60/40, All Weather, Permanent Portfolio i Golden Butterfly

DISCLAIMER: Educational content, not investment, tax or legal advice. Consult licensed advisor.

Intro: Why Need Portfolio That Earns While You Sleep?

As trader you depend on own activity. No trading - no income. That’s active income. Long-term portfolio is passive in management: once configured, rebalanced quarterly, grows for decades while you scalp.

Problem: which model choose? Internet full of conflicting advice: “buy 100% stocks”, “buy gold”, “buy bonds”. In this lesson dissect 4 portfolios with documented 50+ years history that survived every crisis.

Table of Contents

1. 60/40 portfolio - classic that died and resurrected
2. Formula 110-age vs 100-age
3. Harry Browne’s Permanent Portfolio - end-of-world portfolio
4. Ray Dalio’s All Weather Bridgewater - Risk Parity
5. Golden Butterfly - improved permanent
6. Comparison table of 4 portfolios
7. Why important for trader
8. How to apply in Poland & US (specific ETFs)
9. Case Study: 100k PLN / $25k over last 15 years
10. Beginner mistakes
11. Exercises and Checklist

1. 60/40 Portfolio - Classic

Allocation: 60% global stocks / 40% global bonds (or US Aggregate).

History: Created by William Sharpe. For 100 years gave ~9.5% yearly nominal in US. In 2022 had worst year since 1937: -17% because stocks and bonds fell together.

For whom: For lazy and effective. If you want 1 ETF, VWCE is not 60/40. Need two: 60% VWCE + 40% AGGH (global aggregate hedged).

Age formula:

Traditional banker formula:

`Stock% = 100 - Age

But with longer life expectancy and low rates, new school:

Stock\% = 110 - Age

Bond\% = 100\% - Stock\%

Example: You are 34. Old school: 66% stocks / 34% bonds. New school:110 - 34 = 76\%stocks, 24% bonds.

For aggressive trader we recommend 110-age because trading bucket is already super aggressive. Retirement bucket can be balanced.

2. Permanent Portfolio Harry Browne (1970)

Harry Browne, libertarian, created portfolio for 4 economic seasons:

• Prosperity: Stocks rise
• Inflation: Gold rises
• Deflation / Recession: Long-term bonds rise
• Stagflation: Cash (short bonds) saves

Allocation: 25% stocks (VTI), 25% long-term bonds (TLT), 25% gold (GLD), 25% cash (BIL).

Results: 1970-2024 ~8.2% yearly, max drawdown only -12.4% vs -51% for S&P 500. Sortino 2x better than 60/40.

Downside: 25% gold is lot, caps gains in bull market.

3. All Weather Ray Dalio - Risk Parity

Dalio noticed in 60/40 90% risk comes from stocks. Stocks vol 16%, bonds 5%. If you weight by capital 60/40, you weight by risk 90/10.

Risk Parity weights INVERSE to volatility:

Weight_i = (1/σ_i/Σ(1/σ_j)

Original All Weather Bridgewater (simplified for retail):

• 30% global stocks
• 40% long-term bonds (15-20y)
• 15% medium-term bonds (7-10y)
• 7.5% gold
• 7.5% commodities (DBC)

Why works: When rates rise, long bonds suffer but commodities and stocks pull. When deflation, long bonds explode up (duration).

Risk Parity with leverage formula: Bridgewater uses 1.5-2x leverage on bonds to equal risk. You don’t need - just give more bonds.

4. Golden Butterfly - Best for Pole?

Created by Tyler at PortfolioCharts as fix to Permanent. Splits stocks into two halves:

Allocation:

• 20% Large Cap US (S&P 500)
• 20% Small Cap Value
• 20% long-term bonds 20y+
• 20% short-term (1-3y)
• 20% gold

Why Golden Butterfly interesting for trader? SCV historically gives +2-3% premium over S&P. Adding it is nod to value factor traders understand. And has smaller drawdown than pure 60/40.

5. Comparison Table - Data 1970-2024, USD

Conclusion: Golden Butterfly has almost 60/40 return with 30% less volatility.

6. Why Important for Trader?

Because your retirement portfolio CANNOT be correlated with your trading.

If you day-trade NAS100 and your IKE is QQQ (NASDAQ ETF) - you are double long tech. Tech crisis = lose income and retirement. Suicide.

