Golden Butterfly Portfolio

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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
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Re: Golden Butterfly Portfolio

Post by vnatale » Mon Dec 23, 2019 8:01 pm

mathjak107 wrote:
Thu Nov 19, 2015 8:56 am
no one knows what to expect this  time around . these are uncharted times with things right now so i would trust nothing but real time monitoring .

could we have a decade of rising rates back to the historic norms ?  could stocks be dead another 15 years and could gold go no where but down with rising rates ?

all very possible so any spending down plan needs a plan B .  WHICH MEANS Access to another level of just slightly more volatile assets once cash runs low . .

i wouldn't want plan b to have to decide whether to take a beating on gold , stocks or those long term volatile treasury's .

more and more i like what i see when running simulations with the various types of income annuty's as a base . but we are still a bit to young and rates to low for laddering them .

the new fidelity retirement planner has simulations you can add with various annuity types .

if someone is not retiring today or in the short term , this may all go away and resolve . but with the first 5 years of ones retirement being especially crucial  before the cushion of a run up there are no do overs if things do not go as planned  .

i had a very comprehensive consultation with my team at fidelity on monday and gave them lots of homework .  they are running all kinds of simulations for me with various social security points , pulling from  different  types of accounts and using various annuity products . 

we were supposed to meet again  on monday but they needed more time so i will report back .
1. Annuities. Aren't they basically bonds wherein you are relying upon the creditworthiness of the annuity provider? And, with rampant inflation a fixed annuity would be worthless, unless you purchased as escalating annuity which is more expensive and starts at lower payouts? Plus, you are giving up control of your money?

2. Was that "comprehensive consultation with my team at fidelity" fee or no-fee?

3. As I keep reading these posts (I'm now on page 3 of 35) I look forward to reading about your "report back". It's somewhat like watching an old TV series wherein instead of having to wait a week for the next episode you can watch as many as you want with no wait.

Vinny
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Re: Golden Butterfly Portfolio

Post by vnatale » Mon Dec 23, 2019 8:27 pm

MachineGhost wrote:
Fri Nov 20, 2015 9:11 am
ochotona wrote: Desert Modified tests great... but so much Emerging Markets. So much Petrobras, Lukoil, Rosneft, China National Something-or-Other,...  :-\
Emerging today is NOT emerging of yesterday.  It is frontier. 

And ETF's that focus on value don't focus on true value just buying all the dreck on the bottom of the barrel which are now all overpriced.

The past is not predictive of the future. 

Use your brain.
I think this is the second or third post from MachineGhost I've seen in this topic (so far). And, see that he's had by far the most posts by anyone in this forum. Yet his last post was over three years ago. I think in the last few months I've read some references to him (or her!). Does anyone know why MachineGhost is seemingly no longer with us?

Vinny
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Re: Golden Butterfly Portfolio

Post by vnatale » Mon Dec 23, 2019 8:37 pm

Jack Jones wrote:
Mon Nov 23, 2015 6:17 pm
MachineGhost wrote: If you haven't seen it, look for my thread on how to cosntruct a micro-to mega market cap agnostic equity allocation with just four ETF's traded free at Schwab.  That will give you all market caps and all value and growth.
Man, you're lazy. Is this it?

http://gyroscopicinvesting.com/forum/st ... #msg117010
How do messages become unavailable in this forum? Was it a casualty of the forum moving?

Vinny
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Re: Golden Butterfly Portfolio

Post by ochotona » Mon Dec 23, 2019 8:53 pm

Sometimes I wonder if the 20% SCV wedge of GB wouldn't be profitably position in EM Value, due to this.
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Re: Golden Butterfly Portfolio

Post by vnatale » Mon Dec 23, 2019 9:17 pm

Desert wrote:
Sun Dec 06, 2015 9:06 pm


I think the combination of small real return + small inflation = tiny nominal returns is going to continue driving a lot of investors crazy.  I think we see it a lot on this forum already.  Real returns are what matter, but nominal returns are what produce numbers that make people feel good about their choices.  We're not going to have many feel-good returns in the next decade, I believe.  I hope I'm wrong. 
Desert WAS WRONG!

