Golden Butterfly Portfolio

A place to talk about speculative investing ideas for the optional Variable Portfolio

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Re: Golden Butterfly Portfolio

Post by Smith1776 » Thu Dec 19, 2019 9:16 pm

flyingpylon wrote:
Thu Dec 19, 2019 7:44 pm
What if your lifestyle at retirement would be fully funded by the amount generated by the PP or whatever “suboptimal” portfolio you chose?
Actually, I think you do bring up an excellent point. The biggest factor in what determines your wealth upon retirement is really just your savings rate. Dan Bortolotti has some excellent work/podcasts on this.

Budgeting, saving, and being prudent is so much more important than quibbling about portfolio construction. But saving isn't sexy. Talking shop about exotic portfolios and trading strategies is.

As long as your allocation is something reasonable, just stick with it. Our personal budgeting and planning is what should take centre stage.
I still find the James Rickards portfolio fascinating.
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Re: Golden Butterfly Portfolio

Post by Tyler » Thu Dec 19, 2019 9:35 pm

Smith1776 wrote:
Thu Dec 19, 2019 9:16 pm
Budgeting, saving, and being prudent is so much more important than quibbling about portfolio construction.
+1.

As much time as I've spent studying asset allocation, I still personally attribute the vast majority of my financial success to being a good saver. Always make sure you spend at least as much time optimizing your income and spending as you do your portfolio, and you'll be much better off in the long run.
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Re: Golden Butterfly Portfolio

Post by Hal » Fri Dec 20, 2019 2:45 am

Just a quick query regarding the USA Golden Butterfly and the PP

As I understand it, the GB share allocation is expanded by adding SCV to take advantage of "prosperity" which is the most common economic climate.

I found that using the standard PP and with 25% SCV instead of TSM (and 25% ST) the results are very similar.

Was there any reason Harry Browne didn't use SCV for the 25% share allocation?

Looking forward to your insights.

Hal

PS: It's hot here. 45 Celsius outside ! (113 F)

https://www.theguardian.com/australia-n ... ous-record
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Re: Golden Butterfly Portfolio

Post by mathjak107 » Fri Dec 20, 2019 3:18 am

Tyler wrote:
Thu Dec 19, 2019 9:35 pm
Smith1776 wrote:
Thu Dec 19, 2019 9:16 pm
Budgeting, saving, and being prudent is so much more important than quibbling about portfolio construction.
+1.

As much time as I've spent studying asset allocation, I still personally attribute the vast majority of my financial success to being a good saver. Always make sure you spend at least as much time optimizing your income and spending as you do your portfolio, and you'll be much better off in the long run.
i was the opposite . i needed my money to work for me not being a high earner and raising a family ... a penny saved may be a penny earned , but it will always stay a penny without good compounding .

so i needed markets and eventually real estate to do the heavy lifting . which it did very very well.

investing was the primary way i accumulated assets , never the bits and pieces i managed to save.today our accumulated assets generate more than i even earned working .

counting on a high paying job continuing for decades and investing far more conservatively is really a bad idea . that job can be gone all to fast . you want to have both your earnings and investing in high gear so if one slips up the other may get you to goal .


one other thing i want to add is . budgeting and cutting expenses is NOT THE SAME as growing more income .

they may look the same until you can't cut expenses anymore and the expenses keep rising .

then you learn cutting costs has a bottom after which you are done and have no where to cut . . that is why wall street looks at revenue and profits . profits can come from cost cutting which has a bottom .

so my opinion is never let cost cutting and budgeting serve as a proxy for earning more or doing better as an investor . they are all important components but they don't replace each other . both need to be pushed to the max of your abilities .
Last edited by mathjak107 on Fri Dec 20, 2019 6:06 am, edited 8 times in total.
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Re: Golden Butterfly Portfolio

Post by mathjak107 » Fri Dec 20, 2019 3:21 am

flyingpylon wrote:
Thu Dec 19, 2019 7:44 pm
What if your lifestyle at retirement would be fully funded by the amount generated by the PP or whatever “suboptimal” portfolio you chose?
you don't know what you will need or how you will do decades prior to retiring . remember we are talking retirement money not current living money

my opinion is strive for the max and then worry about having to much money down the road . it is a lot more palatable then coming up short because you wasted decades in assets that did not grow enough to adequately fund your future needs .

there is a time for maximum growth and then there is a time for preserving what you grew with some growth . preservation is after the fact you reached your savings goals.

