I. Main Topic#
The most important thing in investing is maximizing the probability of success, not maximizing returns. Investors should control risks, avoid being forced to interrupt compounding due to market fluctuations, and choose investment portfolios that can be held for the long term. James emphasizes the importance of asset allocation, especially the role of cash, and the need to choose appropriate investment strategies based on different individuals (retired/not retired, different asset sizes).
II. Briefing Content#
- The Most Important Thing in Investing:
- The goal of investing is to maximize the probability of success, not to maximize the rate of return.
- Risk management is to maximize the success of the investment portfolio and avoid interrupting compound growth due to being forced to sell because of market fluctuations.
- Good investment assets must be able to withstand fear and panic. The best investment strategies are those that do not create fear and panic.
- Sufficient cash is the best asset to help you sleep well and survive a sharp market decline.
- Risks of Stock Pledging:
- Stock pledging can easily lead to bankruptcy if asset allocation is not done properly.
- Do not try stock pledging lightly if you do not understand the operating principles of stock pledging, otherwise, you will most likely go bankrupt.
- Most people do not need to do stock pledging. Good asset allocation can make you rich without pledging.
- Asset Allocation for Different Individuals:
- Individuals who are not retired and have salary income: Refer to the article “Asset Allocation for Those Who Are Still Some Time Away from Retirement”, with QQQ as the main investment.
- Individuals who are retired and have no income: Refer to the article “Asset Allocation for Those Who Are Retired and Have No Income”, and choose QQQ, SPY, or high-dividend ETFs for allocation based on asset size, and consider the withdrawal rate.
- Investment and Life Philosophy:
- Investing is like life. It requires continuous learning and experiencing different stages to find an investment strategy that suits you.
- Resist temptation, avoid chasing short-term hotspots, and adhere to long-term investment.
- A-share Market Volatility:
- The A-share market has recently experienced a surge and a plunge, with many investors being trapped due to chasing hotspots.
- Market fluctuations are normal, especially in emerging markets. Investors need to be rational and adhere to long-term investment strategies.
- The Chinese government’s cooling measures are aimed at preventing further expansion of the bubble and protecting the interests of investors.
- Beware of Pump and Dump Schemes:
- Some online groups and “teachers” use market forecasts and insider information to induce investors to make trades and profit from them. Be wary of these pump and dump schemes.
- The futures market, due to its smaller scale, is more susceptible to manipulation. Be wary of pump and dump schemes in the futures market as well.
- CLEC Investment and Financial Management Channel Update Plan:
- Due to the time-consuming nature of producing short videos and the low viewership, we plan to stop updating short videos.
- The content of the produced short videos will be condensed into a briefing format and shared with you on Saturdays for discussion.
- It is recommended that you listen to long videos several times or listen to them in segments to achieve the same learning effect.
III. Q&A Session#
Ethan:
- Sharing: In China, a similar effect to stock pledging can be achieved through the margin financing function of securities firms.
- Sharing: The A-share market has recently experienced drastic fluctuations, and many investors have been influenced by the media to chase hotspots, resulting in heavy losses.
- Viewpoint: If you don’t have the right understanding of the stock market, you are the victim.
Jackie:
- Sharing: Her personal journey of investing in the Nasdaq, from skepticism to firm holding, and finally overcoming psychological barriers to achieve “buy whenever you have money”.
H:
- Sharing: Followed recommendations for meme stocks in 2021, resulting in heavy losses. Started gradually transferring funds to QQQ in 2023 and using leverage.
- Question: The current proportions of QQQ, QLD, and SGOV have deviated from the initial 70%, 20%, and 10%. Is rebalancing needed? How should it be rebalanced?
- James’s Reply: It is recommended to adopt a smart rebalancing strategy. Transfer 30% of the QLD profits to SGOV. When the market falls, transfer 2% of the total assets in cash to QLD.
Im:
- Sharing: Uses the mural story of Journey to the West as an analogy for the different stages of investment, reminding investors not to chase short-term gains and to adhere to long-term investment and continuous learning.
- Question: How to persuade people who spend extravagantly to develop the habit of saving?
- James’s Reply: You can introduce them to the concept of long-term investment in index funds and the power of compound growth. Provide help within your means.
- Question: If you also have the habit of spending extravagantly, how do you control it?
- James’s Reply: Live within your means. As your wealth grows, it is normal for your living standards to gradually improve within the scope of risk control, but avoid excessive consumption and spending beyond your means.
Sunny:
- Sharing: The CLEC course not only teaches investment knowledge but also conveys life philosophy, helping everyone maintain a stable mindset in life and work.
- Viewpoint: People with stable emotions are the most valuable. Investing in QQQ also brings peace of mind.
Beisen:
- Background: Assets of 70 million, monthly mortgage payment of 125,000.
- Question: How to allocate assets to achieve early retirement?
- James’s Reply: Based on the current assets and expenses, immediate retirement is not possible. It is recommended to try the SPY asset allocation strategy, or use part of the funds to invest in high-dividend ETFs, and control the withdrawal rate.
Kevin:
- Question: Why has Tesla fallen so much?
- James’s Reply: Investing in individual stocks requires understanding the company better than the CEO to grasp the ups and downs of the stock price. If you don’t understand Tesla’s business model, you shouldn’t invest in it.
- Question: If you are very confident in Tesla, can you hold it for the long term?
- James’s Reply: If you truly understand and are optimistic about Tesla, you can hold it for the long term, but you must manage risks well.
- Question: Does the teacher think the stock market will fall to zero?
- James’s Reply: “Falling to zero” is a figure of speech, which means that even if the stock does not completely fall to zero, it will not be able to be realized if it falls to a certain level, and cash is needed to maintain life.