Vinny
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Re: Golden Butterfly Portfolio

Post by vnatale » Mon Dec 23, 2019 9:21 pm

Tyler wrote:
Sun Dec 27, 2015 3:18 pm
A few reasons. 

I'm in a very good financial situation right now and don't need to do anything.  Even if there are other portfolios out there that might do better, I can stay with the PP and still be just fine.  Since I'm also not the type to impulsively change portfolios without letting the idea simmer for a while, doing nothing has been a great option.  I'm also very sensitive to the tax implications of changing portfolios, and messing with my taxable account doesn't make a lot of sense right now. 

That said, I'm considering reallocating the cash in my tax-deferred accounts towards small caps to shift my overall portfolio towards a GB-like allocation.  I just haven't gotten around to it yet, and actually sorta like that further optimizing my investments has been way down my personal priority list lately.  Life is good. 

In short, I'm open to new ideas but there's nothing wrong with the PP either.  I'm in no rush. 
As I continue to read all the posts in this topic I look forward to the post wherein I read your announcement that you ARE a Golden Butterfly!

Vinny
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Re: Golden Butterfly Portfolio

Post by vnatale » Mon Dec 23, 2019 9:24 pm

Tyler wrote:
Mon Feb 01, 2016 10:38 pm
So after letting the idea incubate for a while, I'm also sorta digging the same basic Golden Butterfly idea but with total stock market and small cap blend instead of large cap blend and small cap value.  Long story short -- SCV looks really nice historically but I have a tough time justifying it philosophically without pointing to back tests.

My strongest argument for SCV is its lower correlation to TSM than other domestic stock indices, which plays well into the rebalancing strategy. 

My strongest argument for SCB is that it complements TSM really well, almost perfectly balancing your typical 3x3 investment grid between small/medium/large and value/blend/growth (SCB funds have quite a few mid caps as well).  That basically shifts the stock allocation from purely cap-weighted to something resembling equal weight (but simpler with low fees and turnover), which does a nice job of diversifying beyond mega caps without fussing over value or growth biases.

Any thoughts on value vs. blend or market cap weighting vs. equal weighting?

BTW, hat tip to Koekebakker for discussing these issues all the way back on page 1!
This does not quite seem to be "the announcement" I was anticipating but is revealing your evolving regarding the Golden Butterfly?

Vinny
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Re: Golden Butterfly Portfolio

Post by Tyler » Mon Dec 23, 2019 9:37 pm

vnatale wrote:
Mon Dec 23, 2019 9:24 pm
This does not quite seem to be "the announcement" I was anticipating but is revealing your evolving regarding the Golden Butterfly?
Keep reading! ;) I'm pretty open about how I invest. And yes, my thoughts have evolved over the years as I learn more.
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Re: Golden Butterfly Portfolio

Post by vnatale » Mon Dec 23, 2019 9:40 pm

MachineGhost wrote:
Thu Mar 24, 2016 5:22 pm
Jpeizie wrote: Well you guys are certainly giving me something to think about. Don't get me wrong - I LOVE the way those allocations backtest. But it's hard for me to commit to that as a strategy when according to Larrys article the premium only existed for 6 out of the last 21 years and I'm not sure there's a real fundamental economic reason they would outperform consistently going forward. Choices choices...
May I suggest spending more time investigating other Prosperity subasset classes and less on tilting a turd?  Stocks are currently priced to deliver 0% returns 10-12 years out.
Looks like MachineGhost got it wrong on this one? At least so far....

Vinny
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Re: Golden Butterfly Portfolio

Post by vnatale » Mon Dec 23, 2019 9:41 pm

Tyler wrote:
Mon Apr 04, 2016 3:27 pm
Today I officially pulled the trigger and started my Golden Butterfly. 

After lots of research, I personally settled on small cap blend (VB) to complement my TSM fund (VTI) and to best fit my neutral Harry Browne outlook.  As I said when I first proposed the idea, I like how it's really just a Permanent Portfolio with a complementary prosperity tilted VP.  Value stocks were tempting but ultimately unnecessary to meet both my needs and my personality. 

I'm happy to be the guinea pig, and I'll report back how it goes.
THE official TYLER announcement I had been anticipating and waiting and waiting to FINALLY see!

