The Golden Butterfly was derived from the Permanent Portfolio developed by investment advisor Harry Browne and it’s a small change to Ray Dalios’s All Weather Portfolio. This is what the All Weather Portfolio looks like on M1 Finance using the best ETFs with the lowest fees: Whenever you start investing with the All-Weather Portfolio, it won’t impact the performance. The portfolio also had to hold up against start date sensitivity, meaning to be successful it’s not necessary to try and time the market. He used back-testing to simulate his strategy using historical data to see the results and analyze the risk and profitability. Growth is down, inflation is up, etc.ĭalio broke this up into four quadrants and designed a portfolio that would perform well in each. They are either up or down, and there are various combinations. Since he wouldn’t be around to oversee the trust, he needed to create a portfolio that would make money in all market conditions regardless of interest rates, deflation, what new pandemic is threatening our shores, or who the POTUS is.Īccording to Dalio, growth and inflation are all that matter. Well, after realizing that he had made and would continue to make more money than he could spend in a billion lifetimes, Dalio knew he needed to set up a trust. We explained who Ray Dalio is, but why did he create a set it and forget it portfolio? He makes billions of dollars picking stocks, so why the need for a set portfolio? TSMF (Total Stock Market Fund) had a mere 2% earned per year advantage over Golden Butterfly but lost 38.5% more! Golden Butterfly investors made slightly less but had a minimal loss compared to TSMF. You can see the peril of chasing returns. Golden Butterfly (we’re going to cover this below) If two investments have the same return over a given period, the investment with the lowest risk will have the better risk-weighted return. Risk-weighted return is how much return your investment has made relative to the amount of risk that investment has taken over a given period. Low-cost index funds are an excellent way to ensure that you have a well-diversified portfolio. Put simply, don’t put all of your eggs in one basket. You would also have money invested in real estate, REITs, and gold to diversify further. If logistics stocks are down, that’s okay because banking stocks might be up. If we’re talking about stocks, we might own stock in logistics companies (UPS, FedEx) and banking (Morgan Stanley, Goldman Sachs). We’ve talked about diversification ad nauseam, but we’re going to talk about it some more because it’s so critical for individual investors.īeing diversified means nothing more than spreading your investment dollars out across various asset classes and different sectors within those asset classes. There are two main ingredients you need to create a portfolio that can roll with the punches, that can reduce our risk while not diminishing high returns diversification and risk-weighted return. Two Main Portfolio IngredientsĪll of this sounds like a tall order, but it’s pretty simple. What we need is an investment strategy with a permanent portfolio of investments that can weather anything the economy throws at it.Īnd add to our wish list, an investment strategy that doesn’t depend on trying to time the market. No one wants to lose money in the stock market, but we can’t become too risk-averse because doing so won’t allow our money to grow at the rate we need it to for a comfortable retirement. So while the predictions are not quite as dire as they were, it’s still a scary time for a lot of investors. What we do know is that we are in the part of the cycle in which the central banks’ getting monetary policy right is difficult and that this time around the balancing act will be especially difficult (given all the stimulation into capacity constraints and given the long duration of assets and a number of other factors) so that the risks of a recession in the next 18-24 months are rising. Rising stock prices, a steeper yield curve, and the low rate of unemployment have lessened the fear of recession that many experts had two years ago, Ray Dalio among them. Can the Golden Butterfly best our boy? We love a good smackdown, so we’ll breakdown the All Weather Portfolio and the Golden Butterfly Portfolio. The Golden Butterfly is essentially a modified Permanent Portfolio with one additional asset class that incorporates some of the characteristics of a few other notable lazy portfolios.

Golden weather