Golden Butterfly Portfolio: A Balanced Investment Strategy Explained

If you’ve been on the hunt for a portfolio that balances growth with risk management, the Golden Butterfly Portfolio might just be the one you want to explore. Today, we’re diving deep into this investment strategy, breaking down its components, performance, and who it’s best suited for. Whether you’re a seasoned investor or just starting out, stick around—this could change how you think about building wealth.

What Is the Golden Butterfly Portfolio?

The Golden Butterfly Portfolio was created by Tyler from PortfolioCharts.com, a site famous for analyzing popular investment portfolios and providing long-term backtesting results. Think of this portfolio as a hybrid between Ray Dalio’s All-Weather strategy and classic lazy portfolios, such as the three-fund portfolio many investors swear by.

At its core, the Golden Butterfly is a medium-risk portfolio designed to offer diversification across several asset classes:

• 20% Gold
• 20% Total Stock Market
• 20% Small Cap Value Stocks
• 20% Long-Term Treasury Bonds
• 20% Short-Term Treasury Bonds

This equal-weight allocation across five distinct asset types aims to balance growth potential with downside protection.

Why “Butterfly”?

The name “Golden Butterfly” comes from the portfolio’s allocation structure and the inclusion of gold, which many investors consider a “golden” asset. The butterfly analogy reflects its balanced wings—stocks and bonds with gold at the center—providing symmetry between risk and safety.

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Breaking Down the Portfolio Components

Let’s unpack each piece of the Golden Butterfly and why it’s included.

20% Total Stock Market

This slice is all about growth. Investing here means buying into the entire U.S. stock market, including large-cap companies across various sectors. ETFs like VTI (Vanguard Total Stock Market ETF) or VTSAX offer low-cost exposure to over 4,000 stocks weighted by market cap.

Why include total market stocks? Because they provide broad market exposure and the potential for long-term growth. This is the engine that drives portfolio appreciation over decades.

20% Small Cap Value Stocks

Small cap value stocks are often overlooked but have historically outperformed large-cap stocks over the long haul. These are smaller companies trading at prices lower than their intrinsic value, offering potential for significant upside.

ETF options here include VIOV (Vanguard Small-Cap 600 Value ETF) or AVUV (Avantis Small Cap Value ETF). Adding this allocation brings diversification within equities by focusing on a specific, often underappreciated segment of the market.

20% Long-Term Treasury Bonds

Long-term Treasury bonds act as a hedge against stock market downturns. When stocks falter, these bonds often shine because they tend to have an inverse relationship with equities.

The Vanguard ETF VGLT is a popular choice here. These bonds are essential for risk-averse investors who want some stability in turbulent times.

20% Short-Term Treasury Bonds

Short-term treasuries are like cash in your portfolio—they don’t grow much, but they provide liquidity and safety. The Vanguard ETF VGSH offers exposure to these.

However, the video’s creator, Marco, is clear he’s not a fan of holding too much cash or cash equivalents because low interest rates mean your money isn’t really working for you here. Still, including short-term bonds adds stability and reduces volatility.

20% Gold

Gold is a classic inflation hedge and a store of value that has been trusted for thousands of years. The portfolio’s 20% gold allocation aims to protect purchasing power when inflation rises or markets become volatile.

Gold ETFs like GLD or SGOL track the price of gold without you having to store physical bullion. However, some investors prefer actual gold bars or coins to bypass counterparty risk.

Marco mentions that while gold hasn’t performed spectacularly over the last decade, it historically has been a solid hedge, especially for older investors focused on preserving wealth.

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Who Is the Golden Butterfly Portfolio For?

This is a medium-risk, risk-averse portfolio suitable for investors who want more stability than pure stock market exposure but still want some growth potential. It’s especially attractive to:

• Older investors looking to protect wealth while maintaining moderate growth.
• Risk-averse investors who dislike the volatility of all-stock portfolios.
• Those interested in diversification across different asset classes to reduce drawdowns.

That said, Marco points out that about 60% of the portfolio consists of assets he wouldn’t favor in today’s macroeconomic environment (like bonds and gold, given current interest rates). Younger investors might prefer to focus more on stocks and growth-oriented assets.

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Backtesting the Golden Butterfly Portfolio

Numbers don’t lie, right? That’s why backtesting is crucial to see how a portfolio performs over time.

