Retirement and Financial Independence

The Golden Butterfly and The All Weather Portfolio

Updated on October 11, 2019 Updated on October 11, 2019
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The All Weather Portfolio and The Golden Butterfly

A lot can happen over the decades. There will be recessions, bear markets, bull markets, political upheaval, possibly even depressions. What should we do with our money in each of these scenarios? Do we up-end our asset allocation every time some pundit is on CNBC screaming at us?

Certainly not. One of the critical components of our investment philosophy is to set it and forget it.  When you are always buying and selling based on the prevailing economic conditions, you’re practicing the exact opposite of set it and forget it investing.

We need to create a portfolio that performs well in all conditions. Well, we don’t need to create this portfolio because someone has done it for us. And that someone is not just anyone. He happens to be Bridgewater Associates hedge fund manager Ray Dalio, one of history’s legendary investors.

Ray Dalio created what is known as the All Weather Portfolio which contains the exact asset allocation you need to make money in any kind of economy. But Ray Dalio’s All Weather Portfolio has some competition, in the form of the Golden Butterfly Portfolio. LMM is a huge Ray Dalio fan. 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. May the best portfolio win.

The Coming Recession

The Wall Street Journal polled economists on the likelihood of a recession and when they expected a recession to happen. The results are frightening, more than 80% of those polled believe we’re just one to two years away from a recession.

Added to the chorus of voices is Ray Dalio. In February 2018, he stated he believed we were two years away from a recession.

“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,”

This is a scary prediction for investors of any age. 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.

What we need is an investment strategy with a permanent portfolio of investments that can weather anything the economy throws at it. And add to our wish list, an investment strategy that doesn’t depend on trying to time the market.

Two Main Ingredients

All of this sounds like a tall order, but it’s pretty simple. 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 our returns; diversification and risk-weighted return.


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.

Being diversified means nothing more than spreading your investment dollars out across various asset classes and different sectors within those asset classes.

The trick is to take risks and be paid for taking those risks. To take a diversified basket of risks in a portfolio.

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If we’re talking about stocks, we might own stock in logistics companies (UPS, FedEx) and banking (Morgan Stanley, Goldman Sachs. If logistics stocks are down, that’s okay because banking stocks might be up. You would also have money invested in real estate and gold to diversify further.

Put simply, don’t out all of your eggs in one basket. Low-cost index funds are an excellent way to ensure that you have a well-diversified portfolio.

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. If two investments have the same return over a given period, the investment with the lowest risk will have the better risk-weighted return.

Here’s an example:

Vanguard’s Total Stock Market Fund

  • Average Annual Return (since 1970) +7.6%
  • Deepest Drawdown (2008) -49.3%

Golden Butterfly (we’re going to cover this below)

  • Average Annual Return (since 1970) +6.2%
  • Deepest Drawdown (2008) -10.8%

You can see the peril of chasing returns. TSMF (Total Stock Market Fund) had a mere 1.4% earned per year advantage over Golden Butterfly but lost 38.5% more! The Golden Butterfly investor made slightly less but had a minimal loss compared to TSMF.

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The Golden Butterfly

The Golden Butterfly is a small change to the All Weather Portfolio.

While Dalio is agnostic about the stock market, the Golden Butterfly skews toward prosperity. And for a good reason. Over time, there have been more times of economic growth than times of decline and recession.

This is what The Golden Butterfly Portfolio looks like:


The picture above is our personal automated setup of it using M1 Finance:

M1 Finance They are perfect for investors who don't want to be largely hands-off but still have the ability to pick a handful of individual stocks. We specifically use them for the Golden Butterfly portion of our portfolio. Invest For Free M1 Finance

You’ll notice we use JUST which is our Socially Responsible Investing replacement for Vanguard’s Total Stock Market fund, VTI. We want our retirement to not only earn us money but help make sure we have a world worth retiring in. Not coincidentally, the SRI Large Cap fund JUST outperforms VTI.

We went into detail on the JUST decision in our Socially Responsible Investing episode.

If you want the original allocation, you can find it here.

