Sharpe Ratio (risk adjusted returns) and the lowest portfolio drawdown from 1972-2020.

Using TSM, ITT (intermediate treasuries), and Gold we see that the portfolio allocation with the highest risk-adjusted return (Sharpe = 0.59) over that period was:
28% TSM
62% ITT
10% GOLD

The allocation that produced the smallest drawdown (-7.01%) during that period was:
11% TSM
86% ITT
3% GOLD

Even including the boom returns from Gold from 1972, these results indicate that the "least risky" portfolio allocation would have held no more than 10% Gold, and would have held a very large allocation to Treasuries with an average intermediate duration.

As I said earlier, the longer the time period that gold is held the less likely it is to produce less risky portfolio returns than just owning U.S. treasuries instead. Over shorter periods, it can be great (such as the 1970s) but you have to either be smart enough or lucky enough to pick the right ones.
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by Lee_WSP » Wed Feb 12, 2020 11:43 am

CULater wrote:
Wed Feb 12, 2020 11:31 am
Here's another view. Using Portfolio Visualizer, I can find the asset weights that yield the highest Sharpe Ratio (risk adjusted returns) and the lowest portfolio drawdown from 1972-2020.

Using TSM, ITT (intermediate treasuries), and Gold we see that the portfolio allocation with the highest risk-adjusted return (Sharpe = 0.59) over that period was:
28% TSM
62% ITT
10% GOLD

The allocation that produced the smallest drawdown (-7.01%) during that period was:
11% TSM
86% ITT
3% GOLD

Even including the boom returns from Gold from 1972, these results indicate that the "least risky" portfolio allocation would have held no more than 10% Gold, and would have held a very large allocation to Treasuries with an average intermediate duration.

As I said earlier, the longer the time period that gold is held the less likely it is to produce less risky portfolio returns than just owning U.S. treasuries instead. Over shorter periods, it can be great (such as the 1970s) but you have to either be smart enough or lucky enough to pick the right ones.
Can you link to the PV results? And show me how to get rolling risk adjusted returns?

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

Post by Hydromod » Wed Feb 12, 2020 11:44 am

Just eyeballing the two plots with returns, it looks like there is a roughly linear trend in rolling CAGR from 1978 - present in both. I'd say this is from the drop in interest rates.

The GB drops from roughly 7% to 5.5% over this time. The one without gold drops from roughly 9% to 4.5%.

Which trend line would you rather follow for another 10 years?

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

Post by CULater » Wed Feb 12, 2020 11:57 am

Can you link to the PV results? And show me how to get rolling risk adjusted returns?
Only way to get the rolling Sharpe Ratios is to crunch each 20-year period manually.
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by Lee_WSP » Wed Feb 12, 2020 12:01 pm

CULater wrote:
Wed Feb 12, 2020 11:57 am
Can you link to the PV results? And show me how to get rolling risk adjusted returns?
Only way to get the rolling Sharpe Ratios is to crunch each 20-year period manually.
Figured as much.

Well, I place less weight on the Sharpe ratio than I do the Sortino ratio. Why would I care if there's upside SD?

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

Post by aj76er » Wed Feb 12, 2020 8:22 pm

aschafer1984 wrote:
Wed Feb 12, 2020 10:07 am
I like this portfolio and my wife and I (mid 30s) have used it's foundation when deciding on our asset allocation for the rest of our lives. It follows the same 40/40/20 principles but is more tilted towards international assets and riskier assets since we are still young, live abroad and plan to retire outside the US as well. We've sliced this into 10 equal weighted classes; every month we use my 401k contribution to purchase the worst performing of the 10 and we repeat this every month re-balancing when an asset falls above/below 13%/7%. When we retire, we will simply liquidate funds from the best performing asset class each month. We have settled on the following:

Stocks:
10% Total US Stock Market (VTI)
10% US Small Cap Value (IJS)
10% Developed Market Equities (VEA)
10% Emerging Market Equities (VWO)

Bonds:
10% Long-Term US Treasury (VGLT)
10% Short-Term US Treasury (VGSH or iBonds)
10% International Treasuries unhedged (BWX)
10% Emerging Market Treasuries unhedged (LEMB)

Real Assets;
10% Global REITs (REET)
10% Gold (SGOL or physical coins)
Interesting portfolio. If you don’t mind the currency hedging, you could simplify as:

40% VT
40% BNDW
10% REET
10% Gold
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Re: What are your thoughts on the "Golden Butterfly" portfolio?

Post by watchnerd » Thu Feb 13, 2020 7:55 am

aj76er wrote:
Wed Feb 12, 2020 8:22 pm
aschafer1984 wrote:
Wed Feb 12, 2020 10:07 am
I like this portfolio and my wife and I (mid 30s) have used it's foundation when deciding on our asset allocation for the rest of our lives. It follows the same 40/40/20 principles but is more tilted towards international assets and riskier assets since we are still young, live abroad and plan to retire outside the US as well. We've sliced this into 10 equal weighted classes; every month we use my 401k contribution to purchase the worst performing of the 10 and we repeat this every month re-balancing when an asset falls above/below 13%/7%. When we retire, we will simply liquidate funds from the best performing asset class each month. We have settled on the following:

Stocks:
10% Total US Stock Market (VTI)
10% US Small Cap Value (IJS)
10% Developed Market Equities (VEA)
10% Emerging Market Equities (VWO)

Bonds:
10% Long-Term US Treasury (VGLT)
10% Short-Term US Treasury (VGSH or iBonds)
10% International Treasuries unhedged (BWX)
10% Emerging Market Treasuries unhedged (LEMB)

Real Assets;
10% Global REITs (REET)
10% Gold (SGOL or physical coins)
Interesting portfolio. If you don’t mind the currency hedging, you could simplify as:

40% VT
40% BNDW
10% REET
10% Gold
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