but life has a way of screwing us over too . that nice high paying job you had could vanish at any point .. so the fact you were saving a lot is no longer the case ... we all eventually go through one of the big three , divorce-job loss or illness . so the more we let our money work for us the better our chances of survival .

so in my opinion we want to max out not only our earning capability , but our money working for us on our long term money so we have a bigger cushion develop over time . over decades there will be a substantial difference that develops if one is to conservative during those accumulation years .

all of us would love to have had nice low volatility investments through our accumulation stage with out big swings .. but the reality is with few exceptions that would have really reduced long term gains. so just because we can do something does not mean it is a good idea and we should .

many are coming up short with under funded retirements or stressful retirements because they are operating with less than they could have been and sweat every unexpected expense .
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Re: Golden Butterfly Portfolio

Post by flyingpylon » Fri Dec 20, 2019 9:11 am

mathjak107 wrote:
Fri Dec 20, 2019 3:21 am
flyingpylon wrote:
Thu Dec 19, 2019 7:44 pm
What if your lifestyle at retirement would be fully funded by the amount generated by the PP or whatever “suboptimal” portfolio you chose?
you don't know what you will need or how you will do decades prior to retiring . remember we are talking retirement money not current living money

my opinion is strive for the max and then worry about having to much money down the road . it is a lot more palatable then coming up short because you wasted decades in assets that did not grow enough to adequately fund your future needs .

there is a time for maximum growth and then there is a time for preserving what you grew with some growth . preservation is after the fact you reached your savings goals.

but life has a way of screwing us over too . that nice high paying job you had could vanish at any point .. so the fact you were saving a lot is no longer the case ... we all eventually go through one of the big three , divorce-job loss or illness . so the more we let our money work for us the better our chances of survival .

so in my opinion we want to max out not only our earning capability , but our money working for us on our long term money so we have a bigger cushion develop over time . over decades there will be a substantial difference that develops if one is to conservative during those accumulation years .

all of us would love to have had nice low volatility investments through our accumulation stage with out big swings .. but the reality is with few exceptions that would have really reduced long term gains. so just because we can do something does not mean it is a good idea and we should .

many are coming up short with under funded retirements or stressful retirements because they are operating with less than they could have been and sweat every unexpected expense .
I don't necessarily disagree. But at the same time I would point out that you (from what little I know about you from your posts) seem to be a "maximizer" in everything you do. So all options are always compared to the maximized option, and you infer that nothing else could ever possibly make sense.

Using the example of retirement funds, your answer always seems to be "more" without even knowing any other details. Anything less requires regret or compensation for "loss" or "missing out", etc. But for some people the best answer might simply be "enough". It's up to each individual to determine what that number is, how best to get there, and how finances fit into the rest of their life so that they're satisfied in the end.

I used to be more of a maximizer, but eventually I realized how frustrated and exhausted it was making me feel. Everyone is different and it's okay to do whatever works for them.
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Re: Golden Butterfly Portfolio

Post by mathjak107 » Fri Dec 20, 2019 9:26 am

exactly , everyone needs to do what works for them . but the problem is we don't really know what works until the fat lady sings and that is when we go retire decades later and see what we have .

so what is comfortable may not be able to actually meet goal and give you the life you hoped for .

that is why i am a big believer in maximizing investing early on with index funds in equities and maximizing your earning potential . you really need to go with what produces the best in case one or the other slacks off .

if someone insists on only doing what is mentally comfortable i suggest getting a 3rd party who can handle their money without emotion and keep them away from it if they are decades from retiring .
Last edited by mathjak107 on Fri Dec 20, 2019 10:02 am, edited 1 time in total.
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Re: Golden Butterfly Portfolio

Post by Tyler » Fri Dec 20, 2019 10:00 am

mathjak107 wrote:
Fri Dec 20, 2019 3:18 am
counting on a high paying job continuing for decades and investing far more conservatively is really a bad idea . that job can be gone all to fast . you want to have both your earnings and investing in high gear so if one slips up the other may get you to goal .
Why said anything about decades? :) Save a high enough percentage of that high paying job and your new savings can easily dwarf your investment income early in your career and set you on the fast track to early retirement. Try playing with both the savings rate and portfolio, and you can see for yourself which balance works best for you.

