The Golden Butterfly Portfolio in 2021

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Over the course of many years, the market is going to have its fair share of ups and downs, bear markets and bull markets, crashes and runs. There are lots of individuals who are looking for a portfolio that will perform well in all conditions because people do not have time to sit in front of their computers all day, executing trade after trade. That is where the Golden Butterfly Portfolio could be helpful. The Golden Butterfly Portfolio is similar to the All Weather Portfolio from Ray Dalio, which has been specifically designed to provide decent returns in just about any market.

The Golden Butterfly Portfolio is a modified version of the Permanent Portfolio with one additional asset class. The Golden Butterfly Portfolio is as follows:

  • 20 percent total US Stock Market
  • 20 percent US Small Cap Value
  • 20 percent Long-Term Treasury Bonds
  • 20 percent Short-Term Treasury Bonds
  • 20 percent Gold

In order to develop a portfolio that will work well in just about any market, there are two main ingredients you need, which are:

  • Diversification, which means spreading your investment dollars out among various asset classes so that you aren’t putting your eggs in one basket
  • Risk-weighted return, which defines how much money you have made relative to the amount of risk you have taken on

So, how does the Golden Butterfly Portfolio do in these areas? Is this right for you?

What Is Included in the Golden Butterfly Portfolio?

The Golden Butterfly Portfolio makes a small shift when compared to the All Weather Portfolio, made famous by Dalio. While Dalio is a bit agnostic or ambivalent when it comes to the stock market in his All Weather Portfolio, the Golden Butterfly Portfolio is skewed a bit more toward the stock market. There have been more times of economic growth than times of stagnation or recession, which is why most people still use the stock market to generate their retirement returns. The portfolio seeks to take advantage of this fact, with the Golden Butterfly Portfolio targeting large-cap equities and small-cap values in the stock market.

Are the Assets in the Golden Butterfly Portfolio Good Investments?

Again, the main assets in the Golden Butterfly Portfolio include large-cap equities, small-cap values, long-term treasury bonds, short-term treasury bonds, and gold. Many of the assets included in this investment portfolio appear to go against traditional investing advice. There aren’t a lot of personal finance advisers recommending that people invest in gold as a long-term strategy; however, it is difficult to argue with the results.

Overall, the volatility of the Golden Butterfly Portfolio is significantly lower than that of a 100 percent stock portfolio. It has lower dips and provides returns that are only slightly less than conventional stock market portfolios.  

Some have back-tested the portfolio and found that the average annual return of the Golden Butterfly Portfolio was close to 8 percent while the deepest drawdown, which took place in 2008, was just under 11 percent. What are the benefits and drawbacks of the Golden Butterfly Portfolio?

The Benefits of the Golden Butterfly Portfolio: The Pros

If you decide to go with the Golden Butterfly Portfolio, there are a few main benefits you will enjoy. They include:

  • The portfolio is not nearly as volatile as a portfolio that is 100 percent skewed toward stocks
  • The portfolio allows you to reduce your expense ratio by targeting gold and bonds, which have lower expense ratios than traditional stocks
  • If you need to access your money, the Golden Butterfly Portfolio optimizes your safe withdrawal rate, which means you can withdraw more of your money without worrying about running out of it down the road
  • You will still enjoy a return that is close to that of the traditional stock market
  • You have gold in your portfolio, which works as a great hedge against inflation

These are just a few of the major benefits you will enjoy if you decide to go with the Golden Butterfly Portfolio.

The Drawbacks of the Golden Butterfly Portfolio: The Cons

On the other hand, there are still a few drawbacks of the Golden Butterfly Portfolio as well, including:

  • When the market is doing well, gold is going to drop in value, holding back your portfolio
  • It doesn’t provide as great of a return as a portfolio that is 100 percent invested in the stock market
  • At current rates, short-term treasuries are not going to provide an excellent yield on your investment dollars
  • Long-term treasuries are at risk of losing significant value in the future
  • The portfolio still saw a massive dip in 2008, so it doesn’t completely shield you from a bear market

With all of this being said, the Golden Butterfly Portfolio is still gaining traction as a popular investment strategy for those who would like to set it and forget it.

How Is the Golden Butterfly Portfolio Different from the All Weather Portfolio?

