Golden Butterfly Portfolio - is it really that good?

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Jaymover
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Golden Butterfly Portfolio - is it really that good?

Post by Jaymover »

I've been playing around with the portfolio visualiser and am quite amazed at the performance of the golden butterfly portfolio for people in my situation ie accumulated a fair bit and have about 10 to 15 years left until retirement.

When comparing to the standard two fund 60/40, it puts my goal within reach within 2 to 14 years. However the GB puts it within reach from 3 to 9 years with WAY less volatility. TSM gives me 1 to 14 which suggests that 60/40 is as similarly risky as TSM in possibly failing to achieve goals.

It makes me wonder why you don't see more golden butterfly-like portfolios out there. Most portfolios seem to be more the standard growth-focused stock, bond, REIT type funds. I have to admit, owning $200K of gold would be hard for me to stomach. My understanding is that the act of rebalancing the GB is very powerful.

Is there any sense that the GB will still keep its mojo in the coming decades?
Last edited by Jaymover on Wed Jun 23, 2021 6:07 am, edited 1 time in total.
YRT70
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Re: Golden Butterfly Portfolio - is it really that good?

Post by YRT70 »

It was really good. Whether it will be good in the future is the question.

Personally I'm not investing in gold for reasons outlined here: https://www.youtube.com/watch?v=ulgqlQWlPbo
stormcrow
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Re: Golden Butterfly Portfolio - is it really that good?

Post by stormcrow »

I think a lot of the risk is in the allocation itself, which is why even on bogleheads you won't see a lot of uptake of this portfolio. 40% bonds, with rates in limbo. 20% gold, with gold being, well, gold. This is enough to scare people away.

The recent overperformance of stocks (and by recent I suppose I mean 10+ years) has also led to people viewing 100/0 allocations as reasonable during accumulation years, and 90/10 or similar in the deceleration phase.

Whether the GB continues to provide both performance and stability, and whether the ballast of bonds is needed in the future are of course, questions only time will answer. For me personally, I like having gold, and am not yet willing to give up bonds.
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Re: Golden Butterfly Portfolio - is it really that good?

Post by firebirdparts »

I think it might be "too good to be true". The secret to it is gold goes from $35 in 1970 to $664 in 1980. Then, while the stock market is booming, gold drops to $260 by Y2K. From there gold goes to $1600 by 2012.

Will it do this again? No.
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azanon
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Re: Golden Butterfly Portfolio - is it really that good?

Post by azanon »

Also, will one (or more than one) of the new cryptos replace gold? I'm not saying they will, but who wants to sign up for the uncertainty?
rich126
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Re: Golden Butterfly Portfolio - is it really that good?

Post by rich126 »

firebirdparts wrote: Wed Jun 23, 2021 8:32 am I think it might be "too good to be true". The secret to it is gold goes from $35 in 1970 to $664 in 1980. Then, while the stock market is booming, gold drops to $260 by Y2K. From there gold goes to $1600 by 2012.

Will it do this again? No.
I often ignore the extreme gold results in the 70s when doing analysis of portfolios since it was an unusual one time situaiton.

Even by restricting GB to a start date of 1980 to present you get very solid returns with lower drawdowns.
9.4% CAGR, -16.64% maxdd (GB)
11.8%, -50.89% (100% stocks)

2008 was the worst year down 7% while the market was down 37%.
This year (through May) while LTT are down 11%, it still has returned 5%. The market at that time was up 12%.

You obviously give up returns as compared to 100% stocks but the down side has been greatly reduced which many retirees would desire, especially those w/o the safety net of a pension and delaying social security.
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Re: Golden Butterfly Portfolio - is it really that good?

Post by invest4 »

YRT70 wrote: Wed Jun 23, 2021 6:05 am It was really good. Whether it will be good in the future is the question.
This. No one knows. I also looked into the GB at one point...but decided I'm not interested in being invested in gold.
seajay
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Re: Golden Butterfly Portfolio - is it really that good?

