Author Topic: Portfolio Charts - The Golden Butterfly  (Read 337696 times)

AdrianC

  • Handlebar Stache
  • *****
  • Posts: 1144
  • Location: Cincinnati
Re: Portfolio Charts - The Golden Butterfly
« Reply #650 on: January 09, 2020, 07:33:54 AM »
I don't have the patience, or the inclination to go through and update all my old posts with working images. If you've gotten this far, read all the text from my posts, and are still interested, there's nothing more I can say that will convince you otherwise.

Instead, I'll simply bump this thread every once in a while, with the live results. After 30 years it'll likely look just like the Permanent Portfolio looks now (losing to 100% bonds since inception), but by then I'm sure everyone will have moved on to the next hot thing, and will have long forgotten about their losses in this thread.

Starting value: $1,000,000




And with a $40,000 a year withdrawal:



Note, in both instances you would've been better off with a 60/40 stock/bond portfolio than the Golden Butterfly, but I'm keeping it simple for now.

Interest Compound doesn't post anymore. I'll try to remember to update this at the end of each year.

Portfolio Analysis Results (Sep 2015 - Dec 2019)

Portfolio 1 Final Balance $1,560,762  CAGR 10.82% (VT)
Portfolio 2 Final Balance $1,368,288  CAGR 7.50% ("Golden Butterfly")

With a $40,000 a year withdrawal (adjusted for inflation):
Portfolio 1 Final Balance $1,297,659  CAGR 6.20% (VT)
Portfolio 2 Final Balance $1,122,746  CAGR 2.71% ("Golden Butterfly")

Everything was up in 2019. Holding 20% cash hurt returns - just ask Warren Buffett.

effigy98

  • Bristles
  • ***
  • Posts: 486
Re: Portfolio Charts - The Golden Butterfly
« Reply #651 on: January 16, 2020, 12:23:26 PM »
Currently doing:

42 NTSX
20 SMMV
20 GLDM
18 EDV (some long bonds are in NTSX)

mrmoonymartian

  • Bristles
  • ***
  • Posts: 287
  • Age: 39
  • Location: Brisbane
Re: Portfolio Charts - The Golden Butterfly
« Reply #652 on: February 07, 2020, 06:18:42 AM »
Thanks so much, @Tyler! I was a bit slow and just noticed the Jan update:

https://portfoliocharts.com/2020/01/06/the-future-of-portfolio-analysis-has-more-history-than-ever/

So many possible combinations now in an easy to use grid layout. Powerful. And 6 more countries added. Bravo!

talltexan

  • Magnum Stache
  • ******
  • Posts: 4272
Re: Portfolio Charts - The Golden Butterfly
« Reply #653 on: February 07, 2020, 07:46:28 AM »
Just in time for my rebalancing week! Gonna go get me some of that yummy small cap value.

Tyler

  • Handlebar Stache
  • *****
  • Posts: 1174
Re: Portfolio Charts - The Golden Butterfly
« Reply #654 on: February 07, 2020, 09:05:38 AM »
Thanks so much, @Tyler! I was a bit slow and just noticed the Jan update:

https://portfoliocharts.com/2020/01/06/the-future-of-portfolio-analysis-has-more-history-than-ever/

So many possible combinations now in an easy to use grid layout. Powerful. And 6 more countries added. Bravo!

That last update took a lot of work, so I'm glad you like it!

I'm really excited about how it turned out and can be useful for investors all around the world. No matter what country you live in or portfolio you prefer, there's something for investors of all types.

Enjoy!  :)
« Last Edit: February 07, 2020, 01:47:15 PM by Tyler »

dragoncar

  • Walrus Stache
  • *******
  • Posts: 9478
  • Registered member
Re: Portfolio Charts - The Golden Butterfly
« Reply #655 on: February 07, 2020, 12:40:13 PM »
Thanks so much, @Tyler! I was a bit slow and just noticed the Jan update:

https://portfoliocharts.com/2020/01/06/the-future-of-portfolio-analysis-has-more-history-than-ever/

So many possible combinations now in an easy to use grid layout. Powerful. And 6 more countries added. Bravo!


k9

  • Bristles
  • ***
  • Posts: 250
  • Age: 40
Re: Portfolio Charts - The Golden Butterfly
« Reply #656 on: March 03, 2020, 03:50:45 AM »
That last update took a lot of work, so I'm glad you like it!

I'm really excited about how it turned out and can be useful for investors all around the world. No matter what country you live in or portfolio you prefer, there's something for investors of all types.