Ming:
- Sharing: I have invested in individual stocks before, and they all ended up going to zero in the end, so now I want to learn how to invest in index ETFs.
- Background: Total assets of 3.3 million, of which 2 million are in a brokerage account, 300,000 are in a Roth account, and 1 million are in a traditional IRA account. About to retire.
- Question: How to allocate cash and index ETFs?
- James’s Reply: It is recommended to fully invest the brokerage account in SPY, the Roth account in TQQQ, and 60% of the traditional IRA account in money market funds and 40% in SPY.
- Question: How to withdraw funds after retirement? Do you sell even in a loss state?
- James’s Reply: After retirement, you can withdraw 3% of your total assets for living expenses. You can sell SPY or obtain funds through stock pledging loans. You have to sell even in a loss state because you need cash to maintain your life.
- Question: Is the risk of investing in TQQQ in a Roth account too high?
- James’s Reply: It is to maintain a certain cash ratio while obtaining relatively high returns. In extreme cases, you can transfer cash from the traditional IRA to the brokerage account or sell TQQQ to supplement cash.
- Question: How to transfer funds from a traditional IRA to a Roth account?
- James’s Reply: Transfer out a portion of the money every year and use loans or salary to pay taxes.
- Question: Why is the borrowing interest rate 5% and the cash interest rate only 2.5% when calculating interest in SPACE?
- James’s Reply: This is just a conservative estimate. The yield of money market funds is usually lower than the borrowing interest rate.
Sara:
- Sharing: I have been investing in QQQ for three years and recently also invested in meme stocks.
- Question: I plan to borrow money to invest. Should I buy QLD? How should cash be allocated?
- James’s Reply: Based on Sara’s questions, it can be seen that she does not understand the concepts of stock pledging, leveraged ETFs, and asset allocation. Borrowing money to invest is not recommended. It is recommended to continue holding the 80% QQQ + 20% cash portfolio, and cash can be invested in BOXS.
Tom:
- Question: How to maintain the cash ratio and avoid excessive tax rates in the case of long-term borrowing to live?
- James’s Reply:
- Leveraged ETFs and cash should be placed in retirement accounts as much as possible.
- Borrowing from a brokerage account should not exceed 70% of the account assets.
- Invest Roth IRA in TQQQ and hold cash in a traditional IRA.
- In extreme cases, the cash in the traditional IRA can be transferred to the brokerage account or TQQQ can be sold to supplement cash.
- The borrowing amount should be controlled within a certain range, for example, not exceeding 2% of the total assets per year.
- Taxes incurred by transferring a traditional IRA to a Roth IRA can be paid with loans or salary.
- Question: Why is the borrowing interest rate 5% while the cash interest rate is only calculated as 2.5% in SPACE?
- James’s Reply: This is just a conservative estimate. Money market fund yields are usually lower than borrowing rates.
- Question: How to handle it if funds in the Brokerage account need to be used before retirement?
- James’s Reply: You can use the funds in the Brokerage account for a pledge loan, but you need sufficient cash as a guarantee.
- Question: What if the cash in the Brokerage account is insufficient to cover the loan in the event of an extreme stock market decline?
- James’s Reply: In extreme cases, you can transfer the cash in the Roth or Traditional IRA account to the Brokerage account, but this is an emergency measure and will incur penalties.
- Question: Is investing TQQQ in a Roth IRA too risky?
- James’s Reply: Investing Roth IRA in TQQQ is to obtain higher returns while ensuring a certain cash ratio. If you are concerned about risks, you can appropriately reduce the proportion of TQQQ and increase the proportion of money market funds.
- Question: In the long run, will borrowing from a Brokerage account lead to paying high taxes?
- James’s Reply: Borrowing itself does not increase the tax burden, but it can avoid the tax burden caused by selling stocks. However, if you transfer funds from a Traditional IRA to a Roth IRA, it will increase your taxable income for the year and you will need to pay additional taxes.
IV. Highlights#
The most important thing in investing is maximizing the probability of success, not maximizing the rate of return. – James
To achieve long-term stable returns, control risks, avoid being forced to interrupt compound growth due to market fluctuations, and choose investment portfolios that can be held for the long term.
Don’t try stock pledging lightly if you don’t understand it. – James
Stock pledging is very risky if not done properly and can lead to bankruptcy.
Most people don’t need to do stock pledging and can still become wealthy without it. – James
Good asset allocation and long-term investment can lead to financial freedom even without stock pledging.
If you don’t have the right understanding of the stock market, you are the victim. – Ethan
Learn investment knowledge, understand market rules, and avoid becoming a韭菜 (leek, a metaphor for someone easily exploited in the stock market).
Investing is like life. You need to keep learning to find an investment strategy that suits you. – Im
Investing is a continuous learning process. You need to constantly improve your cognitive level to succeed in the market.
People with stable emotions are the most valuable. Investing in QQQ also brings peace of mind. – Sunny
Investing requires rationality and avoiding emotional trading to succeed in market volatility.
Rotten apples don’t get better, and broken elevators don’t fix themselves. – James
If the individual stocks you hold are not performing well, cut your losses in time and switch to more potential investment targets.
V. Summary#
This episode emphasizes the importance of risk management and asset allocation and gives specific investment advice for different groups of people. James answers the audience’s questions about stock pledging, asset allocation, individual stock selection, market fluctuations, pump and dump schemes, etc., to help everyone better understand the concept and methods of long-term investment. At the same time, James also announced the future update plan of the CLEC Investment and Financial Management Channel, which will stop updating short videos and condense the content of the short videos into a briefing format for sharing on Saturdays.