Vinny
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Re: Golden Butterfly Portfolio

Post by vnatale » Mon Dec 23, 2019 9:56 pm

Tyler wrote:
Thu Apr 21, 2016 10:05 am


Anecdotally, since I first started playing with the GB last September, I updated my stock tracking app to also show small caps.  Purely psychologically, I've found that seeing two parts stocks and two parts bonds/gold has felt more "balanced" most days.  When stocks do well and the defensive assets struggle, I feel good.  When stocks do poorly and the defensive assets surge, I feel good.  And when I ever have doubts, cash always has my back.  ;)  Now I may feel different when stocks tank hard, but so far I appreciate the mindset.
DID you feel any differently during last year's (2018) stock misery?

Vinny
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Re: Golden Butterfly Portfolio

Post by vnatale » Mon Dec 23, 2019 10:01 pm

Kevin K. wrote:
Mon Jul 25, 2016 4:13 pm
Not sure if this is a dead thread since I see the last post was in April.

NOT by a long-shot. It's still going strong three and half years after Kevin K's post above!

Vinny
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Re: Golden Butterfly Portfolio

Post by Don » Mon Dec 23, 2019 11:44 pm

vnatale wrote:
Mon Dec 23, 2019 9:17 pm
Desert wrote:
Sun Dec 06, 2015 9:06 pm


I think the combination of small real return + small inflation = tiny nominal returns is going to continue driving a lot of investors crazy.  I think we see it a lot on this forum already.  Real returns are what matter, but nominal returns are what produce numbers that make people feel good about their choices.  We're not going to have many feel-good returns in the next decade, I believe.  I hope I'm wrong. 
Desert WAS WRONG!

Vinny
He was usually WRONG!
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Re: Golden Butterfly Portfolio

Post by Smith1776 » Tue Dec 24, 2019 2:34 am

ochotona wrote:
Mon Dec 23, 2019 8:53 pm
Sometimes I wonder if the 20% SCV wedge of GB wouldn't be profitably position in EM Value, due to this.
I agree it would make perfect sense to put at least part of the GB equity into emerging market value stocks.

The logic dovetails perfectly with Swedroe's work in Reducing the Risk of Black Swans.

For what it's worth, I access EM SCV+quality via this ETF: https://funds.manulife.ca/en-us/etfs/MEME.B
🛞 The All-Terrain Portfolio 🛞
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Re: Golden Butterfly Portfolio

Post by Tyler » Tue Dec 24, 2019 11:06 am

vnatale wrote:
Mon Dec 23, 2019 9:56 pm
DID you feel any differently during last year's (2018) stock misery?
Nope! If anything, watching my GB continue to do its thing while stocks struggled reinforced the appeal of a balanced portfolio.
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Re: Golden Butterfly Portfolio

Post by vnatale » Tue Dec 24, 2019 6:10 pm

Kbg wrote:
Sun Aug 28, 2016 8:46 am
barrett wrote:Also - and this question is for anyone who wants to answer - I haven't really hovered up everything written on the GB, but isn't much of its attractiveness due to the amazing performance of stocks in general (forget about SCV, LCB, etc. for a moment) from 1982 to 2000?
I've written about this before, but with regard to SCV it is somewhat like gold in the very early 1970s. Once something becomes exploitable its ability to generate returns decreases, sometimes significantly. I'm a fan of rolling 10 year average returns as a way to analyze a portfolio. If a port's 10 year rolling returns stay stable then you probably have something that continues to work. If they do nothing but decrease then there is cause for concern. I did an analysis of a standard HBPP through 2015 and interestingly it's rolling 10 year is increasing after bottoming out in 2001. That's an extremely good sign and somewhat rare.


According to my calcs the latest 10 year rolling return for the PP is 6.98 with a low in 2001 of 6.47. The max occurred in 1982 at 13.29%. On the downside last year was the worst 3 year rolling average ever at 1.39%. If we come in close to where we are now then the rolling 3 year will go back to normal in the 6ish range.

