Any Retirees Using a Permanent Portfolio or Golden Butterfly?
Any Retirees Using a Permanent Portfolio or Golden Butterfly?
I have been running some Monte Carlo simulations looking at different portfolios in retirement and the Permanent Portfolio and Golden Butterfly are looking really appealing. I pretty much brushed them aside as having too little in stocks but I just recently read The Permanent Portfolio: Harry Browne's Long-Term Investment Strategy and was pretty intrigued. After looking at some data I was really surprised at how appealing these two portfolios actually are. After reading the book the concept of having 4 different assets for the different economic conditions (prosperity, recession, inflation, deflation) made a lot of sense.
Re: Any Retirees Using a Permanent Portfolio or Golden Butterfly?
I started using the Permanent Portfolio in 2008 and switched to the GB about 6 years ago shortly before I retired.
Have been very satisfied with it so far.
Have been very satisfied with it so far.
Re: Any Retirees Using a Permanent Portfolio or Golden Butterfly?
No, I do not. HB's recommendations in his book and also the newer book on the subject advised against it. I think the idea was that you have enough exposure to international stocks in just the American market.
The only tweak I have made from the original recommendations was to recently buy a bit of short term TIPS for the cash portion due to practically zero return on cash. Still waiting to see how that pans out.
Otherwise I follow the strategy pretty religiously.
Re: Any Retirees Using a Permanent Portfolio or Golden Butterfly?
Yeah I believe he recommended against it but said you could add some if you wanted to. I have this "mental block" if you will where I feel like not including any international stocks in a portfolio is the most disastrous thing you can do. Definitely an unfounded fear of mine based on previous performance but still tough for me to get over. The purpose of the portfolio was for each asset to be correlated to an economic condition in the place that you live and work though. So if you don't have all your stocks in the US then I suppose you wouldn't get the full benefit of your "prosperity" asset when the place you work and live is going through its prosperous cycle.howard71 wrote: ↑Mon Jul 26, 2021 5:59 pmNo, I do not. HB's recommendations in his book and also the newer book on the subject advised against it. I think the idea was that you have enough exposure to international stocks in just the American market.
The only tweak I have made from the original recommendations was to recently buy a bit of short term TIPS for the cash portion due to practically zero return on cash. Still waiting to see how that pans out.
Otherwise I follow the strategy pretty religiously.
Re: Any Retirees Using a Permanent Portfolio or Golden Butterfly?
What funds are you using?
Thanks
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If you think something is important and it doesn't involve the health of someone, think again. Life goes too fast, enjoy it and be nice.
Re: Any Retirees Using a Permanent Portfolio or Golden Butterfly?
I don't think that's a mental block. Sounds like a sensible position to me.
One could do a golden butterfly with International stocks instead of SCV.
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Re: Any Retirees Using a Permanent Portfolio or Golden Butterfly?
Re: Any Retirees Using a Permanent Portfolio or Golden Butterfly?
I've been using some iteration of the PP and GB since 2009 and am currently using the GB with a couple of minor tweaks (see below).
Tyler of Portfolio Charts is the inventor of the GB and IMHO his two posts about the portfolio are pretty much essential reading even for those who've read the PP book:
https://portfoliocharts.com/portfolio/golden-butterfly/
Also really useful (like everything he's written, of course!) is William Bernstein's "Deep Risk: How History Informs Portfolio Design," which is essentially a thoughtful meditation on and response to Harry Browne's ideas. In my opinion Dr. Bernstein makes a compelling case that equal allocations of assets in the PP to guard against economic threats that are anything but equally likely to occur and that have very different costs to insure against is ill-advised. The GB, with its tilt towards prosperity and diversification of the increased (40 vs. 25%) equity slice is a particularly elegant solution to the issues raised in that booklet.
Regarding the question of including international stocks in the GB, here's Tyler's response to that very question from a few years ago:
"One additional question: Have you considered a slice of international, for diversification? I realize that past returns show it's always been a return-reducer (with the exception of very high risk EM).
I've looked into it several times, and have yet to find a convincing evidence-based reason to add international stocks to a US-based PP. The biggest proponents of international diversification generally cite the very reasonable assumption that US stocks won't always perform so well and you'll need something else to pick up the slack. I completely agree, but the data indicates that gold already fills that role particularly well which is why adding international never seems to improve the numbers. And in the GB, the small caps also pitch in by greatly diversifying away from the relatively small number of large caps that drive returns of a total market fund due to how the index is weighted. There's more to stock performance than the country it's domiciled in.