Post by seajay »

rich126 wrote: Wed Jun 23, 2021 9:30 am
firebirdparts wrote: Wed Jun 23, 2021 8:32 am I think it might be "too good to be true". The secret to it is gold goes from $35 in 1970 to $664 in 1980. Then, while the stock market is booming, gold drops to $260 by Y2K. From there gold goes to $1600 by 2012.

Will it do this again? No.
I often ignore the extreme gold results in the 70s when doing analysis of portfolios since it was an unusual one time situaiton.

Even by restricting GB to a start date of 1980 to present you get very solid returns with lower drawdowns.
9.4% CAGR, -16.64% maxdd (GB)
11.8%, -50.89% (100% stocks)

2008 was the worst year down 7% while the market was down 37%.
This year (through May) while LTT are down 11%, it still has returned 5%. The market at that time was up 12%.

You obviously give up returns as compared to 100% stocks but the down side has been greatly reduced which many retirees would desire, especially those w/o the safety net of a pension and delaying social security.
OR ... substitute in silver instead of gold. $ per ton prices can be used from the likes of https://www.usgs.gov/centers/nmic/histo ... ted-states for historic silver prices back to 1900 https://prd-wret.s3.us-west-2.amazonaws ... silve.xlsx and drop those into Simba's spreadsheet ...etc. Maybe swapping over to gold in any year you prefer to choose since 1975 when it became legal again in the US to hold/trade investment gold.

A factor to ponder however is that of high yields/interest also tending to coincide with higher taxation. Double digit 1980's inflation and interest rates type periods and if 33% taxation on 15% interest when inflation is also running at 15% then that's net -5% real. Lending to the state - buying treasury bonds, is lending to someone who can print money, change interest rates, revise taxation, change the rules. Across time Kings and Queens have made changes to their advantage when the need to do so arose. King Henry was otherwise known as "copper nose Henry", in having replaced silver coins with silver coated copper coins such that when the silver plating wore down his facial impression stamped into the coins presented a brown/copper nose appearance.
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Re: Golden Butterfly Portfolio - is it really that good?

Post by DanFFA »

I personally have preferred the Larry Portfolio over the Golden Butterfly. Adjust the bond percentage to fit your personal need and ability to take on risk. As noted previously, bonds are not without risks of their own, however, one would not recommend trying to time bonds either. Any perceived risk was likely already priced into the markets.

For instance:
Image

You can go 100% Stocks and do well in the long term, however, you can also go 100% Stocks and suffer some pretty intense drawdowns.
That said, I also find it really cool seeing the diversity from the S&P 500 play out in these types of portfolios :]

it's worth noting that value and growth are each best for different types of retail investors, depending on your line of work. Value also has greater volatility than growth. This combined with the amount of diversification in types of risk that a portfolio such as the GB or Larry Portfolio takes on results in a higher degree of tracking error relative to the standard benchmarks. An investor should really read some of Larry's books prior to pursuing one of these styles of portfolios to ensure they have truly considered the risks associated and whether this is right for them. A good starting book, especially for someone new to factor investing, is Your Complete Guide To Factor-Based Investing. Reducing the Risk of Black Swans: Using the Science of Investing to Capture Returns with Less Volatility features this portfolio inside it though.

AVUV, AVDV, and the (now only SEC-filed, with an anticipated September release date) AVES are the most active, factor-focused ETFs one might use for the equity side, with VGIT or VGLT/EDV potentially used for the bond side of the Larry Portfolio. The Avantis equity ETFs are run by ex-Dimensional Fund Advisors employees. Similar methodologies are implemented, resulting in a high degree of correlation between the mutual funds shown in the above backtest and the ETFs provided by Avantis.
It's also worth noting that currently Dimensional's ETFs have too high an exchange rate for ETFs that perform similarly to regular low-cost index funds such as VTI, which are preferred over Dimensional's ETFs. They have yet to come out with a more factor-focused ETF to my knowledge.
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Re: Golden Butterfly Portfolio - is it really that good?

Post by garlandwhizzer »

Backtesting bond heavy portfolios and expecting the same to occur going forward is a joke, pure and simple. We have in recent years ended the greatest US bond bull market of all time, almost 4 decades of outsized bond returns with essentially no risk. Incredibly high risk adjusted returns which have a zero probability of occurring going forward. Going forward it is hard to imagine that anything even remotely similar to that will occur. Expected real inflation adjusted returns on bonds going forward are no higher than zero, perhaps less, for Treasuries and TIPS of all durations.

