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Success of the Golden Butterfly portfolio

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
TopOfDaMornin
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Success of the Golden Butterfly portfolio

#410252

Postby TopOfDaMornin » May 8th, 2021, 12:41 pm

The Golden Butterfly portfolio keeps coming up in my research as a portfolio that gives good returns and low volatility.

I was wondering if any reader here has used this portfolio in practice within the UK.

Examples and more details can be found here:
https://www.retirementace.co.uk/2020/04/the-golden-butterfly-portfolio.html
http://www.lazyportfolioetf.com/allocation/golden-butterfly/
https://portfoliocharts.com/portfolio/golden-butterfly/


The portfolio has the following asset allocation:
40% Stocks
40% Fixed Income
20% Commodities


In more detail:
20% Total Stock Market
20% Small Cap Value
20% Long Term Bonds
20% Short Term Bonds
20% Gold

TDM

OLTB
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Re: Success of the Golden Butterfly portfolio

#410258

Postby OLTB » May 8th, 2021, 1:06 pm

Hi TDM - I am tracking the performance of this Golden Butterfly alongside the Harry Browne Permanent Portfolio to see how it compares. I started last year and am due to report in June so I hope this is useful. The link to the thread is here and it’s looking good so far! viewtopic.php?f=56&t=23992

Cheers, OLTB.

TopOfDaMornin
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Re: Success of the Golden Butterfly portfolio

#410284

Postby TopOfDaMornin » May 8th, 2021, 2:51 pm

OLTB wrote:Hi TDM - I am tracking the performance of this Golden Butterfly alongside the Harry Browne Permanent Portfolio to see how it compares. I started last year and am due to report in June so I hope this is useful. The link to the thread is here and it’s looking good so far! viewtopic.php?f=56&t=23992

Cheers, OLTB.


Thanks.

That is very interesting.

I always wonder if systems such as Golden Butterfly or Permanent Portfolio, are that successful, why are they not adopted by standard retirement providers, such as the Vanguard Targeted Retirement fund.

TDM

GeoffF100
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Re: Success of the Golden Butterfly portfolio

#410294

Postby GeoffF100 » May 8th, 2021, 3:32 pm

TopOfDaMornin wrote:I always wonder if systems such as Golden Butterfly or Permanent Portfolio, are that successful, why are they not adopted by standard retirement providers, such as the Vanguard Targeted Retirement fund.

That should read "were that successful" not "are that successful". The future may be different, especially if lots of people use the strategy. When I strategy becomes well known, it usually stops working. Lots of these strategies were never invested in by anyone. They were identified by back testing. You will find patterns in random data, but they are not likely to be repeated in the next sequence of random data.

Arborbridge
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Re: Success of the Golden Butterfly portfolio

#410297

Postby Arborbridge » May 8th, 2021, 3:41 pm

GeoffF100 wrote:
TopOfDaMornin wrote:I always wonder if systems such as Golden Butterfly or Permanent Portfolio, are that successful, why are they not adopted by standard retirement providers, such as the Vanguard Targeted Retirement fund.

That should read "were that successful" not "are that successful". The future may be different.


Indeed. I've tried running various dummies of schemes like this and they seem to stop working as soon as one puts real capital in. They all sound excellent, and I expect in the hands of some they really are - maybe I was just not patient enough.

Add to ideas: Dogs of the Dow, and the Little Book the Beats the Market or various schemes based on TA. All very well argued and they have their adherents who swear by them too. The only scheme that has given me what I wanted has been HYP.

Arb.

1nvest
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Re: Success of the Golden Butterfly portfolio

#410316

Postby 1nvest » May 8th, 2021, 5:20 pm

The GB is simply a 20/80 stock/PP blend.

The PP is a form of 50/50 domestic/global bond type blend. For the domestic a 1 year and 20 year Gilt barbell approximates a central 10 year bond bullet. For the global 50/50 stock/gold are a barbell of two polar opposites that combine to a central global bond bullet like holding. In holding some long dated Gilts that managed to lock in historic high double digit yields for many years. In the other direction its generally better to hold shorter dated bonds, that mature sooner rather than later so that they roll into higher yielding bonds.

Gold at times has seen the Dow/Gold ratio down at near 1.0 levels (1980), indicative of low stock prices/high gold price; At other times the ratio has been as high at 40 indicative of the opposite (1999).

The PP uses bands, 25% initial weightings, rebalance when a asset declines to 15% weight or rises to 35% weight.

A PP with a brain yielded similar rewards to the GB. i.e. when the Dow/Gold was low rebalance to more like 35/15 stock/gold weightings, when Dow/Gold was high use 15/35 weightings. Ditto for bonds, when yields were high apply 15/35 1 year and 20 year weightings to short (1 year) and long (20 year) Gilts; When yields are low use 35/15 short and long dated weightings.

At more recent valuations for instance I'd put it at 20 stock/30 gold, 35 short dated/15 long dated levels, if not even more extremely tilted towards shorter dated given extremely low yields (perhaps even 50 all in a 3 year gilt ladder).

The main reason its perceived as not being widely followed is that many profit chase and will tend to adopt the PP after they've already endured large losses, and then they'll rotate back out again after strong rebounds and they see the PP as having lagged. Those that do persist with it are at ease, sleep well and understand the need to be persistent and perhaps only look at their portfolio once/year and as such don't partake in board discussions. As a example imagine how you might actually have felt between 1980 and 1999 when you repeatedly saw gold prices decline, stocks going well, so selling some shares to buy more ounces of gold? Many don't have such patience. Those that did accumulated 6 to 10 times more ounces of gold over those years, that then paid dividends in the 2000's.

IMO a good choice of Golden Butterfly for UK investors might be to hold S&P500 for the additional stock, along with FT250 as the PP stock. FT250 in US scale is small cap, and somewhat value like in US terms. With the PP you're supposed to hold your domestic market stock as the stock holdings, adding some US$ based stock outside of that add a further £ hedging element. Along with applying a PP with brain type discretionary adjustments, the rewards may prove to be satisfactory. As is and I suspect the pure PP that weights 25% into long dated Gilts may see that drag down rewards to levels where many might lose interest.

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Re: Success of the Golden Butterfly portfolio

#410318

Postby 1nvest » May 8th, 2021, 5:30 pm

GeoffF100 wrote:
TopOfDaMornin wrote:I always wonder if systems such as Golden Butterfly or Permanent Portfolio, are that successful, why are they not adopted by standard retirement providers, such as the Vanguard Targeted Retirement fund.

That should read "were that successful" not "are that successful". The future may be different, especially if lots of people use the strategy.

Harry selected the assets based on economic conditions, where each of the conditions has one of the assets tending to do well, and where the one that does do well tends to do so to levels that offsets and more the losses in the others. If stocks are down 50% one year they might rebound 100% the next (using a silly simple example) which has a average of +25%. If another does the same but counter cycle and you rebalance some of the arithmetic average is merged into annualised (actual) gains.

During declining interest rates holding long dated gilts does well. During rising interest rates cash rolls into higher yields. When real yields are positive stocks, bonds and cash do well, when real yields are negative gold tends to do well ....etc. etc.

He devised the PP as a form of 'safe inflation bond', that he suggested was appropriate for the "money you can't afford to lose". He made big money during the 1970's gold price gains, and even ran for US Presidency (I was going to use that as a basis to suggest he was no idiot, but then again nowadays only idiots seem to run for US Presidency :)).


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