But that's not to criticize your own path at all! Clearly you've been successful, too, and it's a testament to how there are different ways to approach the same problem.
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Re: Golden Butterfly Portfolio

Post by mathjak107 » Fri Dec 20, 2019 10:03 am

the problem is joe american does not have these large sums to save or even modest amounts to save , that is reality , savings rates are dismal for most americans ,. .... he is quite dependent just like i was on the power of compounding working its magic on what we can save.
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Re: Golden Butterfly Portfolio

Post by Smith1776 » Fri Dec 20, 2019 1:54 pm

Hal wrote:
Fri Dec 20, 2019 2:45 am
Just a quick query regarding the USA Golden Butterfly and the PP

As I understand it, the GB share allocation is expanded by adding SCV to take advantage of "prosperity" which is the most common economic climate.

I found that using the standard PP and with 25% SCV instead of TSM (and 25% ST) the results are very similar.

Was there any reason Harry Browne didn't use SCV for the 25% share allocation?

Looking forward to your insights.

Hal

PS: It's hot here. 45 Celsius outside ! (113 F)

https://www.theguardian.com/australia-n ... ous-record
Your instinct is excellent and you are actually quite correct!

I believe Browne recommended the S&P 500 in his radio show. However, in his writings such as Best Laid Plans he advocates stocks with greater volatility than the general market.

From page 329/330 of the paperback version of Best Laid Plans:
The straightforward way to invest in the stock market is to buy a selection of blue-chip stocks - shares of large, well-established companies. But a Permanent Portfolio requires stocks with high price volatility, so that a small portion of the portfolio can pull the entire portfolio upward during a bull market. Blue-chip stocks don't have the volatility of smaller or more adventurous companies.
He doesn't use the phrase "small cap value" because that term hadn't even been coined yet. But if you believe that value and size premiums are risk based, then they should be appropriate and persist. Browne's writing sounds an awful lot like a prescient advocation towards tilting.
Last edited by Smith1776 on Fri Dec 20, 2019 3:08 pm, edited 1 time in total.
I still find the James Rickards portfolio fascinating.
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Re: Golden Butterfly Portfolio

Post by Smith1776 » Fri Dec 20, 2019 2:00 pm

For those interested in a prima facie comparison, here's an SCV tilted Permanent Portfolio (in blue) vs the Golden Butterfly (in red).


scvpp vs gb.png
scvpp vs gb.png (86.8 KiB) Viewed 8765 times

annual returns.png
annual returns.png (32.97 KiB) Viewed 8765 times
I still find the James Rickards portfolio fascinating.
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Re: Golden Butterfly Portfolio

Post by mathjak107 » Fri Dec 20, 2019 6:50 pm

Didn’t the pp come out in the 1980’s ?
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Re: Golden Butterfly Portfolio

Post by Smith1776 » Sat Dec 21, 2019 2:10 am

mathjak107 wrote:
Fri Dec 20, 2019 6:50 pm
Didn’t the pp come out in the 1980’s ?
Yes! Browne solidified the overall PP strategy that we know it today in the 80s. Though, I believe early iterations have roots going all the way back to the 70s.

As much as I've been singing the praises of the GB, the PP will always be my personal centre of gravity. O0
I still find the James Rickards portfolio fascinating.
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Re: Golden Butterfly Portfolio

Post by senecaaa » Sat Dec 21, 2019 3:32 am

Smith1776 wrote:
Fri Dec 20, 2019 2:00 pm
For those interested in a prima facie comparison, here's an SCV tilted Permanent Portfolio (in blue) vs the Golden Butterfly (in red).
How is the data you are using different from PortfolioCharts? Here the baseline LT return for the GB is 5.5% versus 4.2% for the PP: https://portfoliocharts.com/portfolio/portfolio-matrix/

That's quite a substantial difference. Is that just because of SCV?

PS I tried it on PortfolioCharts with a PP with 25% SCV and it returns a BL-LT return of 5%
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Re: Golden Butterfly Portfolio

Post by mathjak107 » Sat Dec 21, 2019 3:44 am

Smith1776 wrote:
Sat Dec 21, 2019 2:10 am
mathjak107 wrote:
Fri Dec 20, 2019 6:50 pm
Didn’t the pp come out in the 1980’s ?
Yes! Browne solidified the overall PP strategy that we know it today in the 80s. Though, I believe early iterations have roots going all the way back to the 70s.