Using PortfolioVisualizer.com, Marco tested the Golden Butterfly Portfolio going back to 1977, comparing it with:

• 100% U.S. Stock Market portfolio (e.g., VTI)
• 100% Large-Cap Stock portfolio

Key Findings

• Growth: The 100% stock market portfolio significantly outperformed the Golden Butterfly, growing $10,000 into roughly $1.47 million by 2021.
• Golden Butterfly Growth: The same $10,000 invested in the Golden Butterfly grew to about $658,000.
• Volatility and Drawdowns: The Golden Butterfly had a maximum drawdown of around 16.6%, compared to over 50% for the stock market portfolios.
• Worst Year Performance: The Golden Butterfly’s worst year was a loss of 7%, while the stock market’s worst year lost 37%.
• Best Year: Surprisingly, the Golden Butterfly saw its best year outperform the other portfolios.

What Does This Mean?

The Golden Butterfly sacrifices some growth potential in exchange for much smoother returns and significantly less risk. If you’re someone who panics during market crashes or can’t stomach large losses, this portfolio’s stability might be worth the tradeoff.

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The Good, the Bad, and the Ugly: Portfolio Pros and Cons

Pros

• Diversification: Spreads risk across stocks, bonds, and gold.
• Lower volatility: Smaller losses during market crashes.
• Inflation hedge: Gold has historically preserved purchasing power.
• Balanced risk: Medium risk level suitable for conservative investors.

Cons

• Lower returns: Growth is roughly half of what a 100% stock portfolio might yield.
• High bond allocation: Bonds may underperform in rising interest rate environments.
• Gold’s mixed recent performance: Gold hasn’t been a strong performer in the last decade.
• Not ideal for young aggressive investors: If you’re aiming for maximum growth, this portfolio might feel too conservative.

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Practical Tips for Implementing the Golden Butterfly Portfolio

If you’re thinking about trying the Golden Butterfly, here are some things to keep in mind:

ETF Tickers to Use

• Total Stock Market: VTI or VTSAX
• Small Cap Value: VIOV or AVUV
• Long-Term Treasuries: VGLT
• Short-Term Treasuries: VGSH
• Gold: GLD or SGOL (or physical gold if you prefer)

Consider Your Personal Situation

• Age: Younger investors might want to lean more heavily into stocks.
• Risk Tolerance: How much volatility can you handle?
• Investment Goals: Are you focused on growth or capital preservation?

Rebalancing

To maintain the portfolio’s balance, rebalance annually or semi-annually. This means selling some of the overperforming assets and buying the underperforming ones to keep each allocation at 20%.

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Is the Golden Butterfly Portfolio Right for You?

At the end of the day, no portfolio is perfect. The Golden Butterfly offers a compelling blend of growth and safety, but it might not be the best fit for everyone.

If you want smoother returns and can accept sacrificing some upside, this portfolio is worth considering. If you’re a younger investor with decades ahead to recover from market downturns, sticking with a higher stock allocation might make more sense.

Marco’s personal take? While he appreciates the philosophy behind the Golden Butterfly, he leans toward more growth-focused strategies like Bitcoin and total stock market ETFs, especially given today’s economic conditions. But he also acknowledges the value of diversification and the importance of being open to different investment philosophies.

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Final Thoughts

The Golden Butterfly Portfolio is a neat, balanced approach to investing that combines the growth of stocks with the stability of bonds and the inflation hedge of gold. It’s not a get-rich-quick scheme but rather a steady, risk-managed path toward wealth preservation and moderate growth.

If you’re curious, try backtesting it yourself using PortfolioVisualizer.com to see how it fits with your financial goals and risk appetite. Remember, investing is personal, and the best portfolio is one you can stick with through thick and thin.

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FAQ: Quick Answers About the Golden Butterfly Portfolio

Q: What’s the biggest advantage of the Golden Butterfly Portfolio?
A: It reduces volatility and large losses during market downturns while still providing moderate growth.

Q: Why include gold in a portfolio?
A: Gold is an inflation hedge and tends to hold value during market turbulence.

Q: Is this portfolio good for young investors?
A: Generally, younger investors might want more stock exposure for growth and less in bonds and gold.

Q: How often should I rebalance?
A: Once or twice a year is typical to keep allocations close to 20% each.

Q: Can I implement this portfolio with ETFs?
A: Absolutely. ETFs like VTI, VIOV, VGLT, VGSH, and GLD make it easy to build this portfolio.

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If you want to master your money, build wealth steadily, and avoid sleepless nights during market crashes, the Golden Butterfly Portfolio deserves a spot on your radar. Give it a look, test it out, and see if it fits your unique financial journey.