I'll note, however, that due to macroeconomic forces the negative correlation of gold to stocks is more pronounced in the US than in other countries. If I was a PP investor outside of the US, international investing would look more appealing. And if gold ownership is ever outlawed again in the future or if an individual investor simply has a mental block on owning gold, international stocks are a logical backup choice to fill that role in a portfolio."
Regarding my personal "unauthorized" tweaks to the GB, I'm using iBonds and online CD's for much of the cash portion and intermediate-term Treasuries for most of the long-term Treasury slice. That said, every time I've monkeyed with the PP or GB over the years the plain vanilla version has out-performed.
Tyler of Portfolio Charts is the inventor of the GB and IMHO his two posts about the portfolio are pretty much essential reading even for those who've read the PP book:
https://portfoliocharts.com/portfolio/golden-butterfly/
Also really useful (like everything he's written, of course!) is William Bernstein's "Deep Risk: How History Informs Portfolio Design," which is essentially a thoughtful meditation on and response to Harry Browne's ideas. In my opinion Dr. Bernstein makes a compelling case that equal allocations of assets in the PP to guard against economic threats that are anything but equally likely to occur and that have very different costs to insure against is ill-advised. The GB, with its tilt towards prosperity and diversification of the increased (40 vs. 25%) equity slice is a particularly elegant solution to the issues raised in that booklet.
Regarding the question of including international stocks in the GB, here's Tyler's response to that very question from a few years ago:
"One additional question: Have you considered a slice of international, for diversification? I realize that past returns show it's always been a return-reducer (with the exception of very high risk EM).
I've looked into it several times, and have yet to find a convincing evidence-based reason to add international stocks to a US-based PP. The biggest proponents of international diversification generally cite the very reasonable assumption that US stocks won't always perform so well and you'll need something else to pick up the slack. I completely agree, but the data indicates that gold already fills that role particularly well which is why adding international never seems to improve the numbers. And in the GB, the small caps also pitch in by greatly diversifying away from the relatively small number of large caps that drive returns of a total market fund due to how the index is weighted. There's more to stock performance than the country it's domiciled in.
I'll note, however, that due to macroeconomic forces the negative correlation of gold to stocks is more pronounced in the US than in other countries. If I was a PP investor outside of the US, international investing would look more appealing. And if gold ownership is ever outlawed again in the future or if an individual investor simply has a mental block on owning gold, international stocks are a logical backup choice to fill that role in a portfolio."
Regarding my personal "unauthorized" tweaks to the GB, I'm using iBonds and online CD's for much of the cash portion and intermediate-term Treasuries for most of the long-term Treasury slice. That said, every time I've monkeyed with the PP or GB over the years the plain vanilla version has out-performed.
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Re: Any Retirees Using a Permanent Portfolio or Golden Butterfly?
I use this slightly "internationalized" version of the GB in my main core portfolio and am very happy with it:
VTI 15%
IJR 15%
VXUS 10%
VGSH 20%
VGLT 20%
GLD 20%
VTI 15%
IJR 15%
VXUS 10%
VGSH 20%
VGLT 20%
GLD 20%
Re: Any Retirees Using a Permanent Portfolio or Golden Butterfly?
I posted this info to another thread. Should be easy enough to find.
Returns I have gotten from my version of the GB since I retired at the end of 2016 ( I was using it a few years before I retired but I don't have records to share),
2017 = +11.4%
2018 = -5.5%**
2019 = +19.2%
2020 = +18.4%
2021 = + 9.2% (YTD)
* Includes still-working wife's contributions maxing out 401k. If she wasn't doing that the percentages would probably be reduced by 1-3%
** Don't even remember what happened at the end of 2018 (biggest lost ever for the PP/GB) but it apparently recovered well.
Given the importance of sequence of returns in the early years of retirement I would have to say that the Golden Butterfly has served me well so far.
Past performance is no guarantee........ of course.
Re: Any Retirees Using a Permanent Portfolio or Golden Butterfly?
