What Is the Golden Butterfly Portfolio?
The Golden Butterfly Portfolio is essentially a modified version of the Permanent Portfolio. It was designed by Tyler of Portfolio Charts.com. Its asset allocation looks like this:
| ETF: VTI U.S. Market | 20% |
| ETF: VBR Small Cap Value | 20% |
| ETF: BND Mid Term Bond | 20% |
| ETF: Long Term Bond | 20% |
| ETF: Gold | 20% |
Tyler maintains that the Golden Butterfly Portfolio “goes against conventional investing wisdom.” I wouldn’t really go that far. We know that Small Cap Value has historically paid a risk premium and gets us exposure to the Size and Value factors, small- and mid-caps have beaten large-caps historically, short-term treasury bonds are a cash equivalent, and long-term treasury bonds tend to be the best diversifier to hold alongside stocks (and thus are usually a very good hedge/insurance for a stock crash).
The inclusion of gold in the portfolio is a point of contention. While gold is typically uncorrelated to both stocks and bonds, offering a diversification benefit to lower the portfolio’s volatility and risk, it is much more volatile than bonds, is not a value-producing asset, and has not been a reliable inflation hedge historically. However, the Golden Butterfly Portfolio is still considered one of the best risk-adjusted portfolios out there.
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