Modified Golden Butterfly Portfolio

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rudiger
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Modified Golden Butterfly Portfolio

Post by rudiger » Mon Nov 13, 2017 2:51 pm

I thought I'd share this modified Golden Butterfly (mGB) portfolio. There's a slight tilt to international stocks (20% of the equity allocation). Bonds are slightly reduced in duration to compensate for the effect of diversifying your portfolio into international stocks, since deflation doesn't hit all nations at once.
  • 20% Large-Cap Blend or Total U.S. Stock Market
  • 12% Small-Cap Value
  • 8% International Stock Market (Ex-U.S.)
  • 16% Long-Term U.S. Treasury (20+ Years)
  • 4% Intermediate-Term U.S. Treasury (7-10 Years)
  • 20% Gold
  • 20% Cash or Short-Term U.S. Treasury
It's constructed around all the same principles as the Permanent Portfolio or the Golden Butterfly. Enjoy!
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Re: Modified Golden Butterfly Portfolio

Post by modeljc » Mon Nov 13, 2017 5:19 pm

How does it back test for 40 years?
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foglifter
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Re: Modified Golden Butterfly Portfolio

Post by foglifter » Mon Nov 13, 2017 5:53 pm

GB seems to perform better since 1986:

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rudiger
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Re: Modified Golden Butterfly Portfolio

Post by rudiger » Wed Nov 15, 2017 7:54 am

modeljc wrote:How does it back test for 40 years?
Over the past 30 years (since 1986), the mGB portfolio has returned:
  • CAGR 8%
  • Real CAGR 6%
  • Stdev 7%
  • Max Drawdown -17%
  • Sharpe 0.67
  • Sortino 1.00
The results since 1970 are similar (real CAGR 5.8%). Of course, we can't know what the future holds, but it's unlikely to be the same as the past (another thirty years of falling interest rates).

The mGB portfolio is more diversified than the standard GB portfolio and has a bit less exposure to long-term bonds.
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sophie
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Re: Modified Golden Butterfly Portfolio

Post by sophie » Thu Nov 16, 2017 8:29 am

BTW be careful about selecting "Gold" in portfoliovisualizer.com. I think it's actually gold mining stocks. I got horrid results for the PP when I played with its backtesting, which may explain some of the negative comments on the board lately about long term performance. When I looked at a portfolio of just "Gold" I got something that looked absolutely nothing like the gold price index. Try "Precious Metals" instead. It was a better but not perfect match for gold prices, so take with grain of salt.
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foglifter
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Re: Modified Golden Butterfly Portfolio

Post by foglifter » Thu Nov 16, 2017 10:29 am

sophie wrote:BTW be careful about selecting "Gold" in portfoliovisualizer.com. I think it's actually gold mining stocks. I got horrid results for the PP when I played with its backtesting, which may explain some of the negative comments on the board lately about long term performance. When I looked at a portfolio of just "Gold" I got something that looked absolutely nothing like the gold price index. Try "Precious Metals" instead. It was a better but not perfect match for gold prices, so take with grain of salt.
Good point, thank you Sophie!
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rudiger
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Re: Modified Golden Butterfly Portfolio

Post by rudiger » Thu Nov 16, 2017 12:39 pm

sophie wrote:BTW be careful about selecting "Gold" in portfoliovisualizer.com. I think it's actually gold mining stocks. I got horrid results for the PP when I played with its backtesting, which may explain some of the negative comments on the board lately about long term performance. When I looked at a portfolio of just "Gold" I got something that looked absolutely nothing like the gold price index. Try "Precious Metals" instead. It was a better but not perfect match for gold prices, so take with grain of salt.
Thanks for the warning, @sophie. Luckily, I used a couple of other tools to backtest the mGB portfolio. The annualized return is actually closer to 9%, depending on the historical asset price data set. Indeed, the Real CAGR is between 5.5% and 6% when you look at the past thirty or forty years.
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Re: Modified Golden Butterfly Portfolio