Equities also have considerably lower than historical expected returns going forward but are likely be significantly positive in real terms, somewhere around 3% real, but that's still a lot better than zero. Unlike bonds, stocks have a much wider range of potential future outcomes on both upside and downside. We don't have a clue what gold will produce in long term returns going forward but the best guess might be close to zero real. Hence if you load up with 40% bonds, 20% gold, that means 60% of your portfolio has an expected real return of about zero. Granted, you have excellent downside disaster protection from bonds and gold, but the upside is very limited by only 40% equity. Like the Larry Portfolio which accomplishes the same thing, GBP is a good choice for a risk-averse investor with a massive asset base who prefers safety and doesn't need substantial returns going forward. For most of us who aren't Mr. Moneybags facing ever lengthening anticipated retirement periods due to increased longevity in combination with reduced expected returns from all asset classes going forward, the GBP may not be a great choice.

Backtesting is often a flawed guide to the future. For some reason, I suspect because it is mathematically derived, investors confuse its numerical conclusions with the certainty of mathematics. Its results are entirely period specific and when you enter a new era it can be misleading. The Golden Butterfly Portfolio at this moment in time is IMO a good example of this. Just my 2 cents worth.

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Re: Golden Butterfly Portfolio - is it really that good?

Post by nisiprius »

The problem--apart from my innate distrust of strategies with spiffy marketing names--is that the first mention of the Golden Butterfly portfolio in the forum appears to have being in 2016 and the Internet Archive's Wayback Machine first captured the PortfolioCharts description on 9/30/2015. So I think we can say the portfolio wasn't published until 2015, and, though informed by decades of hindsight, has had less than six years of out-of-sample experience.

It's a sort of aggressive variation on the Harry Browne Permanent Portfolio. And we have real-world results for the Permanent Portfolio mutual fund, PRPFX, with inception in 1982 The fund was personally advised by Harry Browne in the early years. Unlike the Golden Butterfly, or the results of backtesting the 4x25 later version of the Permanent Portfolio, this is what really happened with real money in the real world, with no place to hide, no paper exercises ignoring transaction costs, and no way to inject 20/20 hindsight into historical reality. And if Harry Browne did not think to include small-cap value, well, it is what it is.

The point is, we have an actual record for a real-world implementation of a version of the Permanent Portfolio, and we don't for the Golden Butterfly. I don't want to push this too far except to say that PRPFX compares poorly with benchmark Morningstar thought was appropriate (orange), and also with the gold-free Vanguard Wellesley Income Fund.

The results of adding gold to a portfolio are hard to judge because the history of gold's returns have been so bursty and episodic. You are not really looking at a steady pattern, but a collection of a small number of big events, and it is hard to guess how many of those events will happen in any given period of future time.

Source

Image
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Forester
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Re: Golden Butterfly Portfolio - is it really that good?

Post by Forester »

Jaymover wrote: Wed Jun 23, 2021 6:02 am
It makes me wonder why you don't see more golden butterfly-like portfolios out there.
Because it's been a long time since the last sustained bond bear market and large cap stocks keep making new highs. It's just accepted wisdom that a 30/70 portfolio is safer than a 60/40 portfolio, when in the 1970s both portfolios were almost exactly equally bad.
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Re: Golden Butterfly Portfolio - is it really that good?

Post by Jaymover »

I have come to the understanding that having proportional amounts of non-correlated assets compounds the power of rebalancing, as long as you regularly rebalance.

For instance, only having 5 percent of your portfolio allocated to one asset class means that if that allocation drops 50 percent when other assets stay the same then the rebalancing power is only a few percentage points at most. However if that was 20 percent of your portfolio the effect could be 10 percent or more.

I read somewhere that regularly rebalancing between underperforming and over performing uncorrelated asset classes produces better returns. This has been tediously modeled. Makes sense. I guess the regular rebalancing sets you up for some emotional failure though. Who wants to sell their overperforming assets each time unless you get the thrill of pumping up your underperforming ones.
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Re: Golden Butterfly Portfolio - is it really that good?

