Golden Butterfly Portfolio Review and ETF Pies for M1 Finance
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- čas přidán 16. 07. 2024
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The Golden Butterfly Portfolio is a medium-risk portfolio similar to Ray Dalio’s All Weather Portfolio. Here we’ll look at its components and the best ETF’s to use in its construction.
// TIMESTAMPS:
00:00 - Intro
00:20 - What Is the Golden Butterfly Portfolio?
02:44 - Golden Butterfly Portfolio vs. Permanent Portfolio
03:47 - Golden Butterfly Portfolio vs. All Weather Portfolio
05:19 - Golden Butterfly Portfolio ETF’s for M1 Finance
05:57 - Taking the Golden Butterfly Portfolio International
06:23 - Modified Golden Butterfly Portfolio
07:30 - Leveraged Golden Butterfly Portfolio
09:35 - Disclosure
10:06 - Disclaimer
10:37 - Outro
// PARTIAL TRANSCRIPT:
The Golden Butterfly Portfolio is essentially a modified version of the Permanent Portfolio. It was designed by Tyler of PortfolioCharts.com. Its asset allocation looks like this:
- 20% Total US Stock Market
- 20% US Small Cap Value
- 20% Long-Term Treasury Bonds
- 20% Short-Term Treasury Bonds
- 20% Gold
The only real point of contention in my opinion is the heavy allocation to gold. I’m personally not a big fan of gold. It has a nonnegative correlation to stocks, albeit low/small, is much more volatile than bonds, is not a value-producing asset (i.e. it has a real expected return of zero), and has not been a reliable inflation hedge historically.
I would argue that in a long-term investment portfolio with an investment horizon of 20+ years, holding gold only creates an opportunity cost where you could have held something else in its place. That said, I’ll concede that it may offer a short-term diversification benefit and the metal does seem to reliably hedge against currency devaluation, making for safer withdrawal rates in retirement, so adopting the Golden Butterfly Portfolio may very well be a prudent move at or near retirement, or for a risk-averse investor who wants to cover all bases for all environments to minimize volatility and risk.
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Nice video. subscribed.
Thanks, Daniel!
Great video
Thanks for watching!
Hey I enjoy your site and your videos. One thing I’ve been curious about and haven’t been able to wrap my head around: In the golden butterfly and Dalio’s all-weather portfolios, why not utilize TIPS to some degree? I believe Dalio himself is an advocate of TIPS, yet I never see these integrated as part of the bond allocation and I would think a small allocation of the bond mix would provide additional stability. Would you have any insight on this?
Thanks! Glad you've found them useful. I agree. That's the thought behind them in the "Modified Golden Butterfly." I'd probably use TIPS over gold in most cases. Really not sure why they're not more popular. My guess would be they're A) more complex and less "approachable" for the average DIY retail investor, and/or B) they're a relatively new product.
Can you make a video on the All Weather Portfolio as well as your insights into utilities
It's in the queue!
I like your modified all-weather with utilities. For a medium-risk portfolio that will be completely invested in a taxable account, how would you allocate that for yourself?
Depends on time horizon.
@@OptimizedPortfolio 10-12 years
@@tomsettles6873 I'd keep it simple with something like 50/40/10 VOO/VGIT/AVUV
@@OptimizedPortfolio Thanks much
@@OptimizedPortfolio What is your rationale for medium term treasuries (VGT) vs long term treasuries (TLT) ?
I liked your video a lot and found it to be very informative. Can you just explain how you think TIPS and REITS make up for a good replacement of GOLD? TIPS have not performed historically per their namesake (i.e. they don't have the best correlation to the CPI). Gold has proven it's position historically as an inflation hedge better in my view than TIPS, whether that will hold in the future I'm not sure. Additionally, why would REITS be a good replacement? While RE is a physical asset that appreciates or at least maintains value (in general) over time, it is essentially another stock sector. When I built my GBP, I realized that if I dropped my share of Gold to accommodate more REITS, then my entire portfolio had REITS is it's largest sector allocation above Fin, Tech, Telecom, Cons Stap, Cons. Disc, Energy etc. This is because any stock market index fund; whether small, mid or large cap,..international or US will always have a decent percentage in REITS. If your adding more above and beyond, you maybe losing out on the diversification factor of your portfolio, but maybe REITS characteristics are different enough to warrant them being your largest sector type. It just doesn't seem right to me. I don't know. What do you think?
Thanks! TIPS are still at least a more direct hedge for unexpected, rapid inflation. Gold has not been a reliable inflation hedge historically: papers.ssrn.com/sol3/papers.cfm?abstract_id=2078535
REITs tend to do well during inflationary periods. Their market weight is only about 4%.
But I don't worry about it too much. I think the Fed and U.S. monetary policy are fundamentally different since the Volcker era, likely allowing us to altogether avoid hyperinflationary environments like the late 1970’s going forward.
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@8:36 Golden Butterfly Portfolio
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Has anyone ever thought of creating their own ETF based on the golden butterfly?
Possibly, but one doesn't exist. The fee would likely outweigh the convenience benefit, and it probably wouldn't attract assets, as buying 5 funds is easy enough for anyone to do.
its not a modified golden butterfly if there is no gold!
Hah, good point!
Ray Dalio recently (11/2020) said to avoid bonds and cash at this time...
I think he meant as an investment in isolation IIRC, and he noted that bonds MAY not provide the protection they once did so we should seek other diversifiers too.
Interest rates are likely to stay low for a while. Also, there’s no reason to expect interest rates to rise just because they are low. They have gradually declined for the last 700 years without reversion to the mean.
Bonds still offer the lowest correlation to stocks of any asset, meaning they're still the best diversifier to hold alongside stocks. If asset correlations begin to shift, I may change my tune.
Arguably more importantly, there's no reason to fear bonds at low, zero, or even negative rates as long as your avg. bond maturity is slightly less than your time horizon, over which it should return its par value plus interest. Moreover, bond convexity means the asymmetry of bond risk/return favors the upside.
I acknowledge that post-Volcker monetary policy, resulting in falling interest rates, has driven the particularly stellar returns of the raging bond bull market since 1982, but I also think the Fed and U.S. monetary policy are fundamentally different since the Volcker era, likely allowing us to altogether avoid hyperinflationary environments like the late 1970’s going forward.
Dalio tends to be a bit more agnostic - for better or worse - in his outlook on monetary policy.
@@OptimizedPortfolio thanks for the thoughtful response.. I did recently buy some TIPS and gold to diversify my stock funds.
@@steveng8727 Excellent!
No need for international in the golden butterfly. According to Tyler the creator, lol. A Japanese investor using all domestic equities in the golden butterfly has done fine.
Indeed, but "fine" is relative and subjective. Most people are generally attempting to optimize for total return, or in some cases risk-adjusted return.
We obviously get plenty of diversification across asset types with the Golden Butterfly, but within equities themselves, it's usually probably not wise to put home country bias at 100%. Granted, it's not going to make or break the portfolio in this case.
During the period 1970 to 2008, an equity portfolio of 80% U.S. stocks and 20% international stocks had higher general and risk-adjusted returns than a 100% U.S. stock portfolio. I choose to allocate 20% to international stocks in my own portfolio.
REITs and tips are not as good at diversifying against both stocks and bonds as gold is. Tips are highly correlated to us treasuries.
Depends on the purpose of holding the asset. Gold, while typically uncorrelated to both stocks and bonds, has an expected real return of zero and has not been a reliable inflation hedge historically. TIPS are directly linked to inflation.