Yeah, as a French investor, I'm really enjoying this update, thanks a lot for all the good work Tyler!

effigy98

  • Bristles
  • ***
  • Posts: 486
Re: Portfolio Charts - The Golden Butterfly
« Reply #657 on: March 06, 2020, 08:41:26 AM »
Just want to give a bump for Tyler helping preserve my FI date. Thank you!

Tyler

  • Handlebar Stache
  • *****
  • Posts: 1174
Re: Portfolio Charts - The Golden Butterfly
« Reply #658 on: March 06, 2020, 01:25:26 PM »
Just want to give a bump for Tyler helping preserve my FI date. Thank you!

Youíre welcome, and Iím glad itís working for you!

One of the biggest benefits of diversifying across assets that cover different economic conditions is that your portfolio always has your back. :)
« Last Edit: March 06, 2020, 04:42:13 PM by Tyler »

hodedofome

  • Handlebar Stache
  • *****
  • Posts: 1442
  • Age: 41
  • Location: Texas
Re: Portfolio Charts - The Golden Butterfly
« Reply #659 on: March 07, 2020, 10:07:23 PM »
I do a variant of the permanent portfolio, but also overlay a trend following aspect to it so that Iím not holding an asset class while it goes down the toilet. The volatility is drastically lower (as well as returns) and so I leverage up the portfolio a bit to juice up returns.

IíM not doing any volatility weighting or anything fancy like that, just doing equal weight which is good enough for me. Been doing this for several years and itís worked out well.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 9478
  • Registered member
Re: Portfolio Charts - The Golden Butterfly
« Reply #660 on: March 09, 2020, 03:17:01 AM »
Anyone want to lock in 30 years of interest payments at 0.917% shoot me a PM

Radagast

  • Handlebar Stache
  • *****
  • Posts: 1777
  • One Does Not Simply Work Into Mordor
Re: Portfolio Charts - The Golden Butterfly
« Reply #661 on: March 09, 2020, 07:27:58 PM »
Did Craig Rowland go to 50% cash, or did Tyler convince him otherwise? I recall his saying that he had determined that owning long term treasury bonds made no sense below 1%, and if it happened he would go to cash. Anyone know if he did?

Tyler

  • Handlebar Stache
  • *****
  • Posts: 1174
Re: Portfolio Charts - The Golden Butterfly
« Reply #662 on: March 09, 2020, 10:41:23 PM »
Did Craig Rowland go to 50% cash, or did Tyler convince him otherwise? I recall his saying that he had determined that owning long term treasury bonds made no sense below 1%, and if it happened he would go to cash. Anyone know if he did?

Craig actually dropped into the Gyroscopic Investing forum the last few days. Long story short, he's still using the traditional 4x25 PP. Someone asked your exact question about bond rates dropping below 1%, and he replied that he has no better ideas and plans to rebalance as usual. He also chatted a bit about bond convexity, which is a concept I first learned from him years ago.  I'm pretty sure I don't need to convince him of anything!
« Last Edit: March 09, 2020, 11:02:46 PM by Tyler »

Radagast

  • Handlebar Stache
  • *****
  • Posts: 1777
  • One Does Not Simply Work Into Mordor
Re: Portfolio Charts - The Golden Butterfly
« Reply #663 on: March 09, 2020, 11:03:02 PM »
Did Craig Rowland go to 50% cash, or did Tyler convince him otherwise? I recall his saying that he had determined that owning long term treasury bonds made no sense below 1%, and if it happened he would go to cash. Anyone know if he did?

Craig actually dropped into the Gyroscopic Investing forum the last few days. Long story short, he's still all-in on the traditional 4x25 PP. Someone asked your exact question about bond rates dropping below 1%, and he replied that he has no better ideas and plans to rebalance as usual. He also chatted a bit about bond convexity, which is a topic I first learned from him years ago.  I'm pretty sure I don't need to convince him of anything!
Huh. It was a long time ago I read that and I canít remember the details. Maybe the bail at 1% concept assumed a floor of zero, but with an infinitely low floor which might be assumed now it now never makes sense to bail.

Tyler

  • Handlebar Stache
  • *****
  • Posts: 1174
Re: Portfolio Charts - The Golden Butterfly
« Reply #664 on: March 09, 2020, 11:44:34 PM »
Huh. It was a long time ago I read that and I canít remember the details. Maybe the bail at 1% concept assumed a floor of zero, but with an infinitely low floor which might be assumed now it now never makes sense to bail.

Regardless of one's old assumptions, watching the Permanent Portfolio gain 6% YTD while the stock market lost 15% over the same timeframe could spur a renewed appreciation for long term treasuries even at low rates. ;) Perhaps he just doesn't feel driven to fix something that ain't broken.

