Golden Butterfly Portfolio Insights

Golden Butterfly Portfolio Insights – Backtest And Performance

The Golden Butterfly Portfolio by Tyler portfolio is a simple but highly effective approach to asset allocation. It focuses on delivering steady investment growth by balancing economic conditions with an eye toward prosperity. Let’s find out what this portfolio is about and how it works.

The Golden Butterfly Portfolio is a balanced investment strategy that seeks to deliver steady, long-term growth by diversifying assets across multiple classes. It consists of 40% stocks, 40% bonds, and 20% commodities. It is a variation of the Permanent Portfolio designed to provide a steady stream of returns in any market environment.

In this post, we take a look at the Golden Butterfly Portfolio. We end the article with a backtest.

Building Wealth with Golden Butterfly Portfolio

Golden Butterfly Portfolio Summary

Building wealth with the Golden Butterfly Portfolio requires a long-term investment strategy and a disciplined approach to asset allocation. The portfolio consists of a balanced mix of stocks, bonds, and commodities, with each asset class making up a portion of the total portfolio. To build wealth with this portfolio, you should consider the following steps:

  • Determine your investment goals: Before investing in the Golden Butterfly Portfolio, it’s important to have a clear understanding of your financial goals and risk tolerance. This will help you determine the right mix of assets for your portfolio.
  • Allocate assets: Once you have determined your investment goals, you can allocate your assets accordingly. A typical allocation for the Golden Butterfly Portfolio might be 40% stocks, 40% bonds, and 20% commodities.
  • Monitor and rebalance: Regularly monitoring your portfolio and rebalancing your assets as needed can help ensure that your portfolio stays on track to meet your investment goals.

By following these steps and maintaining a disciplined investment approach, you can build wealth with the Golden Butterfly Portfolio over the long term. However, note that investing always carries some level of risk, so it’s important to consider seeking professional financial advice before making investment decisions.

A Beginner’s Guide to Golden Butterfly Portfolio

The Golden Butterfly Portfolio is a balanced investment strategy that seeks to deliver steady, long-term growth through the diversification of assets across multiple classes. Here is a beginner’s guide to getting started with the Golden Butterfly Portfolio:

  • Study the markets and know the different types of funds available
  • Have a clear understanding of your financial goals and risk tolerance and determine the right mix of assets for your portfolio.
  • Build your Golden Butterfly Portfolio by investing 40% of your capital in stocks (20% in total stock market ETFs and another 20% in small-cap funds), 40% in bonds (20% in short-term bonds and another 20% in long-term bonds), and 20% commodities, especially gold. This allocation can be adjusted based on your specific investment goals and risk tolerance.
  • Regularly monitoring your portfolio and rebalancing your assets as needed can help ensure that your portfolio stays on track to meet your investment goals.
  • You may want to seek professional advice before making investment decisions.

Building a Golden Butterfly Portfolio from Scratch

Building a Golden Butterfly Portfolio from scratch involves picking the right stocks, bonds, and commodities to include in your portfolio, rather than investing in already-diversified index funds. This is not an advisable approach, as it can cost-intensive. A better approach is to use index funds for each of the asset classes and sectors included in the portfolio. Having said that, here is how to build a Golden Butterfly Portfolio using index funds:

  • Invest 20% of your capital in Vanguard Total Stock Market (VTI), which offers exposure to the entire U.S. stock market, including both large and small companies.
  • Invest 20% in iShares S&P Small-Cap 600 Value (IJS), which focuses on small-cap, value-oriented companies in the United States.
  • Invest 20% in iShares 1-3 Year Treasury Bond (SHY), which is a short-term bond fund that invests in U.S. Treasury bonds with maturities of 1-3 years.
  • Invest 20% in iShares 20+ Year Treasury Bond (TLT), which is a long-term bond fund that invests in U.S. Treasury bonds with maturities of 20 years or more.
  • Invest 20% in SPDR Gold Trust (GLD), which is a commodity fund offering exposure to gold. Alternatively, 10% in DBC and 10% in GLD

Common Misconceptions about Golden Butterfly Portfolio

There are not many misconceptions that are specific to the Golden Butterfly Portfolio. Most of the misconceptions generally apply to other investment strategies as well, and they include the following:

  • The portfolio is well diversified and therefore can weather all market conditions.
  • The portfolio can make money all the time.
  • The portfolio is immune to short-term market fluctuations.
  • The portfolio can make money in a recessionary market.

