I. Main Topic#
This lecture focuses on the importance of long-term investing and asset allocation, especially the significance of holding cash (undamaged capital). James reiterates the idea that “the only constant in the market is volatility” and advises investors to adopt a “buy and hold” strategy similar to Warren Buffett’s, investing long-term in Nasdaq 100 index funds (QQQ or 00662). He uses a rent vs. buy case study to demonstrate the advantages of long-term index fund investing. He also explains in detail the importance of maintaining undamaged capital (cash) in asset allocation to buy the dip during market downturns, thereby achieving long-term stable investment returns.
II. Summary#
Investment Philosophy and Strategy#
- Long-term Holding: Investing requires a timeframe of 20+ years, ideally forever, without worrying about short-term market fluctuations. James uses Warren Buffett as an example, emphasizing the importance of long-term holding, stating that if one isn’t prepared to hold for the long term, they shouldn’t even hold for 10 minutes.
- Invest in the US: The US is the best country for fairness, justice, and open innovation, so invest only in the US.
- Index Funds: Invest in Nasdaq 100 index funds (QQQ/00662), and recommends new viewers watch introductory videos 00451, 288, and 398.
- Market Volatility: The only constant in the market is volatility. Ignore market fluctuations and adhere to long-term holding. The 2022 market correction was just a financial event, not a bubble.
- Bubbles: Bubbles are rare, occurring only twice in the past 25 years. The best way to deal with them is to ignore them and continue holding index funds.
Asset Allocation and Cash Management#
- Undamaged Capital: Having undamaged capital (cash) is crucial. It helps investors stay calm during market panics and buy the dip, just like wealthy individuals.
- The Significance of Cash: Cash is a stabilizing force that overcomes human flaws in investing (fear and greed), allowing the power of compounding to fully take effect.
- Cash Ratio: Recommends a cash allocation of at least 20% in the portfolio.
- Retirement Planning: To withdraw $30,000 annually from an investment account after retirement, $1.5 million in cash is needed. James suggests withdrawing $50,000 annually, requiring $2.5 million in cash, approximately 20% of total assets.
Real Estate Investment#
- Renting is Superior to Buying: In the long run, renting and investing in index funds yields higher returns than buying a house. James shares a PC Excel spreadsheet example demonstrating the advantages of rental investment and encourages viewers to modify the parameters for simulation calculations.
- Selling Advice: Recommends selling real estate and land, investing the funds in the stock market. There’s no real estate that can’t be sold, only prices that are too high. Even if sold at a lower price, investment returns may quickly compensate for the difference.
- Short-term Rental Investment: Short-term rental investments aren’t worthwhile unless the annualized return is at least 20%.
Retirement Account Management#
- Traditional IRA to Roth IRA Conversion: Recommends converting funds from traditional IRA accounts to Roth IRA accounts when tax rates are lower (below 24%).
- Roth IRA Investment: Recommends investing in leveraged ETFs (TQQQ) within Roth IRA accounts, while holding more cash in traditional retirement accounts. Shares a case study suggesting viewers invest Roth IRA funds in TQQQ and hold more cash in traditional retirement accounts to optimize asset allocation.
- Leveraged ETFs: Retirees should not hold leveraged ETFs. Leveraged ETFs should be held in Roth IRA accounts.
III. Q&A Session#
Lora#
- Question 1: How can I deduct the interest on a pledged loan against the interest earned on cash holdings?
- James: There’s no deduction. If the interest earned on your cash is higher than the loan interest, you’re effectively earning more. I recommend buying non-dividend-paying stocks in your personal account, like BOXX, to avoid paying taxes on interest income. Since you don’t have a Roth IRA, you can only operate within a brokerage account and will incur some tax costs.
- Question 2: Which trading software do you recommend?
- James: Just use your broker’s website; no need for additional software. I only use the web version. The “positions” page on your brokerage website allows you to view the profit and loss of each transaction and manage them in batches.
Run#
- Question 1: Can Roth IRA funds be pledged as collateral?
- James: Roth IRA funds cannot be directly pledged. However, they can be used as a credit guarantee to lower interest rates on other loans.
- Question 2: How should I invest after maxing out my Roth IRA contributions?
- James: Max out your Roth IRA contributions first. Invest the remaining funds in QQQ within a regular brokerage account.
Zhan#
- Question 1: How should I handle my properties in Canada and the US?
- James: I recommend selling your Canadian property as soon as possible. If your US property is your primary residence, I also suggest selling it and renting instead. It’s more cost-effective, as demonstrated in the rent vs. buy case study in the presentation.
- Question 2: What should I do with my Canadian pension plan?
- James: I recommend withdrawing the money from your pension plan and investing it in QQQ within a brokerage account. Don’t use the 403(b) and TDA accounts provided by your school, as their performance is poor. Stick to your own IRA account.
IM#
- Comment 1: There’s a significant wealth gap among young people, and some try to fill it by borrowing money. How can I avoid this trap?
- James: First, cultivate strong mental fortitude, which can be achieved through reading. Second, don’t lend money casually. Third, don’t buy things you don’t need. Even Warren Buffett, despite his wealth, doesn’t buy unnecessary things.
- Comment 2: I participated in an 11-day meditation retreat and gained insights into the relationship between meditation and investing, particularly the importance of focus.
- James: Avoid distractions outside the stock market and focus on your investment strategy. Treat distractions like “demons and monsters”—don’t listen, don’t watch, don’t engage—and you’ll maintain composure.
- Question: Does focusing solely on my own investments lead to detachment from the world?
- James: There’s no need to be overly connected to worldly affairs. Focus on your investments and avoid excessive external information. Important information will eventually reach you.
Lin#
- Question: How should I rebalance my portfolio?
- James: Since you’re still working, you don’t need to engage in complex rebalancing. Just rebalance annually, adjusting the proportions of leveraged ETFs (00670L/TQQQ/Q2D) and cash. You can leave your 00662/QQQ holdings untouched. Alternatively, during your monthly investments, maintain an 80% allocation to 00662/QQQ and 20% to 00864B/cash. (He then provides a specific example of adjusting the ratio between 00670L and cash).
Lizi#
- Question: How can I reduce the tax burden from RMDs (Required Minimum Distributions)?
- James: I recommend withdrawing $600,000 annually from your IRA and transferring it to a Roth IRA over the next seven years. You can invest in leveraged ETFs within the Roth IRA and hold cash in your traditional retirement account to lower your overall return and tax burden. Start converting to a Roth IRA as soon as possible; don’t wait until RMDs begin.
IV. Key Takeaways#
“If you’re not investing for 20+ years, don’t tell me you’re investing.” – James
Investing requires a long-term perspective. Short-term market fluctuations should not influence investment decisions.
“Undamaged capital is the elixir that keeps us calm.” – James
Holding cash helps investors remain composed during market volatility and seize opportunities to buy low.
“Don’t engage with demons and monsters. If you don’t engage, you don’t need to train your mind.” – James
Staying away from market noise and focusing on one’s own investment strategy is key to maintaining rational investment decisions.
V. Conclusion#
This lecture reiterates the importance of long-term investing, value investing, and asset allocation, analyzing them with practical examples. James advises investors to hold Nasdaq 100 index funds and maintain a certain percentage of cash to cope with market fluctuations. He answers questions about retirement account management, real estate investment, and personal financial planning, providing specific advice based on individual circumstances. He emphasizes the importance of choosing the right investment strategy and asset allocation according to one’s situation.