The Golden Butterfly Portfolio is the portfolio I use. But gold is very misunderstood. For periods shorter than 20 years, gold is often a very poor inflation hedge. But when doing the math, there are two very interesting characteristics of gold. First, gold is an alternative to interest bearing money, i.e. bonds. Gold generally performs well during times when real yields (nominal yields minus inflation rate) is negative, based on the data set I have assembled going back to 1962. In other words, during times when bonds fail to perform, gold takes over bonds' role in a portfolio. Secondly, long term the gold price and stocks are moderately negatively correlated (-0.64, gold price in USD and S&P 500 going back to 1959). In order to calculate this long term correlation, you can first linearly regress both the gold price and the S&P 500 using M2 money supply (both gold and the S&P 500 are cointegrated with M2 money supply, the residuals plots confirm this) to create stationary time series. The correlation between gold and the Wilshire 5000 Price Index (a much broader stock index) provides basically the same results.
One of the most interesting video's to this portfolio! 👍
I’ve had money in this portfolio for the last couple of years and I’m very happy with it.
The Golden Butterfly Portfolio is the portfolio I use. But gold is very misunderstood. For periods shorter than 20 years, gold is often a very poor inflation hedge. But when doing the math, there are two very interesting characteristics of gold.
First, gold is an alternative to interest bearing money, i.e. bonds. Gold generally performs well during times when real yields (nominal yields minus inflation rate) is negative, based on the data set I have assembled going back to 1962. In other words, during times when bonds fail to perform, gold takes over bonds' role in a portfolio.
Secondly, long term the gold price and stocks are moderately negatively correlated (-0.64, gold price in USD and S&P 500 going back to 1959). In order to calculate this long term correlation, you can first linearly regress both the gold price and the S&P 500 using M2 money supply (both gold and the S&P 500 are cointegrated with M2 money supply, the residuals plots confirm this) to create stationary time series.
The correlation between gold and the Wilshire 5000 Price Index (a much broader stock index) provides basically the same results.
Thanks for teaching the Portfolio Charts!
Hey Jeffrey! Thanks for watching the video. Glad that even an experienced investor like you could learn something new 🤓
Is it possible to do a video of a portfolio with real estate included as an asset class
one of the most interesting videos I've seen regarding personal finance, thanks!
Hi there! Thank you so much for this wonderful comment and for watching the video. Glad to hear that you could get value out of it 🙏
How much would you allocate to bonds given the potential poorer performance of the bond market in the future?