Post by ochotona » Thu Nov 16, 2017 1:08 pm

What about making the international stocks all emerging markets?
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rudiger
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Re: Modified Golden Butterfly Portfolio

Post by rudiger » Thu Nov 16, 2017 2:25 pm

ochotona wrote:What about making the international stocks all emerging markets?
This is a reasonable choice if you believe EM will outperform foreign developed in the future. However, international large-cap blend is a natural complement to domestic large-cap blend or the total U.S. market, and it's predominantly composed of companies in developed markets.
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ochotona
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Re: Modified Golden Butterfly Portfolio

Post by ochotona » Thu Nov 16, 2017 5:17 pm

rudiger wrote:
ochotona wrote:What about making the international stocks all emerging markets?
This is a reasonable choice if you believe EM will outperform foreign developed in the future. However, international large-cap blend is a natural complement to domestic large-cap blend or the total U.S. market, and it's predominantly composed of companies in developed markets.
Swedroe's Minimize Fat Tails Portfolio which has 15% Small Cap Value and 15% Emerging Markets motivated me to ask. That portfolio shoots a small, light but high velocity equity bullet, so to speak.
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Re: Modified Golden Butterfly Portfolio

Post by Tyler » Thu Nov 16, 2017 9:55 pm

sophie wrote:BTW be careful about selecting "Gold" in portfoliovisualizer.com. I think it's actually gold mining stocks. I got horrid results for the PP when I played with its backtesting, which may explain some of the negative comments on the board lately about long term performance. When I looked at a portfolio of just "Gold" I got something that looked absolutely nothing like the gold price index. Try "Precious Metals" instead. It was a better but not perfect match for gold prices, so take with grain of salt.
This piqued my interest, so I took a little time to look into it.

Portfolio Visualizer lists the following sources for their gold data (the asset class, not an individual fund ticker):

Gold Fixing Price in London Bullion Market 10:30 AM (London time) 1972-2004
SPDR Gold Shares (GLD) 2005+

I see no problem with that, and in fact I also use the LBMA data since it's the standard most bullion sites also reference. I also double checked their numbers against my own, and while they're not exactly the same they're reasonably close (the difference is likely due to the time of day the data sets are sampled). The years after 2004 obviously have a little more error since PV switches to GLD as the source, but even then we're only talking a percent or two.

Basically, I think PV's gold source data seems fine. Now whether their calculation method contains any errors, I can't say.
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sophie
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Re: Modified Golden Butterfly Portfolio

Post by sophie » Fri Nov 17, 2017 6:29 am

By noticing that the PP since 1987 showed up with a 5% CAGR, which didn't seem correct, so I looked at the components individually (yes I checked I had the right #s in the right places) and gold wasn't behaving like it should. It was a strange result - can't reproduce it now but there was no bump in 2008-2010 for example.

Now I plug in the PP and get an 8.29% CAGR since 1987, which looks correct, and "gold" now looks ok.

Something weird happened. Anyway sounds like "gold" is correct, but maybe watch for this to happen again.
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Re: Modified Golden Butterfly Portfolio

Post by Tyler » Fri Nov 17, 2017 9:29 am

It's always good to question data! :)

Bugs are a part of the business, and I'm happy to hear that whatever glitch you previously ran across has been fixed. Thanks for pointing it out.
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Re: Modified Golden Butterfly Portfolio

Post by foglifter » Fri Nov 17, 2017 1:20 pm

sophie wrote:By noticing that the PP since 1987 showed up with a 5% CAGR, which didn't seem correct, so I looked at the components individually (yes I checked I had the right #s in the right places) and gold wasn't behaving like it should. It was a strange result - can't reproduce it now but there was no bump in 2008-2010 for example.

Now I plug in the PP and get an 8.29% CAGR since 1987, which looks correct, and "gold" now looks ok.