Interesting modification. I like it.bikeeagle1 wrote: ↑Tue Jul 27, 2021 3:51 pm I use this slightly "internationalized" version of the GB in my main core portfolio and am very happy with it:
VTI 15%
IJR 15%
VXUS 10%
VGSH 20%
VGLT 20%
GLD 20%
Re: Any Retirees Using a Permanent Portfolio or Golden Butterfly?
It seems like very few are using the actual GB portfolio. Instead variants that don't use a small cap value fund. Or adding international or other adjustments.
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If you think something is important and it doesn't involve the health of someone, think again. Life goes too fast, enjoy it and be nice.
Re: Any Retirees Using a Permanent Portfolio or Golden Butterfly?
All of the tweaks I see mentioned in this thread are pretty minor: using short TIPS for some of the cash, using some ITT's instead of the LTT/STT barbell, replacing 10% of the SCV with international. It's not like the PP or GB were ever offered as set-in-stone portfolios.
That said, it should be pretty obvious that these forums are one of the less likely places to find a good-size sampling of adherents to portfolios that include gold - let alone 20-25% gold. Kind of like looking for fans of low-cost buy-and-hold indexing on an Edward Jones fan club page.
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Re: Any Retirees Using a Permanent Portfolio or Golden Butterfly?
The main point of the GB is to have:
- 40% in stocks (well diversified)
- 20% in gold
- 20% in long duration treasuries
- 20% in cash
- The exact stock holdings as long as they are well diversified don't matter that much
- Also Cash can be invested in short treasuries, short TIPS, CDs or I-bonds and it doesn't change much.
25% VTI | 25% VXUS | 12.5% AVUV | 10% AVDV | 2.5% VWO | 25% BND/SCHR/SCHP
Re: Any Retirees Using a Permanent Portfolio or Golden Butterfly?
Just another tweak of the Permanent Portfolio. Bump up stocks from 25 to 40% and bump down the other investments. I think the original Browne portfolio used Swiss Francs (I'm going back quite a few decades when I think I first read about it..maybe 1980s?)ivgrivchuck wrote: ↑Wed Jul 28, 2021 11:28 amThe main point of the GB is to have:
- 40% in stocks (well diversified)
- 20% in gold
- 20% in long duration treasuries
- 20% in cash
- The exact stock holdings as long as they are well diversified don't matter that much
- Also Cash can be invested in short treasuries, short TIPS, CDs or I-bonds and it doesn't change much.
Here is an article talking about PP and GB and a few others.
https://www.optimizedportfolio.com/permanent-portfolio/
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If you think something is important and it doesn't involve the health of someone, think again. Life goes too fast, enjoy it and be nice.
Re: Any Retirees Using a Permanent Portfolio or Golden Butterfly?
bikeeagle1 wrote: ↑Tue Jul 27, 2021 3:51 pm I use this slightly "internationalized" version of the GB in my main core portfolio and am very happy with it:
VTI 15%
IJR 15%
VXUS 10%
VGSH 20%
VGLT 20%
GLD 20%
Do either of you use any physical gold or strictly ETFs?
Re: Any Retirees Using a Permanent Portfolio or Golden Butterfly?
Butting in ... from a non-US investor perspective a Permanent Portfolio (that comprises 80% of the GB) domestic stock allocation is likely to be smaller cap in US scale, so for such individuals adding US stock to that is reasonable. Gold wise physical in-hand should be preferred to funds, but involves higher spreads, so some of both is appropriate. How much, well backtesting UK GB for instance since the 1930's and the yearly granularity lowest real low for a 4% SWR was 48% (30 years started 1961) which was also pretty much the worst case 30 year run as well, which suggests that based on history 10% physical gold (20% GB allocation to gold x 0.48 low) was unlikely to be traded i.e. half physical gold, half gold fund and use the gold fund for rebalancing purposes. Average 30 year 4% SWR ended with 130% of the inflation adjusted start date amount, median case ended with 96%. Median is a better indicator of the 'average'.
Unlike the US the UK didn't outlaw holding/trading gold from the early 1930's. As a observation had silver been held instead of gold the characteristics were relatively similar. Applying the same 4% SWR to US GB with silver (yearly average values sourced from the US geological survey web site) and I see a 30% of inflation adjusted start date value 30 year end date worst case (started 1937). That stands out as the extreme exception however and other worst cases ended with 60% to 70%, which is suggestive that 15% of the 20% gold might broadly/generally have been physical and rarely if ever needing to trade those core gold holdings.