But I certainly can't speak for Craig, and I look forward to any future updates he does offer.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 9478
  • Registered member
Re: Portfolio Charts - The Golden Butterfly
« Reply #665 on: March 10, 2020, 03:25:17 AM »
You guys hitting some rebalancing points?  I've never really had to do it due to market movement, since I've always contributed to lagging assets, withdrew from outperforming assets, and otherwise rebalanced around January during my fiscal housecleaning.  I haven't looked closely, but it definitely looks like stuff is out of whack

Even with a long-term goal of drawing down gold/treasuries to more of a 10-20% range it looks like I should be rebalancing more aggressively out of them.
« Last Edit: March 10, 2020, 03:27:41 AM by dragoncar »

dragoncar

  • Walrus Stache
  • *******
  • Posts: 9478
  • Registered member
Re: Portfolio Charts - The Golden Butterfly
« Reply #666 on: March 18, 2020, 01:21:36 PM »
Gonna do some TLH... currently use VB for small-cap.... switch it out for VBR?  Any story for why value or growth will out/underperform going forward?

mrmoonymartian

  • Bristles
  • ***
  • Posts: 287
  • Age: 39
  • Location: Brisbane
Re: Portfolio Charts - The Golden Butterfly
« Reply #667 on: March 18, 2020, 04:13:31 PM »
Don't know about immediate term. I'm in it for the long haul, where SCV has a history of outperforming.

I'm looking at VIOV (or IJS). VBR is mid+small value, while VIOV is small value. Scroll down to the bottom right of these...

https://www.etf.com/VBR#fit
https://www.etf.com/VIOV#fit
« Last Edit: March 18, 2020, 04:15:58 PM by mrmoonymartian »

dragoncar

  • Walrus Stache
  • *******
  • Posts: 9478
  • Registered member
Re: Portfolio Charts - The Golden Butterfly
« Reply #668 on: March 18, 2020, 04:50:29 PM »
Don't know about immediate term. I'm in it for the long haul, where SCV has a history of outperforming.

I'm looking at VIOV (or IJS). VBR is mid+small value, while VIOV is small value. Scroll down to the bottom right of these...

https://www.etf.com/VBR#fit
https://www.etf.com/VIOV#fit

Ah thanks

I think value has underperformed recently so maybe there a chance return to mean

talltexan

  • Magnum Stache
  • ******
  • Posts: 4272
Re: Portfolio Charts - The Golden Butterfly
« Reply #669 on: March 18, 2020, 05:12:43 PM »
I've been adding SCV, but I started when it was still 50% higher than it is today.

vand

  • Handlebar Stache
  • *****
  • Posts: 1407
  • Location: UK
Re: Portfolio Charts - The Golden Butterfly
« Reply #670 on: May 16, 2020, 04:19:11 AM »
Crisis? What Crisis?

Not the GB, but it's daddy the Permanent Portfolio strategy has just hit new highs

Perhaps even more impressively, the strategy is 11% YoY and didn't even go YoY negative at any point in the last 12 months.

I haven't checked, but I'm guessing that the SCV component in Tyler's GB has done it no favours in the last few years as both small cap and value has been been consistent negative factors.. again a remarkable testament to the resilience of the original PP that people have tried to improve on it and even now it still has better risk adusted characteristics than just about all other multi-asset strategies.


dragoncar

  • Walrus Stache
  • *******
  • Posts: 9478
  • Registered member
Re: Portfolio Charts - The Golden Butterfly
« Reply #671 on: May 17, 2020, 01:53:39 AM »
Crisis? What Crisis?

Not the GB, but it's daddy the Permanent Portfolio strategy has just hit new highs

Perhaps even more impressively, the strategy is 11% YoY and didn't even go YoY negative at any point in the last 12 months.

I haven't checked, but I'm guessing that the SCV component in Tyler's GB has done it no favours in the last few years as both small cap and value has been been consistent negative factors.. again a remarkable testament to the resilience of the original PP that people have tried to improve on it and even now it still has better risk adusted characteristics than just about all other multi-asset strategies.



Yeah small caps have been a drag for ... a while now.  Even before COVID

Tyler

  • Handlebar Stache
  • *****
  • Posts: 1174
Re: Portfolio Charts - The Golden Butterfly
« Reply #672 on: May 17, 2020, 10:33:44 AM »
It's true that small cap value hasn't done so well lately, but the Golden Butterfly is currently up 9.5% over the last 12 months and is sitting about even YTD.  I've been very happy with it.

When you invest in several very different volatile assets for a while, you get used to at least one of them struggling at any given time.  That can be stressful at first if you're used to actively managing your investments.  But eventually you learn to focus on the portfolio as a whole, tune out the asset noise, and let the diversification do its thing.