As much as I've been singing the praises of the GB, the PP will always be my personal centre of gravity. O0
if we start at 1987 the year i started as an investor , to date , what is the pp return using a hypothetical 100k to start ?

as most know i have used the fidelity insight newsletter since then which uses a bunch of plain ole fidelity funds with an occasional fund swap ..

the growth model shows 100k is now 3.25 million and the sector model is 4.8 million . so i am curious where the pp would have landed .
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Re: Golden Butterfly Portfolio

Post by Hal » Sat Dec 21, 2019 5:49 am

senecaaa wrote:
Sat Dec 21, 2019 3:32 am
Smith1776 wrote:
Fri Dec 20, 2019 2:00 pm
For those interested in a prima facie comparison, here's an SCV tilted Permanent Portfolio (in blue) vs the Golden Butterfly (in red).
How is the data you are using different from PortfolioCharts? Here the baseline LT return for the GB is 5.5% versus 4.2% for the PP: https://portfoliocharts.com/portfolio/portfolio-matrix/

That's quite a substantial difference. Is that just because of SCV?

PS I tried it on PortfolioCharts with a PP with 25% SCV and it returns a BL-LT return of 5%
Hello Senecaa,

When I tried the allocation on Portfolio Charts using 25% each SCV,LT,ST,GLD I got a BL-LT return of 5.3% vs 5.5% for the GB and 4.2% for the PP as you mentioned. Its quite interesting that the PP using SCV went from a BL-LT return ranking of 14 to 3

Thanks to Smith1776 and Mathjak for the comments. The excerpt from "Best Laid Plans" was most interesting.

Personally I prefer the PP or the SCV PP since if the equities did a 90% drop as in the 1930's, I could "just" handle a 0.9 * 25% loss in the equity portion of the portfolio. As for a potential 0.9 * 40% loss, that's a bit too much to contemplate at my age ! (and its not 21 years old ;) )

Hal
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Re: Golden Butterfly Portfolio

Post by senecaaa » Sat Dec 21, 2019 7:50 am

Hal wrote:
Sat Dec 21, 2019 5:49 am

When I tried the allocation on Portfolio Charts using 25% each SCV,LT,ST,GLD I got a BL-LT return of 5.3% vs 5.5% for the GB and 4.2% for the PP as you mentioned. Its quite interesting that the PP using SCV went from a BL-LT return ranking of 14 to 3
I think 25% each SCV,LT,BIL,GLD goes to 5.0%? I assumed that the PP uses BIL for cash instead of STT?
Still a substantial improvement.
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Re: Golden Butterfly Portfolio

Post by Hal » Sat Dec 21, 2019 9:14 am

senecaaa wrote:
Sat Dec 21, 2019 7:50 am
Hal wrote:
Sat Dec 21, 2019 5:49 am

When I tried the allocation on Portfolio Charts using 25% each SCV,LT,ST,GLD I got a BL-LT return of 5.3% vs 5.5% for the GB and 4.2% for the PP as you mentioned. Its quite interesting that the PP using SCV went from a BL-LT return ranking of 14 to 3
I think 25% each SCV,LT,BIL,GLD goes to 5.0%? I assumed that the PP uses BIL for cash instead of STT?
Still a substantial improvement.
Some people use STT instead of Cash to get a bit extra return at the expense of slightly higher volatility. Other forum members may be able to supply additional information on using BIL vs STT. Unfortunately in Australia we don't have equivalents for either :-\
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Re: Golden Butterfly Portfolio

Post by Tyler » Sat Dec 21, 2019 10:39 am

senecaaa wrote:
Sat Dec 21, 2019 3:32 am
How is the data you are using different from PortfolioCharts? Here the baseline LT return for the GB is 5.5% versus 4.2% for the PP: https://portfoliocharts.com/portfolio/portfolio-matrix/

That's quite a substantial difference. Is that just because of SCV?

PS I tried it on PortfolioCharts with a PP with 25% SCV and it returns a BL-LT return of 5%
The Portfolio Visualizer data shows the nominal CAGR from the single period from 1972 -2019. The Portfolio Charts data is different in two ways. First, it reports the real (inflation-adjusted) CAGR. And second, the baseline LT return finds the CAGR for every 15-year investing timeframe since 1970 simultaneously and reports the conservative 15th percentile number. So it has a cherry-picking prevention mechanism built in that accounts for sequence-of-returns uncertainty.
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Re: Golden Butterfly Portfolio

Post by senecaaa » Sun Dec 22, 2019 2:39 am

The difference between GB and PP-with-SCV is 0.5% on PortfolioCharts. In the graph posted above, it was only 0.34%.

So apparently the conservative (15th percentile) calculation is in the advantage of the GB. Or maybe inflation affects the PP different than the GB.
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Re: Golden Butterfly Portfolio

Post by Smith1776 » Sun Dec 22, 2019 2:07 pm

mathjak107 wrote:
Sat Dec 21, 2019 3:44 am
Smith1776 wrote:
Sat Dec 21, 2019 2:10 am
mathjak107 wrote:
Fri Dec 20, 2019 6:50 pm
Didn’t the pp come out in the 1980’s ?
Yes! Browne solidified the overall PP strategy that we know it today in the 80s. Though, I believe early iterations have roots going all the way back to the 70s.