No strategy can ever protect you from the above. Yes, a portfolio can be better at something compared to other metrics, but at the end of the day, there is no free lunch in financial markets. Drawdowns and temporary losses are part of the game.

Comparing Golden Butterfly Portfolio to Other Investment Strategies

The Golden Butterfly portfolio compares reasonably well with other investment strategies. See the tables and charts in the image below:

Golden Butterfly Portfolio performance


The performance of the Golden Butterfly Portfolio is compared to the S&P 500 index from 1978 to the present. Although it shows a lower compound annual growth rate, it also has a lower standard deviation, a less severe worst year, and a smaller maximum drawdown. These factors result in a better risk-adjusted return, as indicated by a higher Sharpe ratio.

From the data, it might seem that an investor who solely invested in the S&P 500 would have recorded a higher overall return. However, this scenario is unrealistic as most investors are unable to endure a 100% equity investment for 30 years. Such a strategy would have resulted in significant losses during the 2008 financial crisis, where the S&P 500 saw an over 50% drop, whereas the Golden Butterfly Portfolio experienced only an 8% decrease.

For those who prioritize risk management, Golden Butterfly’s more consistent returns are a distinct advantage. The power of diversification is demonstrated by the portfolio’s performance during market turbulence.

Expert Insights and Analysis of Golden Butterfly Portfolio

The Golden Butterfly Portfolio is a well-diversified investment strategy that seeks to balance risk and return by allocating assets across multiple asset classes. It is a suitable option for risk-averse investors who are looking for steady, long-term growth.

One of the key strengths of the Golden Butterfly Portfolio is its ability to weather market downturns better than a portfolio heavily invested in equities. This is because it includes bonds and commodities, which tend to perform differently from stocks during economic stress. The lower volatility of the portfolio can help investors stay invested during volatile periods, increasing the likelihood of achieving their long-term goals.

Incorporating Alternative Investments into Golden Butterfly Portfolio

Incorporating alternative investments into the Golden Butterfly Portfolio can potentially increase diversification and help manage risk. Alternative investments may include real estate, hedge funds, and private equity.

However, it is important to consider the unique risk and return characteristics of alternative investments, as well as any fees and liquidity constraints, when deciding to include them in a portfolio.

Since those investments may also be illiquid and have high fees, you may want to carefully consider the potential benefits and drawbacks before making any changes to the portfolio. It’s recommended to seek the advice of a financial advisor before making any investment decisions. An investment advisor can help determine the appropriate level of exposure to alternative investments, given an individual’s investment goals and risk tolerance.

Managing Risk with Golden Butterfly Portfolio

Managing risk is a crucial aspect of investing, and the Golden Butterfly Portfolio can help investors do so effectively. This portfolio balances investments between stocks, bonds, and commodities, reducing the risk of any single asset class. Additionally, the use of bonds helps to mitigate the volatility of stock investments.

Diversifying investments across different asset classes and market segments can help reduce the overall risk of the portfolio. Regular rebalancing to maintain the 40-40-20 allocation also helps to manage risk by controlling exposure to any single asset class. With a long-term, buy-and-hold investing approach, investors can weather market fluctuations and reduce the impact of short-term volatility on their portfolios.

Maximizing Returns with Golden Butterfly Portfolio

Maximizing returns with a Golden Butterfly Portfolio can be achieved by consistently rebalancing the portfolio back to its original allocation of 40% stocks, 40% bonds, and 20% commodities. This helps to ensure that the portfolio remains aligned with the investor’s risk tolerance and investment goals.

Another strategy is to carefully monitor market trends and adjust the portfolio accordingly, by adjusting the allocation to different asset classes that are performing well. Additionally, investors can consider adding alternative investments to the portfolio, such as real estate or other commodities, to potentially enhance returns while diversifying the portfolio further.

Navigating Economic Uncertainty with Golden Butterfly Portfolio

Navigating economic uncertainty with a Golden Butterfly Portfolio would require maintaining a diversified mix of assets that can perform well in different market conditions. This portfolio consists of 40% stocks, 40% bonds (both long-term and short-term bonds), and 20% commodities, which helps to balance out the risks and reduces volatility.

By investing in a variety of assets, the portfolio can weather market downturns and provide steady returns over the long term. It’s important to regularly review and rebalance the portfolio to ensure it remains aligned with the investor’s goals and risk tolerance. However, note that no portfolio can completely weather all uncertainties in the market. Nonetheless, the Golden Butterfly portfolio does a good job of limiting losses during economic uncertainties.