Post by nisiprius »

The question of whether there is a "rebalancing bonus," and if so, how big it is and where it comes from, is a frequent topic of spirited debates.

Some people really believe that rebalancing is a market timing formula that really works, and that it can manufacture extra return out of pure volatility.

I would say this. If you believe that you can obtain a rebalancing bonus by rebalancing between two assets each of which is following a pure random walk, then your mental model is faulty. There is only a rebalancing bonus if the two assets exhibit mean reversion.

Even when there is one, it is easy to believe it is bigger than it is. Our minds trick us into supposing that if you were rebalancing between stock and bonds in 2008-2009, the rebalancing rule would have resulted in selling bonds and buying stocks close to the bottom. In reality, humans can't reliably call a bottom and neither can a mechanical rebalancing rule.

The only way to convince yourself of this is probably to do real backtesting with real rebalancing rules. The rebalancing bonus is smallish and elusive. For example, here are the results of a three-fund portfolio, 36% US stocks, 24% international stocks, 40% bonds, without rebalancing, with annual rebalancing, and with monthly rebalancing. Pay particular attention to the measures of risk-adjusted return, the Sharpe and Sortino ratios.

Source

Image

Certainly, there is a difference, and in this particular case annual rebalancing was the best of the three but notice how relatively small the differences are.
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Re: Golden Butterfly Portfolio - is it really that good?

Post by Hydromod »

The rebalancing bonus is a small statistical edge that only comes into play with many many iterations. I've been able to calculate a 5 to 10 percent increase in CAGR with rebalancing on a near-daily basis with 3x ETFs without accounting for trading slippage, but such an edge would get eaten up with trading slippage and the effect nearly disappears with weekly rebalancing. The rebalancing bonus difference between monthly, quarterly, and annual is so small, because of the small number of trades, that I think any apparent rebalancing differences are swamped by timing noise.
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Re: Golden Butterfly Portfolio - is it really that good?

Post by Iconicus »

In some other thread someone posted this study that shows how much rebalance benefit you can get and how to do so. https://carlsoncap.com/wp-content/uploa ... ancing.pdf
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Re: Golden Butterfly Portfolio - is it really that good?

Post by Kevin K »

It seems to me that the comments from nisiprius and garlandwhizzer miss the mark and show they haven’t really spent any time reading about the Golden Butterfly or indeed any of the portfolios shown on the Portfolio Charts site.

For each portfolio shown on the site you can see real returns over every time frame since 1970 as well as start date sensitivity, safe and perpetual withdrawal rates and much other info. The GB, like the PP from which it is derived, far from being a backtest-derived allocation based on cherry-picked data, allocates assets to respond to particular economic conditions. Its robust performance over every time frame speaks for itself.

From the overview of the GB (link below):

“That leads many people to assume that it’s just a result of data mining, and their natural instinct is to immediately seek out any possible outlying data that they believe must make it look so good.  The bond tailwind since ’81 is a common citation, as is the gold switch after Bretton Woods was repealed in ’71.  But thinking this way misses the fact that it also did very well when treasuries were crushed as interest rates skyrocketed in the 70’s, when gold lost 80% of its value in the 80’s and 90’s, and when stocks lost money for more than a decade starting in 2000.  So clearly there’s something more fundamental backing the consistent returns than a few great years.”

https://portfoliocharts.com/2016/04/18 ... butterfly/

As for the bond tailwind canard, it applies to ANY portfolio with a reasonable allocation to bonds, from a plain vanilla 50:50 or 60:40 to a Vanguard classic like Wellesley, which with its concentrated holdings and long corporate bond duration is surely a poor alternative to the GB at this point (though its performance can be improved by adding about 20% gold :wink: ).

As for the tired old “zero expected real return” characterization of gold, it applies equally to stocks and bonds going forward. Looking at assets in isolation rather than how they work together is the problem here.