Not much point in back-testing to earlier than the 1930's as much of the world was on the gold standard back then and inflation broadly averaged 0% (but with clustered spikes of inflation/deflation that overall tended to cancel out) and money/gold were convertible at a fixed rate, so in effect Treasury Bills/Bonds interest rates were the real rate of return, were good (high) enough and could be converted to gold at any time. How things have changed! Investors were in effect paid by the state for it to securely store their gold and where that payment was a decent real amount; Under that investors had security/safety and stability, could work out reasonably well how much savings were needed to meet their objectives. Nowadays there's far less security/stability such that investors have to accumulate far more - just in case. The GB goes quite a way in addressing that.
I've also back tested the GB in Japan since the 1970's where again holding US stock, Japanese stock as the two 20% stock allocations and that was fine (smooth and reasonable real gain progressions).
Risks wise, its similar to computing, the greatest risk sits between the keyboard and chair-back. There's regret risk ... "if I'd been in all-stock I'd have been richer" - that wont always apply and when it doesn't you'll have no regrets. There's the regret of holding "bad performers", gold 1980's/1990's for instance where prices just continued on down, repeated years of selling stock shares to buy more ounces of gold, maybe ending those decades with multiple more ounces of gold than at the start and where the price was lower in nominal terms ... takes a certain kind to persist with that, but for those that did it paid dividends when gold soared during the 2000's. There's the 'tweak' risk ... "I'm not going to buy/hold long dated treasuries at these low yields, I'll hold x instead". Part of including such assets even at the extremes is that things will change and consistent holding/rebalancing will have you add (reduce) such holdings over time, naturally. If you opt to dump a asset then when might you re-enter holding that asset - that's market timing and is more inclined to not work out well.
PS/EDIT : Start with just all gold funds. Then after good/great years use some of the 'other peoples money' to swap out some of gold funds for physical gold. Physical gold might comprise 7% spreads (ouch!), maybe 5% premium above spot to buy, -2% below spot to sell. If instead of a +10% GB gain year you use some of that to convert gold fund to physical gold and count it as perhaps a +7% GB gain year, then at least it wont have been your own capital (of sorts) used to fund the physical gold spreads.
Re: Any Retirees Using a Permanent Portfolio or Golden Butterfly?
About 1/3 of my gold is physical.BHawks87 wrote: ↑Wed Jul 28, 2021 9:06 pmbikeeagle1 wrote: ↑Tue Jul 27, 2021 3:51 pm I use this slightly "internationalized" version of the GB in my main core portfolio and am very happy with it:
VTI 15%
IJR 15%
VXUS 10%
VGSH 20%
VGLT 20%
GLD 20%Do either of you use any physical gold or strictly ETFs?
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Re: Any Retirees Using a Permanent Portfolio or Golden Butterfly?
So far, I've only used ETFs, but I am considering adding some physical gold. I've just been busy and haven't had time to research it. Can anyone recommend a good way to get started? Maybe recommend a legitimate dealer?
Also, I like the GLD ETF because it has fairly liquid options. Some complain about the lack of yield from gold, but it's pretty easy to generate decent yield by running a wheel play on GLD.
Also, I like the GLD ETF because it has fairly liquid options. Some complain about the lack of yield from gold, but it's pretty easy to generate decent yield by running a wheel play on GLD.
Re: Any Retirees Using a Permanent Portfolio or Golden Butterfly?
Texas Precious Metals. I've always had trouble free ordering. I was able to talk to them on the phone. $75 over spot buying ten 1oz bars.bikeeagle1 wrote: ↑Sat Jul 31, 2021 8:53 am Can anyone recommend a good way to get started? Maybe recommend a legitimate dealer?
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Re: Any Retirees Using a Permanent Portfolio or Golden Butterfly?
Thanks! I see that they are in Shiner, so I could tour the brewery and check them out all in the same trip!Iconicus wrote: ↑Sat Jul 31, 2021 9:22 amTexas Precious Metals. I've always had trouble free ordering. I was able to talk to them on the phone. $75 over spot buying ten 1oz bars.bikeeagle1 wrote: ↑Sat Jul 31, 2021 8:53 am Can anyone recommend a good way to get started? Maybe recommend a legitimate dealer?