Update/Edit

The latest 3/5/10 year rolling returns are (through 2015):

GB: 3.97/5.74/7.36%
PP: 1.39/4.29/6.98%

Comparing 100% SCV to Large Cap Blend and Total Market on the PV website has SCV with lowest 5 year rolling return by a little under 2% points.

Is it Tyler who builds that website? If so, could you add a 10 year rolling to the 3 and 5?

My personal opinion is the big kicker is 40% stocks more than anything vs. a PP. But I digress.

The main point of this analysis was the value added of SCV. If you analyze the rolling returns of SCV they fall off the proverbial cliff in 1988 as compared to their previous history going back to 1972. Anyone want to guess what happened at the end of June 1987? The advent of the Russell 2000 indexes. Accordingly, a more accurate use/estimate of returns using historical data for SCV should probably start in 1988. Checking average returns since then as well as a 20 and 10 year look back we find:

SCV: 13.06/11.45/9.17
LCB: 11.68/9.83/9.01
TMkt: 11.78/9.97/9.30

And that's what the data has to say on the issue...
I continue to make my way through all the posts on this topic. I've made it to page 21 (of 36) in my careful reading of each post.

Kbg

Is there anywhere in this forum where you have provide updated 3/5/10 year rolling returns for the any of the ones you have provided above? Or, has Tyler provided the requested 10 year rolling? I first need to get through this topic and one other before I delve into Tyler's web site.

Thanks

Vinny
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Re: Golden Butterfly Portfolio

Post by vnatale » Tue Dec 24, 2019 6:54 pm

stuper1 wrote:
Wed May 31, 2017 11:44 am
Exactly, so if there is a solar flare or electromagnetic weapon in the next war that knocks out the power for months, or some kind of financial shenanigans or hacker that erases everybody's brokerage accounts, you still have your physical gold. The calculations above show that you can hold as much as 20% physical gold and still get almost the same CAGR as somebody who holds no gold, plus it lowers the volatility of returns. I sure feel better holding physical gold and having insurance against the possible black swan events.
However, if your scenario above DID occur if you were not holding that physical gold somewhere on your own property would you be able to get at it if being held in a bank safety security box? I realized you painted extreme examples but a serious question regarding the value of holding physical gold outside of somewhere on your own property.

Vinny
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Re: Golden Butterfly Portfolio

Post by vnatale » Tue Dec 24, 2019 7:13 pm

Desert wrote:
Tue Jun 06, 2017 8:21 am
grapesofwrath wrote:
Desert wrote:I do like the 40 percent equity though, and am slowly building up from 30% to 40%.
You feel comfortable increasing your equity exposure at a time when US stocks are "richly" valued ?
I'm well below 30% and would like to increase towards 40% but am reluctant to do so now and wish to wait for a "mean reversion". Of course I could be waiting a long time as US stocks could be on a permanently high plateau.
I really don't feel comfortable increasing equity exposure right now. As you said, equities are expensive, by any measure I'm aware of, particularly U.S. equities. But I'm trying to stay focused on the long-term view, and remind myself that predictions are difficult, particularly those regarding the future. I did decide to do it gradually, just directing new contributions toward equities rather than doing it in one lump-sum rebalance (and yes Mathjak, I know this is sub-optimal, so there is no need to lecture me on this point). :)

At 40 percent equities, I think it's necessary to be prepared for a ~20% decline in portfolio value at any time in the future.
2 1/2 years later, what did you end up doing?

At the time you wrote the above post you believed equities to be expensive when the S&P 500 was about 2,400. Now it's about 3,200. A 33% increase. That would seem to make them super expensive right now?

Vinny
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Re: Golden Butterfly Portfolio

Post by Kbg » Tue Dec 24, 2019 7:14 pm

I have not but they can be found easy enough. PortCharts, PortViz other places have asset returns.

Since the ishares ETFs were created in 2001 there is no appreciable difference in performance.

I’ve said this before, but one should never take index results at face value. Frankly, any index that has not been commercially exploited is an interesting theoretical exercise only.

The “observer effect” definitely applies to investing.
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Re: Golden Butterfly Portfolio

Post by vnatale » Tue Dec 24, 2019 7:18 pm

Tyler wrote:
Mon May 21, 2018 6:17 pm
Just thought I'd give a quick update on my own personal Golden Butterfly portfolio for anyone keeping track.