BTW, I agree with the observation that the Permanent Portfolio is particularly good at handling steep market drawdowns.  When it comes to protecting your money it's really hard to beat.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 9478
  • Registered member
Re: Portfolio Charts - The Golden Butterfly
« Reply #673 on: May 17, 2020, 02:23:52 PM »
It's true that small cap value hasn't done so well lately, but the Golden Butterfly is currently up 9.5% over the last 12 months and is sitting about even YTD.  I've been very happy with it.

When you invest in several very different volatile assets for a while, you get used to at least one of them struggling at any given time.  That can be stressful at first if you're used to actively managing your investments.  But eventually you learn to focus on the portfolio as a whole, tune out the asset noise, and let the diversification do its thing.

BTW, I agree with the observation that the Permanent Portfolio is particularly good at handling steep market drawdowns.  When it comes to protecting your money it's really hard to beat.

Oh yeah Iím happy with it and not planning to change my AA beyond my long term plans.  I actually feel a bit lucky since my plan has been to draw down gold and treasuries and itís been pretty easy to do that during this crisis with those assets way up.  If I was drawing them down as they tanked that would be a crappy sequence of returns

DalioGold10

  • 5 O'Clock Shadow
  • *
  • Posts: 43
Re: Portfolio Charts - The Golden Butterfly
« Reply #674 on: May 18, 2020, 01:35:06 PM »
It's true that small cap value hasn't done so well lately, but the Golden Butterfly is currently up 9.5% over the last 12 months and is sitting about even YTD.  I've been very happy with it.

BTW, I agree with the observation that the Permanent Portfolio is particularly good at handling steep market drawdowns.  When it comes to protecting your money it's really hard to beat.

Hi Tyler

Great work on the golden butterfly portfolio, i.e. which is basically the PP with a tilt towards the prosperity (the most often economic environment).

As yourself, I also bear a bias towards gold (due to Dalio  :) ) and it does not disappoints us these days :)
One of my portfolios (accounting for circa 35% of my liquid net worth) is basically the golden butterfly: 40% Equity composed of 20% World large caps & 10% Developed world small caps & 10% Developed world REITs; 20% US short term treasuries; 20% US long term treasuries; 20% gold.

As you said in your previous posts, all depends on how comfortable you are with your chosen AA and if is align with your believes and markets expectations.

Cheers.

effigy98

  • Bristles
  • ***
  • Posts: 486
Re: Portfolio Charts - The Golden Butterfly
« Reply #675 on: May 31, 2020, 05:21:36 PM »
Adding volitility works in this environment as insurance. Toss in a few percent of tvix.

Sent from my Pixel 3a using Tapatalk


bacchi

  • Walrus Stache
  • *******
  • Posts: 5536
Re: Portfolio Charts - The Golden Butterfly
« Reply #676 on: May 31, 2020, 05:29:00 PM »
Adding volitility works in this environment as insurance. Toss in a few percent of tvix.

Shouldn't one buy vol BEFORE there's actually any?

effigy98

  • Bristles
  • ***
  • Posts: 486
Re: Portfolio Charts - The Golden Butterfly
« Reply #677 on: June 04, 2020, 10:45:34 AM »
Vol is really low right now. It is acting like we are in the greatest bull run ever and the economy is above perfection. Added a little more.

Sent from my Pixel 3a using Tapatalk


bacchi

  • Walrus Stache
  • *******
  • Posts: 5536
Re: Portfolio Charts - The Golden Butterfly
« Reply #678 on: June 04, 2020, 05:42:33 PM »
Vol is really low right now. It is acting like we are in the greatest bull run ever and the economy is above perfection. Added a little more.

VIX is 26 right now. Most of the time, it hangs around in the 10-20 range. During a long bull run, it drops down to the low teens, which is a great time to buy long term, out-of-money, VIX calls.

https://www.macrotrends.net/2603/vix-volatility-index-historical-chart

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 3684
Re: Portfolio Charts - The Golden Butterfly
« Reply #679 on: June 08, 2020, 03:58:52 AM »
Vol is really low right now. It is acting like we are in the greatest bull run ever and the economy is above perfection. Added a little more.
The volatility index is lower than March, but still very high compared to the past 5 years.
https://finance.yahoo.com/quote/%5EVIX/

Or look at the 6 month graph of the S&P 500: before and after the big drop in late March.  Before the drop, relatively smooth price movements.  After the drop, up/down spikes are common, showing a visual of how much more volatile the S&P 500 has been.
https://finance.yahoo.com/quote/VOO/

Currently the S&P 500 is -0.3% YTD versus GLD +10.4% YTD.

vand

  • Handlebar Stache
  • *****
  • Posts: 1407
  • Location: UK
Re: Portfolio Charts - The Golden Butterfly
« Reply #680 on: December 13, 2020, 03:51:47 AM »
This chap, evidently a fan of PortfolioCharts, has come up with The Weird Portfolio which beats even the GB in most of the key metrics..