What I don’t see is anyone proposing alternative allocations that have matched the GB’s risk-adjusted returns or might do so going forward. The Larry Portfolio has been mentioned but 30% ultra-volatile EM and SCV equities offset by an ocean of ITT’s guaranteed to provide negative real returns? Otherwise I guess the implied alternative is to load up on equities despite sky-high valuations and just live with the ever-present threat of massive and sustained losses.

Getting back to the OP’s questions, another allocation featured on Portfolio Charts might be of greater interest to someone still in the accumulation phase: the Pinwheel Portfolio. It’s another good example of tyler9000’s (the guy who runs Portfolio Charts and who came up with the GB - also a regular poster on these forums) innovative approach that combines the best of MPT-inspired slice-and-dice with the broader (beyond just stocks and bonds) asset diversification of the PP/GB.
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Re: Golden Butterfly Portfolio - is it really that good?

Post by garlandwhizzer »

If you believe that backtesting reliably foretells the future and you are risk averse by nature, GBP may be a very good choice for you. It offers great downside protection. Personally, I do not believe that backtesting reliably foretells the future. Nor am I particularly risk averse. I do not depart from a widely diversified stock/bond portfolio suited to my risk tolerance and goals unless I see a compelling reason for me to do so. I see no such compelling reason with GBP. It's fine with me if GBP suits others like Kevin K. None of us knows right now what will turn out to be optimal over next 10, 20, 30 or more years. All we have is our best guess. My best guess is that 60% of "safe" assets producing what I expect to be zero real long term return is more than I want.

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Re: Golden Butterfly Portfolio - is it really that good?

Post by heyyou »

I apologize for this blatantly obvious, almost off-topic response, but saving more, does work for boosting portfolio size. Saving more also has the added bonus of the saver becoming acclimated to living on less income than other similar earners, so 25 multiples of your spending is achieved sooner.
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Re: Golden Butterfly Portfolio - is it really that good?

Post by Jaymover »

garlandwhizzer wrote: Thu Jun 24, 2021 11:58 am If you believe that backtesting reliably foretells the future and you are risk averse by nature, GBP may be a very good choice for you. It offers great downside protection. Personally, I do not believe that backtesting reliably foretells the future. Nor am I particularly risk averse. I do not depart from a widely diversified stock/bond portfolio suited to my risk tolerance and goals unless I see a compelling reason for me to do so. I see no such compelling reason with GBP. It's fine with me if GBP suits others like Kevin K. None of us knows right now what will turn out to be optimal over next 10, 20, 30 or more years. All we have is our best guess. My best guess is that 60% of "safe" assets producing what I expect to be zero real long term return is more than I want.

Garland Whizzer
Its a bit depressing to now find out that all the outsized gains have gone to those born in the 50s and 60s with no real growth left for future generations. I guess the young'uns will have to work huge hours, taking on huge debt and financial risk, until their 80 whilst living in poverty in order to save as much as possible! Hopefully the stock market remains a ballooning and increasingly overleveraged ponzi retirement scheme and there will be a few more decades of outsized gains before it explodes (hopefully after I die).
Last edited by Jaymover on Thu Jun 24, 2021 8:17 pm, edited 1 time in total.
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Re: Golden Butterfly Portfolio - is it really that good?

Post by SnowBog »

Kevin K wrote: Thu Jun 24, 2021 11:22 am It seems to me that the comments from nisiprius and garlandwhizzer miss the mark and show they haven’t really spent any time reading about the Golden Butterfly or indeed any of the portfolios shown on the Portfolio Charts site.

For each portfolio shown on the site you can see real returns over every time frame since 1970 as well as start date sensitivity, safe and perpetual withdrawal rates and much other info. The GB, like the PP from which it is derived, far from being a backtest-derived allocation based on cherry-picked data, allocates assets to respond to particular economic conditions. Its robust performance over every time frame speaks for itself.