Some people might be wondering how the Golden Butterfly Portfolio is different from the all-weather portfolio, as both are designed to make money in every market condition. The All Weather Portfolio is as follows:

  • 30 percent US Stock Market
  • 40 percent Long-Term Treasuries
  • 15 percent Intermediate-Term Treasuries
  • 7.5 percent Gold
  • 7.5 percent Diversified Commodities

There are a few differences between this portfolio and the Golden Butterfly Portfolio, as the Golden Butterfly Portfolio has more gold in the portfolio and a greater exposure to the stock market. No matter when you decide to start investing, you can make money with each option.


The composition is as follows. We can recreate the portfolio using low-cost ETFs.

  • 20 percent total US Stock Market
  • 20 percent US Small Cap Value
  • 20 percent Long-Term Treasury Bonds
  • 20 percent Short-Term Treasury Bonds
  • 20 percent Gold
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Historical Performance vs. S&P500

Let’s compare The Golden Butterfly’s performance to the S&P 500. To make it simpler we will compare it to the SPY ETF. Here are the results starting from 2005.

As we can see, the portfolio has handled 2008 crisis much better than the S&P500. In fact, the portfolio has outperformed the S&P for the following 6 years.

Breakdown of performance during 2008 crisis.

During the 2008 period, the S&P dropped a whopping -36.81%. 

To understand how exactly has the Golden Butterfly outperformed S&P500, let’s break down the return by each ETF by month. I want to specifically highlight October to December, as all other months were quite unremarkable.

YearMonthiShares S&P Small-Cap 600 Value ETF (IJS)Vanguard Total Stock Market ETF (VTI)iShares 1-3 Year Treasury Bond ETF (SHY)iShares 20+ Year Treasury Bond ETF (TLT)SPDR Gold Shares (GLD)

The reason the Golden Butterfly portfolio outperformed during a crisis is the same reason it underperformed vs. the S&P500 during the last three years when there was a boom in stocks. The portfolio doesn’t have a large enough exposure to stocks. Bonds exposure is the reason why the volatility is lower than the S&P but also why returns are lower on a long enough timeline.

Here is the breakdown of returns by ETF. The returns are double for stocks compared to bonds but thanks to those bonds during difficult times it helped reduce portfolio risk.

Performance vs. Volatility

To illustrate this point further, let’s take a look at CAGR vs. Standard Deviation of Golden Butterfly and the S&P 500 (SPY ETF).

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By simply buying the S&P historically you would have gained under 3% point better performance but with double the volatility. The worst year for SPY was a 36% loss while for the All weather portfolio it was only 4.18%. 

Asset Breakdown

Asset types we buy when we purchase this portfolio:

Combined, it is a very simple allocation. 40% bonds, 40% stocks and 20% gold.

Stock sectors we buy into when we purchase this portfolio:


Fees and Risks

This portfolio is constructed using ETFs that you can see under composition section. ETFs are professionally managed and carry a fee called MERs. This fee is part of your return so it is not charged separately. Here is the breakdown of the fees.

Gold (GLD) is the most expensive on the list with 0.40% but with VTI being at only 0.03% and low weight in gold the overall cost of the portfolio is just 0.18%.

Any investment carries some risk of loss. Risk is captured by portfolio’s volatility.  Here is the summary of how much each ETF contributes to portfolio’s volatility as a % of total. 

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Notes on results:

Performance analysis is not of the exact portfolio offered by a 3rd party service. For back testing purposes, portfolios are reconstructed using best available information. 

Past performance is no guarantee of future results, which may vary. Please see our terms of use.

Investing involves risk, including possible loss of principal. The value of the investments and the income derived from them may fluctuate over time.

All portfolio returns presented are hypothetical and backtested. Hypothetical returns do not reflect trading costs, transaction fees, or taxes.

The results are based on information from a variety of sources we consider reliable, but we do not represent that the information is accurate or complete.

The results do not constitute investment advice or recommendation, are provided solely for informational purposes, and are not an offer to buy or sell any securities.

The results are based on the total return of assets and assume that all received dividends and distributions are reinvested.

CAGR = Compound Annual Growth Rate

Stdev = Annualized standard deviation of monthly returns

The results assume annual rebalancing of portfolio assets to match the specified allocation