Asset Breakdown


  • 20% Domestic Large Cap Fund (Vanguard’s VTI or Goldman Sach’s JUST)
  • 20% Domestic Small Cap Value (Vanguard’s VBR)


  • 20% Long Term (Vanguard’s BLV)
  • 20% Short Term (Vanguard’s BSV)

Real Assets:

  • 20% Gold (SPDR’s GLD)


The Golden Butterfly weights toward prosperity because we’re more often in periods of prosperity, by doubling equity assets. It also has exposure to the value premium with the addition of US small-cap value. The All Weather Portfolio contains commodities and uses a rough risk-parity weighting that means a significantly more significant allocation to long-term Treasuries.

During backtesting, Golden Butterfly’s performance against a 100% stock market portfolio over the last 43 years found that GB had almost the same long-term real compound annual growth rate, but with 60% less volatility. It’s worst year saw a loss of only 11% and the longest drawdown period was just two years.

The Golden Butterfly also optimizes the safe withdrawal rate.

Not only was the Golden Butterfly great for accumulation overall timeframes, but it was also vastly superior in retirement with 40-year Safe and Perpetual withdrawal rates nearly 2%(!) higher than the stock market equivalent.

Ray Dalio’s All Weather Portfolio

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? Well, after realizing that he had made and would continue to make more money than he could spend it a billion lifetimes, he knew he needed to set up a trust.

Since he wouldn’t be around to oversee the trust, he needed to create a portfolio that would make money in all market conditions.

According to Dalio, growth and inflation are all that matters. They are either up or down, and there are various combinations. Growth is up; inflation is down. Growth is down, inflation is up, etc.

Dalio broke this up into four quadrants and designed a portfolio that would perform well in each. He used back-testing to simulate his strategy using historical data to see the results and analyze the risk and profitability.

Ray Dalio Chart

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. Whenever you start investing with the All-Weather Portfolio, it won’t impact the performance.


  • 30% Domestic Total Stock Market (VG total stock)


  • 40% Long Term
  • 15% Intermediate-Term

Real Assets:

  • 7.5% Commodities
  • 7.5% Gold

All Weather Portfolio

This is what the All Weather Portfolio looks like on M1 Finance using the best ETFs with the lowest fees:

Optimize For What Matters

We all have priorities when it comes to investing, and our portfolio should reflect that. For some of us, it’s time horizon.

If you’re 25, go for broke and heavily weight your portfolio towards stocks. You have enough time to make up losses suffered in down years.

If you’re nearing retirement age, you don’t have as much time to make up losses, so you need a more conservative approach, weighting your portfolio toward bonds.

Is your retirement plan to use the 4% rule? The 4% rule states that if you only withdraw 4% of your invested money each year to live on, your money will not run out for at least 30 years. A lot of experts feel the 4% rule is outdated and it should be 3.5% or less.

With TSMF, you can only afford to withdraw 3.5%, but Golden Butterfly allows you to withdraw 5.3%.

Golden Butterfly is giving you consistent, less risky returns.

For some of us, automation is what matters. We don’t want to think about any of this; we have more important things to worry about. We want a permanent portfolio for all seasons.

We Haven’t Been Holding Out

Ever since we did the episodes about the coming recession and updates on Andrew and Laura’s rental properties, we have been getting tons of questions about what Andrew’s investment strategy would be.

We haven’t answered because he wasn’t sure! He has so much money sitting in an opportunity fund making jack interest because he hadn’t yet decided what to do. That’s how this episode was born. He was researching his options and started looking into stock portfolio options.

If you’ve listened for any length of time, you know Andrew is a big Ray Dalio fan and for a good reason. The guy has some of the highest returns in the business. So it came as a surprise to even Andrew when he found himself leaning more toward the Golden Butterfly than the All Weather.

But that’s the plan. While we are expecting a recession, the historical data doesn’t lie. Our economy experiences more periods of economic growth than periods of recession. All Weather was built for well, all weather. But we have more good weather than bad, so in the battle of the portfolios, Golden Butterfly was our winner.

Show Notes

Philoso Rapper: A Belgium Style Ale.

Double Dry Hopped Coriolis Effect: A New Zeland Style IPA

Candice Elliott - Editor-in-Chief
Candice Elliott is a substantial contributor to Listen Money Matters. She has been a personal finance writer since 2013 and has written extensively on student loan debt, investing, and credit. She has successfully navigated these areas in her own life and knows how to help others do the same. Candice has answered thousands of questions from the LMM community and spent countless hours doing research for hundreds of personal finance articles. She happily calls New Orleans, Louisiana home-the most fun city in the world.
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