Allocation Lab

Golden Butterfly Portfolio

Created by Portfolio Charts (Tyler)

A five-wing evolution of the Permanent Portfolio that adds growth without giving up its resilience.

Current Allocation

US Large Cap20%
US Small Cap Value20%
US Long-Term Bonds20%
US Short-Term Bonds20%
Gold20%

How This Strategy Maps to ETFs

Asset ClassWeightETF
US Large Cap20%SPY
US Small Cap Value20%VBR
US Long-Term Bonds20%TLT
US Short-Term Bonds20%SHY
Gold20%GLD

Performance: 25.8-Year Backtest

Data for Gold starts 2000. Simulation covers 25.8 years.

Golden Butterfly Portfolio
── Actual ETF data   ╌╌ Proxy index data

$10,000 initial investment → $73,427

Annual Returns

2000–2013

'00'01'02'03'04'05'06'07'08'09'10'11'12'13
-3+5+8+19+6+14+10+10-12+15+16+15+6+3

2014–2026

'14'15'16'17'18'19'20'21'22'23'24'25'26
+12-5+12+11-1+15+13+8-5+5+16+21+2

Key Metrics

CAGR+8.54%
Max Drawdown-17.6%
Volatility8.0%
Sharpe Ratio0.82
Sortino Ratio1.34
Best / Worst Year2025 / 2008

What is it?

The Golden Butterfly is a five-asset portfolio popularized by the portfolio-analysis website Portfolio Charts, designed as an evolution of Harry Browne's Permanent Portfolio. It splits assets equally into five 20% wings: US large-cap stocks, US small-cap value stocks, long-term Treasury bonds, short-term Treasury bonds, and gold.

The philosophy

The core idea is to keep the resilience that made the Permanent Portfolio attractive — an equal mix of growth, deflation, and inflation hedges — while addressing its biggest weakness: comparatively weak long-run growth. Small-cap value stocks have historically produced some of the highest long-term returns of any public asset class, so adding a dedicated 20% sleeve to them, funded by trimming the original stock allocation, is meant to meaningfully raise the portfolio's compound growth rate without abandoning the "something works in every environment" philosophy.

How it works

Large-cap stocks (20%) and small-cap value stocks (20%) together form the growth engine, with small value historically adding a return premium during strong economic periods. Long-term bonds (20%) do best during deflation and falling-rate periods, and short-term bonds (20%) act as a stable ballast that also holds up well during recessions. Gold (20%) remains the dedicated inflation and crisis hedge. Because each wing responds to a different environment, rebalancing periodically sells whichever wing has become relatively expensive and adds to whichever has lagged.

Who is it for?

The Golden Butterfly suits investors who liked the defensive character of the Permanent Portfolio but want a higher expected long-run return and are comfortable adding a volatile-but-historically-rewarded asset class (small-cap value) to get it. It fits a medium-to-long time horizon and a moderate risk tolerance — more aggressive than the Permanent Portfolio, but still meaningfully more conservative than a standard 60/40 or all-equity approach.

Key strengths & trade-offs

Its strength, according to backtested history, is a favorable balance of strong risk-adjusted returns and historically shallow maximum drawdowns compared to many other five-asset portfolios. The trade-off is that small-cap value can go through long stretches of underperformance relative to large-cap growth stocks (as it did for much of the 2010s), which can test an investor's patience, and — like the Permanent Portfolio — its 40% combined bond allocation is sensitive to sustained periods of rising interest rates.

Historical performance in context

In backtests the Golden Butterfly has combined resilience with respectable growth: its gold and long-bond wings cushioned 2008, while the small-cap value and large-cap wings powered strong recoveries. Its weakest relative stretch was the 2010s, when small-cap value badly lagged large-cap growth and gold went years without gains, causing the portfolio to trail flashier equity-heavy mixes. The small-value premium's sharp 2021 rebound then illustrated why the wing is kept — factor leadership rotates unpredictably.

Common variations

Investors often implement the large-cap wing with a total US market fund and the small-value wing with a dedicated small-cap value ETF such as AVUV or VBR. Some blend the long- and short-bond wings into a single intermediate fund for simplicity, at the cost of some rebalancing benefit. It is frequently compared with its ancestor in the Permanent vs Golden Butterfly view.

Risk Level

balanced

Rebalancing

annual

Number of Assets

5

Best For

Long-term investors wanting a smoother ride than all-equity

Before using this allocation

  • • Match the strategy's drawdown history to the amount of loss you could tolerate without abandoning the plan.
  • • Check whether its stock, bond, international, and inflation-sensitive sleeves address the risks that matter for your time horizon.
  • • Compare the same historical period and rebalancing rule against alternatives before changing a target allocation.

Related reading

Try This Strategy in the Simulator →

Or see the growth of $10,000 in the Golden Butterfly Portfolio over the past 30 years.

Hypothetical historical performance based on backtested data. Past performance does not guarantee future results. This site is for educational purposes only and does not constitute investment advice. Full disclaimer