The golden butterfly portfolio is one of the best risk-adjusted asset allocations for an investment portfolio. We look at some variations of the golden butterfly and how the portfolios performed in 2020 and in the past. Subscribe here for more content: http://bit.ly/SubscribeMichaelJay

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The golden butterfly portfolio is a fairly simple investment portfolio:

20% Total Stock Market
20% Small cap value stocks
20% Long term bonds
20% Short term bonds
20% Gold

However despite its simplicity, the golden butterfly portfolio is one of the best risk-adjusted asset allocations you can have in a portfolio. Put simply, it has generated consistent returns without significant volatility or price drawdowns.

For comparison if you were 100% in the index, you needed to be mentally prepared to stomach price declines of nearly 50%, and seeing periods of no price growth for up to 13 years. Maybe you can handle that, but given the poor historical performance of individual investors, most people probably can’t.

To solve this, the traditional financial advice has been to add bonds to your portfolio to help reduce the risk. A 60% stock, 40% bond split between the portfolio being most common.

However even with a traditional 60/40 portfolio, you still should expect to endure a portfolio drawdown of 34% in any given year, and it could take up to 12 years to recover. So yes, while it is technically lower risk, it is not by much.

Only when you incorporate a portfolio with a more balanced risk management approach, like the golden butterfly, do you see meaningful reductions in risk. In fact, it is in a completely different league. In 50 years, the worst portfolio drawdown from the golden butterfly has been 11% and has lasted just over 2 years.

If seeing steady, low volatility returns appeals to you, then you might consider incorporating a portfolio similar to the golden butterfly or exploring some portfolio allocations like it.

That is what we will be doing in this video as we’ll look at several modifications to the golden butterfly portfolio that can be made to better suit your investment goals.


DISCLAIMER: This video is a resource for educational and general informational purposes and does not constitute actual financial advice. No one should make any investment decision without first consulting his or her own financial advisor and/or conducting his or her own research and due diligence. There is no guarantee or other promise as to any results that may be obtained from using this content. Investing of any kind involves risk and your investments may lose value.

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Michael Jay - Value Investing