00507 The Most Precious Thing in Life is Not Money, but Time; The Truth of Capitalism: How Finance and Government Trap People in Labor?

I. Current Topic

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This episode mainly discusses how to conduct reasonable asset allocation in the event of market fluctuations. The core idea is: Invest in the US Nasdaq Index Fund, hold it for the long term, ignore short-term market fluctuations, manage risks well, and adjust the asset allocation ratio according to your own circumstances. The core lies in establishing an investment mindset that is “independent” of market fluctuations, with the focus on asset allocation and risk tolerance that suit you.

II. Briefing Content

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1. Concentration of Funds and Borrowing for Investment

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• Concentration of Funds: Concentrate all investable funds into one account to avoid difficulty in grasping the overall asset situation due to scattered accounts. This includes bank deposits, stocks, funds, etc. James emphasizes that you should thoroughly count your assets like “counting soldiers painstakingly,” so that you know your situation well.
• Borrowing for Investment: Actively use tools such as credit and mortgage-linked wealth management loans to use the borrowed funds for investment, and do not let the funds sit idle in the bank “blowing cold air.” The interest rates on credit and mortgage-linked wealth management loans are usually lower than the yield of US 00864B, so borrowing to invest can generate interest spread. Note:
  • Restrictions on Stock-Pledged Loans: Should not be used directly for large-scale reinvestment, but can be used in small amounts (e.g., 2%) to supplement funds for “beautiful (daily) transfers.”
  • Assess Repayment Ability: Ensure that monthly available salary is stable for repayment to avoid excessive borrowing.
• Total Assets: Include all investable funds (including borrowed funds) in the total assets for unified allocation. This provides a more comprehensive perspective for managing risk and optimizing returns.

2. Asset Allocation Ratio

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• Office Workers: It is recommended to adopt an asset allocation ratio of 442 or 433. These ratios represent a balance between risk and return, and are suitable for investors with different risk preferences. Among them:
  • 442: 40% Index Fund (e.g., QQQ), 40% Leveraged Fund (e.g., QLD), 20% Cash. Suitable for investors with higher risk tolerance.
  • 433 Beta 1.0: 40% Index Fund (e.g., QQQ), 30% Leveraged Fund (Beta 1.0, leveraged fund with lower volatility), 30% Cash. Suitable for investors seeking steady returns.
  • You can also choose a more conservative configuration of Beta 0.8 or Beta 0.5 to reduce volatility.
• Do it All at Once: Asset allocation should be done in one step, without procrastination, to avoid hesitation due to market fluctuations. Execute immediately and don’t let “hesitation” become a stumbling block for investment.
• Annual Rebalancing: Conduct passive rebalancing once a year, instead of actively operating according to market fluctuations. Specific methods:
  • Market Rises: Transfer one-third of the increased value of the leveraged fund to cash to lock in some profits and reduce portfolio risk.
  • Market Falls: Take 2% of total assets from cash and invest in leveraged funds to increase investment during market downturns.
  • Total Asset Benchmark: The benchmark for rebalancing is the initially set total asset amount, not the later increased amount, unless the asset allocation is re-evaluated and adjusted.
• Ignore Market Fluctuations: All investment decisions are independent of market fluctuations, and adhere to a long-term investment strategy. Don’t panic because the market is falling, and don’t be greedy because the market is rising. James emphasizes that our investment “ignores” the existence of the market. No matter how the market fluctuates, we adhere to the established asset allocation plan.

3. Risk Tolerance and Beta Value

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• Risk Control: The only controllable risk is raising the cash position. Other systematic risks (such as war, economic crisis, etc.) cannot be controlled. Trying to control systematic risks is futile. Even Buffett can only cope by increasing cash reserves.
• Risk Tolerance: Test your own risk tolerance through market declines, and choose the Beta value that suits you. Market declines are the best time to test whether asset allocation is reasonable, and also a great opportunity to understand your own risk tolerance.
• Beta Value Selection:
  • Beta 1.2: High volatility, suitable for investors with high risk tolerance.
  • Beta 1.0: Moderate volatility.
  • Beta 0.8 or lower: Low volatility, suitable for investors with low risk tolerance.
  • Drop Two Levels: If you feel too much pressure during a market downturn, it is recommended to drop two levels on the Beta value that you currently think is safe to ensure a more comfortable investment experience.
• Avoid Chasing Highs and Selling Lows: After determining the Beta value, do not change it frequently to avoid chasing highs and selling lows. Frequent changes in the Beta value will lead to confusion in the investment strategy, which may eventually outweigh the benefits.
• Cash Ratio: Regardless of the asset allocation adopted, the cash ratio should be maintained at 20% or higher. This provides a sufficient safety buffer to cope with emergencies.