As much as I've been singing the praises of the GB, the PP will always be my personal centre of gravity. O0
if we start at 1987 the year i started as an investor , to date , what is the pp return using a hypothetical 100k to start ?

as most know i have used the fidelity insight newsletter since then which uses a bunch of plain ole fidelity funds with an occasional fund swap ..

the growth model shows 100k is now 3.25 million and the sector model is 4.8 million . so i am curious where the pp would have landed .
Interesting question! I've never considered 1987 as the start date. Frequently I've seen people revise "fair" start dates based on when gold was legal to hold, etc.

Here's bird's eye view of the classic PP and SCV tilted PP from 1987 to today. Blue line is the classic PP. Red line is the SCV PP.


123.png
123.png (87.59 KiB) Viewed 9096 times

456.png
456.png (30.07 KiB) Viewed 9096 times
I still find the James Rickards portfolio fascinating.
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Re: Golden Butterfly Portfolio

Post by Smith1776 » Sun Dec 22, 2019 2:13 pm

This recent turn of conversation has me curious as to how much of the GB's outperformance over the PP is due to the SCV tilt, rather than the fact that it has more equity in an absolute sense (40% vs 25%).

I'd like to research into this more. You'd also have to control for the altered levels of gold, cash and bonds.

My first brief glance at the numbers seems to suggest the balance of GB outperformance over the PP may indeed be because of the tilt, rather than the 40% equity.

However, if that's the case, we go back to the gnarly problem of whether or not the factor premiums will persist.

If indeed a SCV tilted PP closes most of the gap in performance against the GB, it'd make me that much more content with the 4 x 25% allocation.
I still find the James Rickards portfolio fascinating.
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Re: Golden Butterfly Portfolio

Post by ochotona » Mon Dec 23, 2019 4:52 am

Another Factor tilt which is maybe easier to swallow is equal-weighted S&P 500. Run a permanent portfolio with 25% vadax. The ETF equivalents are RSP & GSEW. I use the latter.
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Re: Golden Butterfly Portfolio

Post by vnatale » Mon Dec 23, 2019 7:49 pm

Cortopassi wrote:
Wed Nov 18, 2015 11:42 pm


Been playing all night with Tyler's calculators (put a donate button up, I WILL donate!), and this 17/17/16/25/25 TSM/SCV/EM/LTT/Gold really is shining for me.  I like the additional risk/reward of the stock split, while keeping my gold level to where I really like it (20-25%)

The only thing that is obvious in all these mixes is that there is no money market/cash component.  I need to mentally adjust for that, and just separate out a rainy day cash reserve separate from this.

I think Jan 1 I will start rebalancing to this allocation.  I also am open to thoughts.  I have no specific loyalty to the PP, it is still better than what I was doing, and this setup allows a lot of my current holdings to remain similar without having to trade out.
Have just started on page 1 of all the 35 pages of posts related to this topic. As I keep reading through to the end I'm looking forward to seeing how you evolved from this over the last four years since this post.

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Golden Butterfly Portfolio

Post by vnatale » Mon Dec 23, 2019 7:51 pm

mathjak107 wrote:
Thu Nov 19, 2015 5:43 am
that is the issue spending down from the pp.

all well and good you have 25% cash but now that you spent it down  below your rebalance point you have to rebalance and refill selling volatile assets . it may be  no different from leaving the cash and spending it down equally from the  other parts  right from the get go ..

in a typical bucket system you exhaust the cash , then refill from short and  intermediate term bonds which are no where near as volatile as stocks would be like long term bonds are. finally many years later sell equity's to refill bonds and cash

so instead of refilling from short and intermediate term  bonds which may be down a little you are selling long term bonds which are  something as volatile as the stocks  or selling stocks or gold which run an equal chance of being down as much you are trying to avoid selling at a bad time .

with the pp you do not really have a non volatile 2nd line of defense to draw from if rates rise . .

i think anyone spending down from the pp has to examine this and find away to provide a secondary source for spending without selling assets as volatile as stocks are .

perhaps an income annuity may add time to allow other assets to  at least recover before they are needed  and prolong rebalancing to cash .

i don't know , how it would shake out as i never looked at the pp in that regard .
I think you may have written the above prior to you being retired and now you are? If so, how have you solved the problems you describe above?

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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