Golden Butterfly Portfolio

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 Its asset allocation looks like this:

ETF: VTI U.S. Market20%
ETF: VBR Small Cap Value20%
ETF: BND Mid Term Bond20%
ETF: Long Term Bond 20%
ETF: Gold20%

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.

Get started with Boglehead portfolio management for free at AssetRise