From the overview of the GB (link below):

“That leads many people to assume that it’s just a result of data mining, and their natural instinct is to immediately seek out any possible outlying data that they believe must make it look so good.  The bond tailwind since ’81 is a common citation, as is the gold switch after Bretton Woods was repealed in ’71.  But thinking this way misses the fact that it also did very well when treasuries were crushed as interest rates skyrocketed in the 70’s, when gold lost 80% of its value in the 80’s and 90’s, and when stocks lost money for more than a decade starting in 2000.  So clearly there’s something more fundamental backing the consistent returns than a few great years.”

https://portfoliocharts.com/2016/04/18 ... butterfly/

As for the bond tailwind canard, it applies to ANY portfolio with a reasonable allocation to bonds, from a plain vanilla 50:50 or 60:40 to a Vanguard classic like Wellesley, which with its concentrated holdings and long corporate bond duration is surely a poor alternative to the GB at this point (though its performance can be improved by adding about 20% gold :wink: ).

As for the tired old “zero expected real return” characterization of gold, it applies equally to stocks and bonds going forward. Looking at assets in isolation rather than how they work together is the problem here.

What I don’t see is anyone proposing alternative allocations that have matched the GB’s risk-adjusted returns or might do so going forward. The Larry Portfolio has been mentioned but 30% ultra-volatile EM and SCV equities offset by an ocean of ITT’s guaranteed to provide negative real returns? Otherwise I guess the implied alternative is to load up on equities despite sky-high valuations and just live with the ever-present threat of massive and sustained losses.

Getting back to the OP’s questions, another allocation featured on Portfolio Charts might be of greater interest to someone still in the accumulation phase: the Pinwheel Portfolio. It’s another good example of tyler9000’s (the guy who runs Portfolio Charts and who came up with the GB - also a regular poster on these forums) innovative approach that combines the best of MPT-inspired slice-and-dice with the broader (beyond just stocks and bonds) asset diversification of the PP/GB.
Perhaps of interest - the creator of the GB - at least as of time of its creation - was not using - nor seemingly planning to use the GB. https://web.archive.org/web/20150930013 ... -butterfly
If you like this idea and it works for you, great! I do not personally use this portfolio at the moment, and I have absolutely no interest (financial or otherwise) in pushing it on others. I built this particular sample portfolio and added it to the collection to illustrate how good returns and low volatility are not necessarily mutually exclusive, but do not take this article as me promoting a specific investing method in any way.
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Re: Golden Butterfly Portfolio - is it really that good?

Post by tomsense76 »

SnowBog wrote: Thu Jun 24, 2021 7:58 pm Perhaps of interest - the creator of the GB - at least as of time of its creation - was not using - nor seemingly planning to use the GB. https://web.archive.org/web/20150930013 ... -butterfly
If you like this idea and it works for you, great! I do not personally use this portfolio at the moment, and I have absolutely no interest (financial or otherwise) in pushing it on others. I built this particular sample portfolio and added it to the collection to illustrate how good returns and low volatility are not necessarily mutually exclusive, but do not take this article as me promoting a specific investing method in any way.
That may have been true at the time, but they have since adopted it ( viewtopic.php?p=5566950&sid=a6a15ca6372 ... c#p5566950 )
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
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Re: Golden Butterfly Portfolio - is it really that good?

Post by SnowBog »

tomsense76 wrote: Thu Jun 24, 2021 8:06 pm
SnowBog wrote: Thu Jun 24, 2021 7:58 pm Perhaps of interest - the creator of the GB - at least as of time of its creation - was not using - nor seemingly planning to use the GB. https://web.archive.org/web/20150930013 ... -butterfly
If you like this idea and it works for you, great! I do not personally use this portfolio at the moment, and I have absolutely no interest (financial or otherwise) in pushing it on others. I built this particular sample portfolio and added it to the collection to illustrate how good returns and low volatility are not necessarily mutually exclusive, but do not take this article as me promoting a specific investing method in any way.
That may have been true at the time, but they have since adopted it ( viewtopic.php?p=5566950&sid=a6a15ca6372 ... c#p5566950 )
Didn't know that! Wish they'd note that on their site - I even went to look at the "current" GB pages - and didn't see it referenced. But I think the creator is a strong believer that one's porfolio is "personal" (much like AA) - so maybe that's why...
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Re: Golden Butterfly Portfolio - is it really that good?