Something weird happened. Anyway sounds like "gold" is correct, but maybe watch for this to happen again.
I also compared long-term performance of "Gold" and "Precious metals" on PV and the chart for the latter looked pretty volatile. Looks like "PM" tracks miners and "gold" is gold. I'm glad we figured this out. ;)
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Re: Modified Golden Butterfly Portfolio

Post by rudiger » Sun Dec 03, 2017 11:58 am

Some minor adjustments to the mGB portfolio for 2018 and beyond:
  • International stocks are now 25% of the equity allocation (due to elevated U.S. stock valuations versus the rest of the world).
  • Long-term bonds are shorter in duration (due to historically low spread between 10-year and 30-year U.S. Treasury yields).
The mGB portfolio asset allocation:
  • 20% Large-Cap Blend or Total U.S. Stock Market
  • 10% Small-Cap Value
  • 10% International Stock Market (Ex-U.S.)
  • 10% Long-Term U.S. Treasury (20+ Years)
  • 10% Intermediate-Term U.S. Treasury (7-10 Years)
  • 20% Gold
  • 20% Cash or Short-Term U.S. Treasury
Thoughts?
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Re: Modified Golden Butterfly Portfolio

Post by rudiger » Fri Jan 12, 2018 11:59 am

Now that it's 2018, there are some fresh adjustments to the asset allocation of the modified portfolio:
  • Emerging market (EM) stocks are now 100% of the equity allocation (due to the negative outlook for U.S. and EAFE real returns until 2025).
  • Intermediate-term bonds have entirely replaced long-term bonds (due to the historically low spread in U.S. Treasury yields and the negative outlook for interest rates).
The new modified portfolio asset allocation:
  • 40% Emerging Market (EM) stocks
  • 20% Intermediate-Term U.S. Treasury (7-10 Years)
  • 20% Gold
  • 20% Cash or Short-Term U.S. Treasury
It's a bit unorthodox (huge emphasis on EM equities) but it's doing very well.
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Tyler
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Re: Modified Golden Butterfly Portfolio

Post by Tyler » Fri Jan 12, 2018 12:11 pm

Changing 50% of the portfolio in 1 months time is a big change! Just keep in mind that with that type of turnover all backtests of a static AA are pretty much pointless. I'd argue it's less of a Golden Butterfly and more of a Rudiger portfolio newsletter. ;)

(Not that there's anything wrong with that, and I'm rooting for your personal success.)
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Re: Modified Golden Butterfly Portfolio

Post by rudiger » Fri Jan 12, 2018 12:46 pm

Tyler wrote:Changing 50% of the portfolio in 1 months time is a big change! Just keep in mind that with that type of turnover all backtests of a static AA are pretty much pointless. I'd argue it's less of a Golden Butterfly and more of a Rudiger portfolio newsletter. ;)

(Not that there's anything wrong with that, and I'm rooting for your personal success.)
Point taken! This portfolio is currently in its "testing" phase, which is why the stock and bond allocations have shifted quite a bit in the first few months. Hopefully, it won't change so much in the coming years.

While this portfolio is heavily inspired by the quintessential Permanent Portfolio and the Golden Butterfly, it's actually more of a tactical approach to asset allocation than a pure "lazy" portfolio. The weights will change as the case is made for big bets on specific asset classes, usually based on a 10-year real return outlook.
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Re: Modified Golden Butterfly Portfolio

Post by ochotona » Fri Jan 12, 2018 1:07 pm

Rudiger, I agree with the EM call.
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Re: Modified Golden Butterfly Portfolio

Post by tarentola » Mon Nov 02, 2020 4:36 am

I just listened to podcast proposing a Golden Butterfly-like portfolio for Indian residents:
Ashish Shanker, head of investments at Motilal Oswal Private Wealth Management, made an argument for an equal-weight allocation to five asset classes — cash or liquid investments, debt, gold, Indian equity and U.S. equity.