20% US small cap value
20% international small cap
20% Long term Treasuries
20% Gold
20% Real estate


gives:

7.6% real return
4.6 ulcer index
19% max drawdown
3.3yr longest drawdown
5.4% perpetual withdrawal rate














« Last Edit: December 13, 2020, 03:55:16 AM by vand »

Imanuels

  • 5 O'Clock Shadow
  • *
  • Posts: 38
  • Location: Germany, Frankfurt
Re: Portfolio Charts - The Golden Butterfly
« Reply #681 on: December 13, 2020, 08:37:35 AM »
Data mining. Should one be comfortable (and is it rational) with holding 20% of net worth in Long term treasuries at the moment, considering the interest rates?
I'm sure many people in this forum would also have a word to say about 20% allocation to gold.

vand

  • Handlebar Stache
  • *****
  • Posts: 1407
  • Location: UK
Re: Portfolio Charts - The Golden Butterfly
« Reply #682 on: December 13, 2020, 12:23:15 PM »
Data mining. Should one be comfortable (and is it rational) with holding 20% of net worth in Long term treasuries at the moment, considering the interest rates?
I'm sure many people in this forum would also have a word to say about 20% allocation to gold.

Yes, you're of course correct. Nobody should be anything except 7 million percent US equities

bacchi

  • Walrus Stache
  • *******
  • Posts: 5536
Re: Portfolio Charts - The Golden Butterfly
« Reply #683 on: December 13, 2020, 12:26:06 PM »
Data mining. Should one be comfortable (and is it rational) with holding 20% of net worth in Long term treasuries at the moment, considering the interest rates?
I'm sure many people in this forum would also have a word to say about 20% allocation to gold.

Yes, you're of course correct. Nobody should be anything except 7 million percent US equities

Stop being so defensive. There are a lot of different allocations between the two extremes.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 9478
  • Registered member
Re: Portfolio Charts - The Golden Butterfly
« Reply #684 on: December 13, 2020, 02:30:50 PM »
Data mining. Should one be comfortable (and is it rational) with holding 20% of net worth in Long term treasuries at the moment, considering the interest rates?
I'm sure many people in this forum would also have a word to say about 20% allocation to gold.

Yes, you're of course correct. Nobody should be anything except 7 million percent US equities


Stop being so defensive. There are a lot of different allocations between the two extremes.

20% LTT is not one of those ďextremesĒ however

bacchi

  • Walrus Stache
  • *******
  • Posts: 5536
Re: Portfolio Charts - The Golden Butterfly
« Reply #685 on: December 13, 2020, 02:44:01 PM »
Data mining. Should one be comfortable (and is it rational) with holding 20% of net worth in Long term treasuries at the moment, considering the interest rates?
I'm sure many people in this forum would also have a word to say about 20% allocation to gold.

Yes, you're of course correct. Nobody should be anything except 7 million percent US equities


Stop being so defensive. There are a lot of different allocations between the two extremes.

20% LTT is not one of those ďextremesĒ however

There are a lot of different allocations between the one above and 100% (or a leveraged >100%) US equities one.


Monkey Uncle

  • Handlebar Stache
  • *****
  • Posts: 1672
  • Location: West-by-god-Virginia
Re: Portfolio Charts - The Golden Butterfly
« Reply #686 on: December 13, 2020, 05:48:55 PM »
I'm going to agree with Imanuels on this one.  The Weird Portfolio looks like a classic example of data mining.

I think diversification across a broad set of asset classes is a good thing, as it tends to reduce volatility and thus sequence of returns risk.  But when I see something that is very particular about the categories, i.e., U.S. small cap value and international small caps (instead of just some international and some small caps), gold (instead of precious metals or commodities in general), and long term treasuries (instead of just government/muni bonds or a mix of govt and corporate debt), it seems like a good indication that Mr. Weird Portfolio has merely succeeded in predicting the past, and we should have no expectation that his portfolio is going to outperform going forward.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 9478
  • Registered member
Re: Portfolio Charts - The Golden Butterfly
« Reply #687 on: December 13, 2020, 08:04:10 PM »
I'm going to agree with Imanuels on this one.  The Weird Portfolio looks like a classic example of data mining.