Post by tomsense76 »

SnowBog wrote: Thu Jun 24, 2021 8:18 pm
tomsense76 wrote: Thu Jun 24, 2021 8:06 pm
SnowBog wrote: Thu Jun 24, 2021 7:58 pm Perhaps of interest - the creator of the GB - at least as of time of its creation - was not using - nor seemingly planning to use the GB. https://web.archive.org/web/20150930013 ... -butterfly
If you like this idea and it works for you, great! I do not personally use this portfolio at the moment, and I have absolutely no interest (financial or otherwise) in pushing it on others. I built this particular sample portfolio and added it to the collection to illustrate how good returns and low volatility are not necessarily mutually exclusive, but do not take this article as me promoting a specific investing method in any way.
That may have been true at the time, but they have since adopted it ( viewtopic.php?p=5566950&sid=a6a15ca6372 ... c#p5566950 )
Didn't know that! Wish they'd note that on their site - I even went to look at the "current" GB pages - and didn't see it referenced. But I think the creator is a strong believer that one's porfolio is "personal" (much like AA) - so maybe that's why...
Yeah discoverability online is always and interesting and complicated question

That makes sense. Perhaps they didn't want to come off as advertising the strategy? Or for that matter take on the associated risk that might entail?
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
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Re: Golden Butterfly Portfolio - is it really that good?

Post by Tyler9000 »

SnowBog wrote: Thu Jun 24, 2021 8:18 pm I think the creator is a strong believer that one's porfolio is "personal" (much like AA) - so maybe that's why...
Yep!

My goal in creating Portfolio Charts was and is to provide a neutral place for people to study portfolio ideas. Unlike some financial writers who push specific portfolio recommendations, I don't believe there's one single portfolio suitable for all people. Everybody is different. So while I have nothing to hide, I generally don't make a big deal out of my own investments because I encourage people to study the data for themselves and come to their own conclusions rather than simply deferring to an "expert". What works for me may not work for you.

For a bit of history, it's true that I didn't have my money in the Golden Butterfly when I first wrote about it. I was a pure Harry Browne Permanent Portfolio guy at the time, and the Golden Butterfly was part of my own exploration of how to build on that foundation. I did eventually move my money into the GB over time, and these days my portfolio is about 90% GB as you see on the site and 10% other stuff based on my own situation. Perhaps I'll write an article sometime to explain that journey. But again, I have no agenda to push.

The most important thing for long-term investing success is to find a portfolio you personally believe in to the point where you're willing to stay the course in both good times and bad. The Golden Butterfly is one good choice of many, and from my experience it tends to appeal most to investors who place a high priority on consistency in all types of economic environments. So if that sounds like you, you might want to give it a look.
bikeeagle1
Posts: 79
Joined: Sat Oct 27, 2018 8:55 am

Re: Golden Butterfly Portfolio - is it really that good?

Post by bikeeagle1 »

nisiprius wrote: Wed Jun 23, 2021 1:03 pmAnd we have real-world results for the Permanent Portfolio mutual fund, PRPFX, with inception in 1982 The fund was personally advised by Harry Browne in the early years. Unlike the Golden Butterfly, or the results of backtesting the 4x25 later version of the Permanent Portfolio, this is what really happened with real money in the real world, with no place to hide, no paper exercises ignoring transaction costs, and no way to inject 20/20 hindsight into historical reality. And if Harry Browne did not think to include small-cap value, well, it is what it is.

The point is, we have an actual record for a real-world implementation of a version of the Permanent Portfolio, and we don't for the Golden Butterfly. I don't want to push this too far except to say that PRPFX compares poorly with benchmark Morningstar thought was appropriate (orange), and also with the gold-free Vanguard Wellesley Income Fund.
You do realize that PRPFX is mis-named, correct? It does not represent the actual "Permanent Portfolio" outlined by Harry Browne:
https://www.permanentportfoliofunds.com ... folio.html

as compared to:
https://www.investopedia.com/terms/p/pe ... tfolio.asp
seajay
Posts: 227
Joined: Sat May 01, 2021 3:26 pm

Re: Golden Butterfly Portfolio - is it really that good?