If you read back a ways you'll note that I have 100% of my money in the GB but (after an extended bout of analysis paralysis) chose to go with small cap blend over small cap value when first setting things up. While that has worked out very well, after updating my source data, studying it every way I can think of, and educating myself on the theory behind the value premium I finally decided to go all-in and convert my SCB allocation to SCV. I don't anticipate a huge change in performance or anything and still believe that other options are just fine, but I figured it was time to trust my data-driven instincts.

So for anyone reading along wondering if people really invest in the Golden Butterfly or if it's just some crazy idea on the internet, know that there's at least one guy happy to share his experience. :)
After no one posting on this topic for nearly a year, Tyler pops up to give us his update on the next chapter of his personal Golden Butterfly investing! And, gives the reason why the change. I look forward to any future announcements!

Vinny
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Re: Golden Butterfly Portfolio

Post by vnatale » Wed Dec 25, 2019 8:21 pm

From a footnote in: The Overtaxed Investor: Slash Your Tax Bill & Be a Tax Alpha Dog

"Let it be remembered that one reason value stocks perform better than growth stocks over time (at least pre-tax) is because management on average destroys capital with its far-flung investment schemes."

Vinny
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Re: Golden Butterfly Portfolio

Post by Mark Leavy » Wed Dec 25, 2019 10:55 pm

Vinnie, you are really causing me to re-evaluate my world view. I've never met anyone in real life that can both think analytically and blabber as much as you do.

It's a conundrum.

My brain says you have to be doing only one or the other. But I can't tell which. Evidently, it is me that is broken.

Mark
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Re: Golden Butterfly Portfolio

Post by mathjak107 » Thu Dec 26, 2019 2:38 am

vnatale wrote:
Wed Dec 25, 2019 8:21 pm
From a footnote in: The Overtaxed Investor: Slash Your Tax Bill & Be a Tax Alpha Dog

"Let it be remembered that one reason value stocks perform better than growth stocks over time (at least pre-tax) is because management on average destroys capital with its far-flung investment schemes."

Vinny
there are stupid things done whether growth or value or dividends or not .

we hear the same silly things about dividend payers not wasting money .

case in point .

AT&T paid $100 billion to enter the cable business

AT&T thought it would be a good idea to diversify by paying $100 billion to take on cable company TCI. It was wrong! AT&T broke itself up a few years later and sold off the cable assets.

AT&T tried to elbow its way into the personal computer business with a hostile $7 billion takeover of NCR. It didn't work, and AT&T later spun the company back out at a $4 billion valuation.

Microsoft paid an estimated $500 million for mobile phone company Danger. It was supposed to be working on new phones for Microsoft, but most of the key employees left the company. The end result of the acquisition was the Kin, a social smartphone from Microsoft that totally bombed.

Cisco probably bought Pure Digital, the company that makes the Flip, right at the peak of its value in 2009. Since then high definition video cameras have been built into just about every smartphone making the Flip pretty much worthless in the long run. Which is probably why Cisco killed the $590 million acquisition earlier this year.

After Google bought DoubleClick, Microsoft tried to keep up by buying ad company aQuantive for $6 billion. The acquisition never really worked out. The aQuantive executives left two years after the deal closed and the technology was discarded.
..
AOL-Time Warner is obviously the worst

i can go on and on
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Re: Golden Butterfly Portfolio

Post by senecaaa » Thu Dec 26, 2019 3:21 am

Something completely different, but related to the Golden Butterfly Portfolio:

I don't really understand the reason we have short-term treasuries in the portfolio. Similar to cash/bills in the PP. From reading the book about the PP the only reason I can come up with is that it provides liquid assets when we need to rebalance because one of the four (or five) allocations is out of bounds.
Is that it? Or is there more to it?

Short term treasuries in the EU have a negative yield. We have "bank loans" that provide a couple of percent interest (at the cost of not being allowed to use it for a year or two). Can I use that for the GB instead? Or do short-term treasuries provide some special behavior that is essential?

When I repace STT with BILL in PortfolioCharts I do see that the performance goes down a bit. Why is that?
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