Read more at: https://www.bloombergquint.com/busines ... tinkering
He suggests a 5x20% allocation, like the GB. According to him the CAGR in rupees was 13% over 30 years, with yearly rebalancing, giving a 31x increase. Lost 7% in 2008. Equal weights were as good or better than other weightings. For debt, he proposes a fund which buys Indian PSU (public sector undertaking) bonds, which essentially medium or long term.

This seems to me to be a good framework for non-US investors: split the equity allocation between US and local, and use local bonds.
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Re: Modified Golden Butterfly Portfolio

Post by Hal » Mon Nov 02, 2020 6:04 am

Thanks Tarentola,

Seems quite a reasonable approach. Modelled it over on Portfolio Charts for Japan and Australia and it had a very low Ulcer Index.
Nice find :)
Aussie GoldSmithPP - 25% PMGOLD, 75% VDCO
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Re: Modified Golden Butterfly Portfolio

Post by Hal » Mon Nov 30, 2020 3:03 am

Aussie GoldSmithPP - 25% PMGOLD, 75% VDCO
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Re: Modified Golden Butterfly Portfolio

Post by Kevin K. » Fri Jan 15, 2021 2:38 pm

Hal wrote:
Mon Nov 30, 2020 3:03 am
More Butterflies.....
https://www.youtube.com/watch?v=RsoBIJoJduo
Thanks for sharing this video.

I think it's quite good, but he substitutes Total Bond Market funds for the Treasuries (both short and long) which skews the results. He also isn't aware of why SCV was chosen to offset TSM and so just focuses kind of myopically on SCV tanking during the first 6 months of 2020 without understanding its longer-term utility.

It seems to me his proposed alternative allocations could maybe be called "GB-inspired" but they're replacements for not just tweaks of the original. I would see going 25% TSM, 15% SCV and likewise reducing the LTT's to 15% and upping the STT/Cash to 25% as hedges against realities in the stock and bond markets that are arguably long-term trends at this point (i.e. growth trouncing value due to the FAANG stocks and LTT's being rather nitrogylcerin like in their volatility due to rates being at unprecedented lows). But that's about as far as I personally would feel comfortable monkeying around while still considering it a GB iteration.

Interested as always to hear other views. And thanks for sharing such interesting things Hal!
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Re: Modified Golden Butterfly Portfolio

Post by pors » Sat Jan 16, 2021 4:40 am

tarentola wrote:
Mon Nov 02, 2020 4:36 am
This seems to me to be a good framework for non-US investors: split the equity allocation between US and local, and use local bonds.
Ah, this is what I do! I live in the Netherlands and have split the equity allocation between US and EMU stocks. And with German bonds (the best we have in Europe I think).

I wish I could backtest it with my actual ETFs and bonds, but as far as I know, there is no site that supports EU ETFs and bonds. Of course, the awesome PortfolioCharts.com can confirm the characterisitcs of this allocation.
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Re: Modified Golden Butterfly Portfolio

Post by tarentola » Fri Feb 05, 2021 7:15 am

Looking for suggestions please. I have a Euro PP which contains Euro Large Cap shares (Sanofi, Renault, VInci, Luis Vuitton etc). At the moment the PP is not far off 4x25%, being 29/20/25/26% stocks bonds gold cash.

For simplification, I am closing a small account elsewhere, and would like to use the funds there to transform my PP into a Golden Butterfly. This would result in proportions of 16 % new, 24% Euro shares, 17% bonds, 21% gold, 22% cash. By chance, this comes to 40% shares, perfect for a GB.

For more simplification, I am moving towards ETFs rather than individual shares.

I would like to take this opportunity to diversify. My question is: what ETF to buy for this 16% section of the portfolio? My preferences are more or less in this order:
- A World ETF, which would be about 60% US
- Small Cap US
- Large Cap US
- Small Cap Europe
- Emerging Markets

What do you think?
Last edited by tarentola on Fri Feb 05, 2021 9:43 am, edited 1 time in total.
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