Post by seajay »

garlandwhizzer wrote: Wed Jun 23, 2021 12:18 pm Backtesting bond heavy portfolios and expecting the same to occur going forward is a joke, pure and simple. We have in recent years ended the greatest US bond bull market of all time, almost 4 decades of outsized bond returns with essentially no risk. Incredibly high risk adjusted returns which have a zero probability of occurring going forward. Going forward it is hard to imagine that anything even remotely similar to that will occur. Expected real inflation adjusted returns on bonds going forward are no higher than zero, perhaps less, for Treasuries and TIPS of all durations.
There's also the effect that the US was a right tail good/great case outcome over the typical backtest period. The GB in effect extends that by including even historically better Small Cap Value holdings. There's also the increased tax risk from bond regular income/interest streams. During times of stress, high/rising interest rates, so also do taxes tend to rise as the state purse will also have been impacted. The PP was good at reducing nominal volatility, but at the expense of lower expected rewards. For those for whom capital loss is the primary risk factor, are less concerned about yearly nominal value volatility, then alternative asset allocations were 'safer'.

Striving to lower nominal value losses is somewhat a fools errand. High to low interest rate transition, especially over the last 40 year extreme case (extreme high interest rates to extreme low interest rates) saw even inflation bonds providing 4% real type benefits (albeit synthetic versions in the absence of actual available TIPS). Growing to a $2M/whatever portfolio value was relatively easy facilitated by a rising tide. With sustained low or even perhaps rising rates, a receding tide, its not unreasonable to anticipate portfolio values where income is also being drawn sustaining -66% type declines, former $2M portfolio with a 4% SWR ($80K income) declining to $666K portfolio value where the SWR value had risen to being 12% of the ongoing inflation adjusted portfolio value. As deep/nasty as those sorts of valuations and withdrawal percentage rates seem historically portfolios have muddled through to sustain out to 30 years in total (worst case 4% SWR) - at least for a right tail outcome economy. For other more average economies it was more like 3% SWR. A benefit when using a relatively low SWR is that the remainder portfolio typically expands in real terms at a faster rate. If the portfolio value is expanded relatively quickly in real terms by 33% as can occur with stock heavy portfolios, then a former 4% SWR value declines to being 3% of ongoing portfolio value amount being drawn and risk thereafter is considerably reduced. The likes of the PP are typically slower at such risk reduction (lower expected reward - slower to reduce a ongoing 4% withdrawal amount down to a 3% amount).

As odd as it may seem, 100% stock and a 3% SWR is a better risk adjusted reward asset allocation than the PP. Unless you specifically consider yearly nominal value volatility to be your primary risk concern.
seajay
Posts: 227
Joined: Sat May 01, 2021 3:26 pm

Re: Golden Butterfly Portfolio - is it really that good?

Post by seajay »

GB comprised of 20% each in J stocks, US stocks, gold, 40% 10 year bonds, started with a 3% SWR in Japan 1990 ... ended 30 years with 100% of the inflation adjusted start date value. Permanent portfolio was down to a third, 50/50 stock/bond was all spent (succeeded, just, leaving nothing remaining - whether spent bonds first of constant 50/50 and drew equally from stocks and bonds).

US 1967 start date and again GB 3% SWR had 100% of the inflation adjusted start date value still intact at the end of 30 years, based on a 'GB' comprised of 40% TSM, 40% 10 year, 20% silver. Generally sustained inflation adjusted start date value for all start years since the end of WW1, Including WW1 years/era saw final values down at around half the inflation adjusted start date value at the end of 30 years.

UK data since 1900 and much the same as the US but where WW1 era saw the deepest/worst case (1906 start year) down at 25% inflation adjusted start date value at the end of 30 years. Based on 20% each in US stock, UK stock, gold, 1 year and 20 year treasury bonds. Assumed that for years prior to 1932 that T-Bills were held instead of gold (at a fixed conversion rate it made more sense to hold money deposited and earning interest).

So suggests that in additional to synthetic backtest data, real world 'out of sample' data broadly indicates comparable outcomes for 40% broadly diversified stock, 40% bonds, 20% precious metal.
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