I think diversification across a broad set of asset classes is a good thing, as it tends to reduce volatility and thus sequence of returns risk.  But when I see something that is very particular about the categories, i.e., U.S. small cap value and international small caps (instead of just some international and some small caps), gold (instead of precious metals or commodities in general), and long term treasuries (instead of just government/muni bonds or a mix of govt and corporate debt), it seems like a good indication that Mr. Weird Portfolio has merely succeeded in predicting the past, and we should have no expectation that his portfolio is going to outperform going forward.

Agree itís likely a quirk of history but itís not that weird of a portfolio.  Itís similar to the GB or pinwheel with a couple tilts.  You could easily arrive at it organically if you felt strongly about LTT or SC outperformance

dragoncar

  • Walrus Stache
  • *******
  • Posts: 9478
  • Registered member
Re: Portfolio Charts - The Golden Butterfly
« Reply #688 on: December 13, 2020, 08:10:45 PM »


There are a lot of different allocations between the one above and 100% (or a leveraged >100%) US equities one.

Fair, I misinterpreted your post

vand

  • Handlebar Stache
  • *****
  • Posts: 1407
  • Location: UK
Re: Portfolio Charts - The Golden Butterfly
« Reply #689 on: December 14, 2020, 03:20:05 AM »
The truth is that ALL portfolio allocation decisions are an exercise in data-mining.  We see how certain portfolio mixes have behaved in the past as a guide to how they will behave going forward. That is just as true of a 100% stock portfolio as it is of the Weird Portfolio or any other portfolio.

Indeed, Tyler has said more than once that if you want to reject the statistical-fluke hypothesis, then look at the consistency of the portfolio through the heatmap. This portfolio has stood up remarkably well through whatever headwinds have been thrown its way. That is the opposite of data-mining, that is demonstrably showing that there is something about the makeup of the portfolio that allows it to withstand and do well in many different environments.


WRT some of the criticisms-in-isolation that are typically expressed, I will address some of them:

If you understand why gold and bonds behave the way they do in relation to each other - an interest-bearing asset competes against an undilutable asset - its easy to understand why gold does well in a negative real interest rate environment and struggles in a rising one. It's easy to then appreciate the logic of holding a sizeable chunk of your portfolio in gold and another sizeable chunk in bond and harvesting the volatility from the sea-saw interaction between these two asset classes as the economy goes through different phases.

Likewise, there is a perfectly good reason for tilting towards small cap and value, as those sub-classes have a record of longer term outperformance in the equities universe.

And is anyone going to protest about swapping TBills for real-estate?

They are perfectly logical allocation decisions by themselves; group them together they become even stronger than the sum of their parts.

« Last Edit: December 14, 2020, 03:28:05 AM by vand »

Steeze

  • Pencil Stache
  • ****
  • Posts: 913
  • Age: 33
  • Location: NYC Area of Earth
Re: Portfolio Charts - The Golden Butterfly
« Reply #690 on: December 14, 2020, 05:04:18 AM »
The important thing about the GB portfolio, permanent, or pinwheel is that they are going to be OK in just about any situation going forward, maybe not the best, but predictable performance.

There are a few portfolios that outperform looking backward, they rely on the conditions of the past - the data mining is definitely a factor, as is evident by the large SCV allocation in this one I found earlier this year:

« Last Edit: December 14, 2020, 05:10:06 AM by Steeze »

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 2882
Re: Portfolio Charts - The Golden Butterfly
« Reply #691 on: December 14, 2020, 08:31:45 PM »
No backtest is going to simulate our present/future, where:

1) Bonds have negative real yields and no significant upside potential even in a flight to safety scenario, and
2) The S&P 500 has a CAPE and PE in the mid-30's, or an earnings yield of around 3%, and
3) Demographic graying in all industrialized countries is accelerating, with slowing population growth in the US, and
4) US economic dominance is usurped by China, and
5) The copper:gold ratio suggests gold is waaaay overbought as it was around 2013 (1), and 
6) US GDP growth is slowing decade after decade (2), and
7) The slightest increase in inflation would set off a panic and financial crisis in the bond markets many times bigger than 2008, because the convexity is crazy at these near-zero yields (3).

These factors have never all converged at once. Assets like stocks, bonds, and gold could now be correlated in ways they were not before, for example if inflation spikes even a tiny bit they'll both crash. AND such an event could in theory harm gold in the long term by raising interest rates. When the Fed figured out QE/QT over the past decade, we transitioned from a boom/bust economy to an everything bubble. 

