Triad: An alternative to PP & Golden Butterfly
Posted: Fri Oct 08, 2021 9:40 pm
Portfolio strategies like the Permanent Portfolio and Golden Butterfly are well respected, deservedly so - they have good returns with superior [to the market] risk profiles. And while a person may favor the low maintenance once a year rebalancing of these type of strategies, some of us don't mind taking a few minutes at the end of the month to make any potential change of investments for better returns and a better risk profile. How much better? See below.
Triad is a strategy that I came up with for a conservative investor who is likely going to be let down by a 60/40 going forward. I understand bond convexity somewhat, but have a hard time seeing bonds performing nearly as well over the next 40 years as they have in the previous 40 years and this could be a major problem for a lot of investors who use a 60/40 or allocations like the Permanent Portfolio and Golden Butterfly.
I ran some comparisons with some key metrics comparing Triad, Permanent Portfolio, Golden Butterfly, and the S&P 500. The starting date is November 1991, not an artibraty date, I used PortfolioVisualizer to get the results for the PP, GB, and 500, and using the following funds I was able to get results back to November 1991.
Permanent Portfolio: 25% VFINX, 25% ^GOLD, 25% VUSTX, 25% VFISX
Golden Butterfly: 20% VFINX, 20% NAESX, 20% GOLD, 20% VUSTX, 20% VFISX
S&P 500: The PortfolioVisualizer "Vanguard 500 Index" benchmark
Triad: up to 1/3 into IWB, up to 1/3 into IWS, up to 1/6 into SGOL, all uninvested amounts into the best of VCSH, VGSH, or VGIT. An undisclosed performance measure determines if the allocations are invested in the equities and gold, or if they park into the bonds. On average there is a change of investment every 2 months, however, the majority of gains are realized in the form of long term gains.
Here are the metrics for the 4 investments over just shy of 30 year time period, I have Triad results from 1980 forward using extended data - funds like IWB and IWS weren't available long term, but used the indexes they were based on from forum member D1984.
Total Returns & CAGR: no taxes, slippage, etc taken into account. Triad was designed as an alternative to a 60/40 approach, but actually has higher Total Return, and CAGR, not only over the Permanent Portfolio and the Golden Butterfly, but even higher than the Vanguard 500 too.
Sortino Ratio: Sortino is a common risk adjusted performance measure used to compare different investment strategies, it doesn't penalize upside volatility like the Sharpe Ratio, only downside volatility. The higher the Sortino Ratio the better. I am a little surprised to see the Permanent Portfolio come ahead of the Golden Butterfly in this ratio, not surprised by the bad Sortino for the S&P. Triad comes in far higher in this regard - a benefit of a non-static allocation and a good lookback methodology for determining when to be risk on and when risk off.
MaxDD: The maximum drawdown, at month end, not mid-month. Once again, I am a little surprised here that Golden Butterfly has a slightly higher MaxDD than does the Permanent Portfolio, maybe it's the more volatile small cap allocation at work? The S&P 500 has a huge drawdown, no surprise. One this time period Triad has the smallest MaxDD.
Ulcer Index: This is a pain index, downward volatility can be ulcerous, as measured here, the lower the number the less downward volatile. Permanent Portfolio is the king here for this time period, Triad very close behind, Golden Butterfly next and also pretty close, however, the S&P has a horrendous Ulcer Index rating far in excess of the others.
Gain to Pain: This is Market Wizard Jack Schwager's metric, it is the cumulative net gain divided by the sum of all the negative months. Gain (net gains) / Pain (negative months). I have come to rather like this metric when also used in conjunction with CAGR, MaxDD, and Ulcer Index. We can see that Triad soars above the other investments in the Gain to Pain metric, and they say you can't time the market... Great long term returns - check, lower maximum drawdowns - check, very low ulcer rating - check, superior Gain to Pain - check.
Logarithmic chart of the returns:
click on the chart for full size
Triad FactSheet:
click on the chart for full size
For my monthly investing deck covering Triad and all the strategies, they are posted on the website.
Triad is a strategy that I came up with for a conservative investor who is likely going to be let down by a 60/40 going forward. I understand bond convexity somewhat, but have a hard time seeing bonds performing nearly as well over the next 40 years as they have in the previous 40 years and this could be a major problem for a lot of investors who use a 60/40 or allocations like the Permanent Portfolio and Golden Butterfly.
I ran some comparisons with some key metrics comparing Triad, Permanent Portfolio, Golden Butterfly, and the S&P 500. The starting date is November 1991, not an artibraty date, I used PortfolioVisualizer to get the results for the PP, GB, and 500, and using the following funds I was able to get results back to November 1991.
Permanent Portfolio: 25% VFINX, 25% ^GOLD, 25% VUSTX, 25% VFISX
Golden Butterfly: 20% VFINX, 20% NAESX, 20% GOLD, 20% VUSTX, 20% VFISX
S&P 500: The PortfolioVisualizer "Vanguard 500 Index" benchmark
Triad: up to 1/3 into IWB, up to 1/3 into IWS, up to 1/6 into SGOL, all uninvested amounts into the best of VCSH, VGSH, or VGIT. An undisclosed performance measure determines if the allocations are invested in the equities and gold, or if they park into the bonds. On average there is a change of investment every 2 months, however, the majority of gains are realized in the form of long term gains.
Here are the metrics for the 4 investments over just shy of 30 year time period, I have Triad results from 1980 forward using extended data - funds like IWB and IWS weren't available long term, but used the indexes they were based on from forum member D1984.
Total Returns & CAGR: no taxes, slippage, etc taken into account. Triad was designed as an alternative to a 60/40 approach, but actually has higher Total Return, and CAGR, not only over the Permanent Portfolio and the Golden Butterfly, but even higher than the Vanguard 500 too.
Sortino Ratio: Sortino is a common risk adjusted performance measure used to compare different investment strategies, it doesn't penalize upside volatility like the Sharpe Ratio, only downside volatility. The higher the Sortino Ratio the better. I am a little surprised to see the Permanent Portfolio come ahead of the Golden Butterfly in this ratio, not surprised by the bad Sortino for the S&P. Triad comes in far higher in this regard - a benefit of a non-static allocation and a good lookback methodology for determining when to be risk on and when risk off.
MaxDD: The maximum drawdown, at month end, not mid-month. Once again, I am a little surprised here that Golden Butterfly has a slightly higher MaxDD than does the Permanent Portfolio, maybe it's the more volatile small cap allocation at work? The S&P 500 has a huge drawdown, no surprise. One this time period Triad has the smallest MaxDD.
Ulcer Index: This is a pain index, downward volatility can be ulcerous, as measured here, the lower the number the less downward volatile. Permanent Portfolio is the king here for this time period, Triad very close behind, Golden Butterfly next and also pretty close, however, the S&P has a horrendous Ulcer Index rating far in excess of the others.
Gain to Pain: This is Market Wizard Jack Schwager's metric, it is the cumulative net gain divided by the sum of all the negative months. Gain (net gains) / Pain (negative months). I have come to rather like this metric when also used in conjunction with CAGR, MaxDD, and Ulcer Index. We can see that Triad soars above the other investments in the Gain to Pain metric, and they say you can't time the market... Great long term returns - check, lower maximum drawdowns - check, very low ulcer rating - check, superior Gain to Pain - check.
Logarithmic chart of the returns:
click on the chart for full size
Triad FactSheet:
click on the chart for full size
For my monthly investing deck covering Triad and all the strategies, they are posted on the website.