Strategies for Trading Golden Butterfly Options

Trading Golden Butterfly options is a strategy for investors to hedge their portfolios and generate additional income. The Golden Butterfly Options trading strategy involves a Delta-neutral approach. The focus is on finding credit spreads and adjusting legs based on the underlying’s movement.

Investors can also implement a combination of different strategies or use tools such as spread and straddle options to hedge their portfolios and generate returns. It is important to consider the risks and understand the mechanics of options trading before implementing any strategy.

The Benefits of Owning Physical Gold in Your Portfolio

Physical gold is widely considered to be a valuable asset to hold in a diversified investment portfolio due to its potential to hedge against economic and political uncertainty, as well as inflation. In addition, gold has a low correlation with other asset classes, which can help to reduce overall portfolio volatility.

Physical gold also has a long-term track record of holding its value and can serve as a source of liquidity in difficult economic times. Moreover, owning physical gold offers the added security of having tangible assets, rather than just a paper claim on an asset. This can be especially important in times of financial crisis, when paper assets may be at risk of losing value.

The History and Evolution of Golden Butterfly Portfolio

The Golden Butterfly Portfolio is a relatively new investment strategy, having only gained popularity in the past decade. It was developed as a response to the financial crisis of 2008, as investors were seeking a more diversified and balanced portfolio that could weather economic uncertainty.

The strategy combines stocks, bonds, and commodities in a specific weighting to provide both stability and growth potential. Over time, various iterations and modifications have been made to the original Golden Butterfly Portfolio, but the core principle of combining multiple asset classes for risk management remains unchanged.

Understanding Market Trends and the Impact on Golden Butterfly Portfolio

Market trends play a crucial role in shaping the performance of an investment portfolio, including the Golden Butterfly. It is important to understand how market trends can impact the different assets within a portfolio and how those assets may react to market movements.

For example, during a recession, bonds tend to perform well as investors flock to safe-haven investments, while equities may experience a downturn. Therefore, it is crucial to regularly monitor market trends and make necessary adjustments to the portfolio to align with market conditions and achieve long-term financial goals.

Using Golden Butterfly Portfolio for Long-Term Goals

Golden Butterfly Portfolio can be an effective strategy for achieving long-term investment goals, due to its combination of stocks, bonds, and gold. By balancing the portfolio with a mix of assets, investors can reduce the overall volatility and risk in their portfolio. The allocation to bonds and gold provides stability and the potential for steady returns during market downturns, while the allocation to stocks provides growth potential.

Investors should regularly review their portfolios and adjust their asset allocation as needed to align with their long-term goals and risk tolerance. It’s important to have a well-diversified portfolio, regular monitoring, and a long-term investment horizon to maximize the benefits of using the Golden Butterfly Portfolio for long-term goals.

Golden Butterfly Portfolio backtest – performance

Let’s end the article by backtesting our own version of the portfolio. We use the following weightings and ETFs:

  • 20% VTI (stock market)
  • 20% IJS (small-caps)
  • 20% SHY (short-term bonds)
  • 20% TLT (long-term bonds)
  • 10% DBC (commodities)
  • 10% GLD (gold)

Since 2007 these ETFs and weightings have returned the following equity curve:

Golden Butterfly portfolio backktest

We used daily rebalancing, but the results don’t vary much depending if we rebalance weekly, monthly, quarterly, or annually.

The statistics and performance metrics read like this:

  • Annual return is 6.4%
  • Max drawdown is 25%

The performance is below the buy-and-hold return of stocks, but the max drawdown is substantially lower at only 25%. S&P 500 was down a max of 55% during the great financial crisis in 2008/09.

We end the backtest by listing the returns for each year:

Golden Butterfly portfolio returns

At the end of the day, it’s all about different trade-offs. Many prefer lower drawdowns than higher returns, especially if you are retired or getting closer to retirement.

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– How does the Golden Butterfly Portfolio work?

The portfolio works by allocating 40% to stocks, 40% to bonds, and 20% to commodities, aiming to provide consistent returns in various market conditions.

– How can I build wealth with the Golden Butterfly Portfolio?

Building wealth with this portfolio involves setting clear investment goals, determining the right asset mix based on risk tolerance, and regularly monitoring and rebalancing the portfolio.

– What are the steps to follow for a beginner’s guide to the Golden Butterfly Portfolio?

Beginners can start by studying markets, understanding financial goals and risk tolerance, and building the portfolio with a specific allocation to stocks, bonds, and commodities.

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