The Golden Butterfly is a fixed allocation strategy that takes the Permanent Portfolio's all-weather philosophy and adds an extra growth engine: small cap value stocks. The result is a five-asset portfolio that maintains the Permanent Portfolio's defensive character while capturing additional return from one of the most persistent factors in finance.
What Is the Golden Butterfly?
The Golden Butterfly allocates equally across five asset classes, each at 20%:
- 20% U.S. Total Stock Market — broad equity exposure
- 20% Small Cap Value — the factor premium kicker
- 20% Long-Term U.S. Treasury Bonds — deflation hedge
- 20% Short-Term U.S. Treasury Bonds — stability and recession protection
- 20% Gold — inflation hedge
Compared to the Permanent Portfolio (4x25%), the Golden Butterfly replaces the cash allocation with small cap value stocks and splits the equity component into broad market and small cap value. This seemingly small change has meaningful implications for long-term returns.
Who Created It?
The Golden Butterfly was developed by Tyler, the anonymous creator of the Portfolio Charts website (portfoliocharts.com). Tyler's extensive analysis of historical portfolio performance across different time periods and withdrawal rates led him to identify this specific five-asset combination as having exceptional consistency of returns — not necessarily the highest returns, but the narrowest range of outcomes across starting dates. Tyler published the Golden Butterfly in the mid-2010s, and it quickly gained a following among the financial independence (FIRE) community.
How Does It Work?
Like all fixed allocation strategies, the Golden Butterfly is refreshingly simple:
- Allocate 20% each to: U.S. total stock market (VTI), small cap value (VBR/VIOV), long-term Treasuries (TLT), short-term Treasuries (SHY), and gold (GLD).
- Rebalance annually or when any allocation drifts significantly from target.
- No tactical signals — the portfolio stays fully invested at the target weights year after year.
The small cap value allocation is the differentiator. The Fama-French three-factor model shows that small cap value stocks have historically earned a premium over the broad market, and this premium has been remarkably persistent across countries and time periods. By dedicating 20% to this factor, the Golden Butterfly captures additional return without adding tactical complexity.
Historical Performance
Based on BestFolio's backtest from August 2000 through March 2026 (25+ years):
- CAGR: ~7.9%
- Maximum Drawdown: -19.9%
- Backtest Period: 25 years
These numbers are particularly impressive given the start date: August 2000 was just months before the dot-com crash, meaning this backtest includes two of the worst bear markets in modern history right at the beginning. Despite starting at one of the worst possible times for equities, the Golden Butterfly delivered strong risk-adjusted returns with drawdowns significantly lower than a Classic 60/40 portfolio (-34.7% max drawdown).
The consistency of returns across different starting dates is what truly sets the Golden Butterfly apart — Tyler designed it specifically to minimize the impact of sequence-of-returns risk, making it particularly attractive for retirees and those approaching financial independence.
Pros and Cons
Pros
- Excellent risk-adjusted returns: Strong Sharpe and Sortino ratios relative to simplicity.
- Consistent outcomes: Among the best strategies for minimizing sequence-of-returns risk.
- Simple implementation: Five ETFs, annual rebalancing, no signals to follow.
- Factor exposure: Captures the small cap value premium systematically.
- Moderate drawdowns: -19.9% max DD is very manageable for most investors.
Cons
- SCV premium uncertainty: The small cap value premium has been weaker in recent years — some argue it's been arbitraged away.
- Gold allocation may seem high: 20% in gold is a significant commitment to a non-yielding asset.
- No tactical overlay: Stays fully invested through all market conditions.
- Shorter backtest: Small cap value ETFs only go back to ~2000, limiting the historical analysis.
Try It on BestFolio
The Golden Butterfly is available as a free strategy on BestFolio. Explore the full backtest, compare it against the Permanent Portfolio and other fixed allocations, and see its year-by-year returns across different market environments.
View Golden Butterfly on BestFolio →
For a deeper comparison of fixed allocation approaches, check out our analysis: Golden Butterfly vs All Weather vs 60/40.