What Is the Golden Butterfly Portfolio?

The Golden Butterfly is an asset allocation introduced by the blogger Tyler (who runs Portfolio Charts), holding five assets at 20% each.

U.S. total stock market 20% · small-cap value 20% · long-term government bonds 20% · short-term government bonds 20% · gold 20%

You can understand it as adding a growth-and-value engine of 'small-cap value' to the Permanent Portfolio (stocks, long-term bonds, gold, cash) and splitting the bonds into long-term and short-term.

Backtest tallies vary by source and period, but they are generally as follows.

Compound annual growth rate (CAGR): roughly around 8% (about 8% over a long ~38-year span, and around 8% over the last 30 years too).

Maximum drawdown (MDD): roughly the −18% to −20% range.

For reference, over the same period the S&P 500 fell to around −55% in the 2008 global financial crisis. The Golden Butterfly's drawdown was thus far shallower. Thanks to small-cap value, the design aims to raise the expected return slightly above the Permanent Portfolio while keeping drawdowns similar.

Strength: it keeps the stability of the Permanent Portfolio while adding a bit more growth potential through small-cap value. With shallow drawdowns, it tends to place less psychological burden on long-term holding.

Limitation: in phases when small-cap value underperforms, results may fall short of expectations, and because the weights of gold and bonds are large, it lags stock-heavy portfolios in a strong bull market. Also, backtest performance can look optimized to a particular past window (beware overfitting), so there is no guarantee it will be reproduced as-is in the future.