Trader needs portfolio that is negatively or zero correlated with his style. If you trade growth stocks, retirement should be Golden Butterfly or Permanent that has gold and long bonds - assets rising when growth breaks.

7. How to Apply in Poland & US - Specific ETFs

You cannot always buy VTI, TLT in EU without KID and tax. Use UCITS in PL, US ETFs in US.

Implementation 60/40 for Pole (110-age for 34):

• 76% stocks: VWCE (IE00BK5BQT80) - accumulating, TER 0.07%, global
• 24% bonds: AGGH (IE00BDBRDM35) - Global Aggregate Hedged EUR, TER 0.10%

US equivalent:

• 76% VT - global stocks
• 24% BND - US aggregate

Implementation Golden Butterfly PL:

• 20% Large Cap: SXR8 (IE00B5BMR087) - S&P 500 Acc, TER 0.07%
• 20% Small Cap Value: ZPRV (IE00BSPLC413) - US SCV, TER 0.30% or AVUV via IBKR
• 20% Long Bonds: DTLE (IE00B1FZS798) - US Treasury 20+ Y
• 20% Short Bonds: IB01 (IE00B14X4Q57) - T-Bill 0-1y
• 20% Gold: 4GLD (IE00B8H15F13) - physical gold, TER 0.15%

US:

• 20% VTI, 20% AVUV, 20% TLT, 20% SHY, 20% GLDM

Cost total: ~0.11% annually. Less than one CFD commission.

Rebalancing: Quarterly sell what grew >20% from target, buy what fell.

8. Case Study: 100,000 PLN / $25k 2010-2025

Assume in 2010 Marek invested 100k in 3 portfolios and forgot.

60/40: 100k -> 298k PLN ($74.5k) (9.0% CAGR) max DD -22% in 2022. Permanent: 100k -> 241k PLN ($60k) (6.05% CAGR PLN after costs), max DD -8.5% - slept well. Golden Butterfly: 100k -> 285k PLN (~$71k), max DD -9% - best sleep to profit ratio.

Difference 57k PLN between 60/40 and Permanent is price you pay for peaceful sleep. For trader who has stress from trading, cheaper to sleep.

In USD terms: $25k -> 60/40 to ~$87k, Permanent to ~$66k, Golden Butterfly to ~$82k 2010-2025.

9. Beginner Mistakes

1. 100% stocks because “I’m young”: Yes you are 34, but brain won’t survive -45% on IKE and -40% trading at same time. Capitulate at bottom.
2. Copying All Weather without understanding duration: Buying short-term bonds instead of long and wondering hedges don’t work in 2020. Duration matters: DTLE duration ~17y, IB01 - 0.3y.
3. Mixing currencies without hedging: Everything in USD and crying when PLN strengthens 15%. For bonds in retirement bucket choose hedged to EUR (AGGH) not unhedged.
4. No Small Cap Value in Poland: “ZPRV has low volume”. Yes but alternative is no factor exposure. Use limit order, not market.

10. Practical Exercises

Exercise 1: Calculate your age and Stock% with formula 110-age and 100-age. Which closer to tolerance? Exercise 2: Go to PortfolioCharts.com and simulate 60/40 vs Golden Butterfly for your country (PL not there, use Germany proxy). Exercise 3: Check correlation: how correlated are your trading transactions (e.g. long NASDAQ) with VWCE? If >0.7, retirement portfolio should have more gold and bonds.

11. Checklist

• Chose portfolio model (for start recommend Golden Butterfly for trader)
• Calculated target stocks = 110 - age
• Found UCITS ETF for each block (min 4 tickers)
• Checked correlation of trading with long-term portfolio
• Set rebalancing calendar: Mar 15, Jun, Sep, Dec
• Understood Risk Parity: more bonds = less risk from stocks

Summary and Next Steps

No perfect portfolio. There is portfolio that allows you to survive.

• Want max profit and can handle -30%? 60/40 with formula 110-age.
• Want sleep like baby and trauma after 2022? Permanent Portfolio.
• Want best of both worlds and advanced? Golden Butterfly.
• Want Ray Dalio billion AUM portfolio? All Weather.

For most traders 34yo: Golden Butterfly or 60/40 with 20% extra gold is sweet spot.

Next lesson you learn most important mechanical skill: rebalancing and correlations. Because even best portfolio without rebalancing becomes random mix after 2 years bull.