1) https://www.longtermtrends.net/copper-gold-ratio/
2) https://www.brookings.edu/wp-content/uploads/2016/07/tt20-united-states-economic-growth-gordon.pdf
3) https://www.investopedia.com/terms/c/convexity.asp

Radagast

  • Handlebar Stache
  • *****
  • Posts: 1777
  • One Does Not Simply Work Into Mordor
Re: Portfolio Charts - The Golden Butterfly
« Reply #692 on: December 14, 2020, 08:47:56 PM »
The weird portfolio meets my basic criteria:
More than 50% stock: check
Not more than 50% US stock: check
In range of 10-40% bonds: check
2:1 US:International Stock: (moderate home bias): check
Contains a real asset: check

I have no expectation it will be the best going forward, but I doubt it will be worst. To the criticism that bonds and gold are over priced: well small cap value and international have been doing not so well the past few years / couple decades. I admit it has more gold and long term bonds than I would like by 5-10%.

vand

  • Handlebar Stache
  • *****
  • Posts: 1407
  • Location: UK
Re: Portfolio Charts - The Golden Butterfly
« Reply #693 on: December 15, 2020, 02:23:21 AM »
No backtest is going to simulate our present/future, where:

1) Bonds have negative real yields and no significant upside potential even in a flight to safety scenario, and
2) The S&P 500 has a CAPE and PE in the mid-30's, or an earnings yield of around 3%, and
3) Demographic graying in all industrialized countries is accelerating, with slowing population growth in the US, and
4) US economic dominance is usurped by China, and
5) The copper:gold ratio suggests gold is waaaay overbought as it was around 2013 (1), and 
6) US GDP growth is slowing decade after decade (2), and
7) The slightest increase in inflation would set off a panic and financial crisis in the bond markets many times bigger than 2008, because the convexity is crazy at these near-zero yields (3).

These factors have never all converged at once. Assets like stocks, bonds, and gold could now be correlated in ways they were not before, for example if inflation spikes even a tiny bit they'll both crash. AND such an event could in theory harm gold in the long term by raising interest rates. When the Fed figured out QE/QT over the past decade, we transitioned from a boom/bust economy to an everything bubble. 

1) https://www.longtermtrends.net/copper-gold-ratio/
2) https://www.brookings.edu/wp-content/uploads/2016/07/tt20-united-states-economic-growth-gordon.pdf
3) https://www.investopedia.com/terms/c/convexity.asp


Holding real assets and international stocks diversifies you away from the both the tepid low growth developed economies and the expensive liquidity-driven bubble that has formed in USD denominated paper assets.

I get where you are coming from though. Global liquidity means all the low hanging fruit has disappeared and it's difficult to see what is going to drive portfolios higher. IMO that makes it even more important to be well diversified to give yourself a better chance of holding something that is going to drive your portfolio returns. 

People that make the argument for index funds being driven mostly by a small handful of companies, the same principle can be applied to a multi-asset portfolio. Hold a bit of everything, because you don't know what is going to drive returns going forward. This is the strategy that Andrew Craig laid out in his book "How To Own The World" (recommended reading).
« Last Edit: December 15, 2020, 02:25:42 AM by vand »

Buffaloski Boris

  • Handlebar Stache
  • *****
  • Posts: 2131
Re: Portfolio Charts - The Golden Butterfly
« Reply #694 on: December 15, 2020, 04:45:07 AM »
No backtest is going to simulate our present/future, where:

1) Bonds have negative real yields and no significant upside potential even in a flight to safety scenario, and
2) The S&P 500 has a CAPE and PE in the mid-30's, or an earnings yield of around 3%, and
3) Demographic graying in all industrialized countries is accelerating, with slowing population growth in the US, and
4) US economic dominance is usurped by China, and
5) The copper:gold ratio suggests gold is waaaay overbought as it was around 2013 (1), and 
6) US GDP growth is slowing decade after decade (2), and
7) The slightest increase in inflation would set off a panic and financial crisis in the bond markets many times bigger than 2008, because the convexity is crazy at these near-zero yields (3).

These factors have never all converged at once. Assets like stocks, bonds, and gold could now be correlated in ways they were not before, for example if inflation spikes even a tiny bit they'll both crash. AND such an event could in theory harm gold in the long term by raising interest rates. When the Fed figured out QE/QT over the past decade, we transitioned from a boom/bust economy to an everything bubble. 

1) https://www.longtermtrends.net/copper-gold-ratio/
2) https://www.brookings.edu/wp-content/uploads/2016/07/tt20-united-states-economic-growth-gordon.pdf
3) https://www.investopedia.com/terms/c/convexity.asp

Traditional passive investments might, just might, not be as attractive as they've been in the last 40 years. In the long run it's a case of TANSTAAFL. This has been something that's been occupying my mind a lot these days.  I do see some rather extraordinary opportunities but they aren't in the passive space.   

effigy98

  • Bristles
  • ***
  • Posts: 486
Re: Portfolio Charts - The Golden Butterfly
« Reply #695 on: December 22, 2020, 11:02:50 PM »
If you want to lower your risk of bonds but still have the upside... Use NTSX. It is also very tax efficient if you do this in taxable.

I also use TMF in tax advantage as plunge protection as I can have a smaller dollar number at a 2.3x ratio of TLT and use the left over money for more stock. I have also added a small portion of VXX for big spikes down as LTT did not buffer the big drop in March as much as I would like.

There are STRONG arguments for both deflation and inflation all over the macro space. I personally rather hedge both ways using a GB like portfolio and sleep at night. Having less upside is a fair trade. It is hard to believe we could see bonds go higher right now, but there are strong cases for it. Steve Van Metre is probably the best authority on this probability. Check him out on youtube before you discount the value of long term treasuries going forward.
« Last Edit: December 22, 2020, 11:10:22 PM by effigy98 »

AdrianC

  • Handlebar Stache
  • *****
  • Posts: 1144
  • Location: Cincinnati
Re: Portfolio Charts - The Golden Butterfly
« Reply #696 on: February 01, 2021, 04:34:26 PM »
I don't have the patience, or the inclination to go through and update all my old posts with working images. If you've gotten this far, read all the text from my posts, and are still interested, there's nothing more I can say that will convince you otherwise.

Instead, I'll simply bump this thread every once in a while, with the live results. After 30 years it'll likely look just like the Permanent Portfolio looks now (losing to 100% bonds since inception), but by then I'm sure everyone will have moved on to the next hot thing, and will have long forgotten about their losses in this thread.

Starting value: $1,000,000




And with a $40,000 a year withdrawal:



Note, in both instances you would've been better off with a 60/40 stock/bond portfolio than the Golden Butterfly, but I'm keeping it simple for now.

Interest Compound doesn't post anymore. I'll try to remember to update this at the end of each year.

Portfolio Analysis Results (Sep 2015 - Dec 2019)

Portfolio 1 Final Balance $1,560,762  CAGR 10.82% (VT)
Portfolio 2 Final Balance $1,368,288  CAGR 7.50% ("Golden Butterfly")

With a $40,000 a year withdrawal (adjusted for inflation):
Portfolio 1 Final Balance $1,297,659  CAGR 6.20% (VT)
Portfolio 2 Final Balance $1,122,746  CAGR 2.71% ("Golden Butterfly")

Everything was up in 2019. Holding 20% cash hurt returns - just ask Warren Buffett.

Portfolio Analysis Results (Sep 2015 - Dec 2020)

Portfolio 1 Final Balance $1,819,968  CAGR 11.88% (VT)
Portfolio 2 Final Balance $1,563,302  CAGR 8.74% ("Golden Butterfly")

With a $40,000 a year withdrawal (adjusted for inflation):
Portfolio 1 Final Balance $1,469,497  CAGR 7.48% (VT)
Portfolio 2 Final Balance $1,239,094  CAGR 4.10% ("Golden Butterfly")

2020 was a wild ride for VT, with a drawdown of 22%.
The Butterfly had a drawdown of only 7%. A much smoother ride, but lower returns.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 9478
  • Registered member
Re: Portfolio Charts - The Golden Butterfly
« Reply #697 on: February 02, 2021, 12:50:55 AM »

The Butterfly had a drawdown of only 7%. A much smoother ride, but lower returns.

What's the thesis here again?  That GB is going to lose to bonds in the long run?  Seems like the smooth ride it the entire point.

I do like VT as a dead simple option

Monkey Uncle

  • Handlebar Stache
  • *****
  • Posts: 1672
  • Location: West-by-god-Virginia
Re: Portfolio Charts - The Golden Butterfly
« Reply #698 on: February 02, 2021, 05:06:48 AM »
The metric of interest should be maximum SWR.  CAGR and final portfolio value don't tell you how much you can withdraw every year; i.e., your standard of living in retirement.

AdrianC

  • Handlebar Stache
  • *****
  • Posts: 1144
  • Location: Cincinnati
Re: Portfolio Charts - The Golden Butterfly
« Reply #699 on: February 02, 2021, 06:34:55 AM »
What's the thesis here again?  That GB is going to lose to bonds in the long run?  Seems like the smooth ride it the entire point.
Interest_Compound's thesis is stated above: "After 30 years it'll likely look just like the Permanent Portfolio looks now (losing to 100% bonds since inception)..."

I'm interested in tracking this, and here is a good place to do it.