4. Family Financial Planning

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• Family Drama: Understand the complexity of family relationships. Everyone has their own role. Learn to use wisdom to deal with family financial problems. Family financial problems are common. Every family is like a big drama, and the roles and scripts have been set long ago.
• Decluttering: Learn to declutter, don’t over-contribute, be selfish a little when necessary, and protect your own interests. Especially when it comes to taking care of parents, clearly define the division of responsibilities to avoid taking on too much burden alone for a long time.
• Communicate Early: The sooner you communicate with siblings about sharing parental expenses and care responsibilities, the easier it is to reach a consensus and avoid future conflicts.
• Money Issues: Ultimately, many family problems will boil down to money issues. Face them honestly and seek solutions.

5. Investment Philosophy

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• Spending Money is the Purpose of Life: Making money is for spending money. Think about how to spend money reasonably and improve your spiritual energy. Money should not be a constraint, but should serve personal growth and happiness.
• Awakening: Recognize the essence of capitalism, don’t be deceived by external financial institutions, and strive to realize your dreams. Avoid blindly following the idea of “everyone does this” and have the ability to think independently.
• Simple Investment: Simplify investment and don’t spend too much time and energy. Set a strategy, stick to it in the long term, and reduce unnecessary intervention.
• Life Experience: Life is for experiencing. Be brave to try and don’t be afraid of failure. Don’t miss the opportunity to experience life because you are afraid of risk.

III. Q&A Session

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Eray

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• Sharing:
  1. Asset Beta 1.2 has been allocated and affordable loans have been fully borrowed. This indicates a clear understanding of one’s own risk tolerance.
  2. Profited from investing in Yinjian shares in the past, but policy changes have increased the risk, indicating that investing in individual stocks is risky. Emphasizes the importance of diversification and the advantages of index funds.
  3. Conservatively calculated, it is expected to reach 50 times the annual spending in nine years and achieve retirement. Demonstrates the potential of long-term investment.
  • James’s Comment: Congratulations on retiring early and enjoying your life.

Rui

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• Sharing:
  1. Because the performance of individual stocks was better than QQQ last year, I switched all to 442 configuration after listening to the teacher’s advice, avoiding future individual stock risks. Emphasizes the importance of long-term investment in index funds and avoiding individual stock risks.
  2. It is recommended that everyone switch other individual stocks to the index funds recommended by the teacher when the decline is large. Provides practical advice for other investors.
  • Question: When withdrawing 2% of 50 times the annual spending, is inflation considered, and will the withdrawal ratio be increased due to inflation?
  • James’s Reply: Inflation will not significantly increase the cost of living in the short term. If you feel pressure after five years, you can re-evaluate your assets and increase the withdrawal amount, but the maximum is 2% of the adjusted assets. Emphasizes the flexibility of asset allocation, which can be adjusted according to the actual situation.

RosMary

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• Question: The voice in the Q&A section of the CLEC short film is not the teacher’s. Is this normal?
  • James’s Reply: Normal. The short film uses computer text-to-speech to release information faster. Explains the short film production method and thanks for understanding.

Jiu

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• Sharing: 433 configuration has been completed, and stock pledge and credit are available, and there is no problem with cash flow.
  • Question: Some banks in Taiwan provide mortgage-linked wealth management loans that can be used cyclically for people under 75 years old. There are still 30 years left for 45 years old. Is there a better way to use this?
  • James’s Reply: Borrow all the money you can borrow. As long as you persist long enough and are not affected by market fluctuations, investment cannot lose money for more than 15 years. It is recommended to assess your tolerance when the market falls by 20% before deciding on the loan amount. James emphasizes confidence in long-term investment and the importance of assessing risks.

Lynn (Lucy)

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• Question: How to understand asset allocation 433, what does it mean?

  • James’s Reply: It refers to 40% Index Fund (e.g., QQQ), 30% Leveraged Fund (e.g., QLD), and 30% Cash.

• Question: Financial science articles say that the portfolio needs to be rebalanced frequently. What does it mean?

  • James’s Reply: This channel is completely different from what people outside say. This channel only invests in QQQ and ignores market fluctuations. You can refer to the historical videos on the YouTube channel (starting from 00398).

• Question: I used to work in the United States for a few years, so I have an IRA account there. Now I have closed it and took out all the money. 20% tax was withheld. Do I still need to file taxes in the United States?

  • James’s Reply: You can file it and get it back after filing the tax. James reminds you to try to apply for a tax refund.

Sharon

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• Question:
  1. 401K company match, so 401K can transfer to traditional IRO. But if you want to earn ROS, you must be in a situation where the tax rate is very low, and there is no way to directly save. Is the logic correct that you can only transfer to rus to invest from there after we both retire?
  2. If we just sell our cash property houses and cash, and then directly deposit that investment, is that right?
  • James’s Reply:
  1. Try to allocate your 401K as much as possible and allocate it to R. Because the company’s Dr has nothing to do with income. Whether you want to transfer your old traditional to R401K depends on your tax rate. Give you a number and calculate it with you now. You should convert how much each year. James emphasizes that you can determine whether to convert based on the calculation. Based on the current volume of 800,000 US dollars, if it is covered with an annualized return of 12% in 15 years, you need to convert 100,000 US dollars each year. If you retire five years later and use 220,000 US dollars for tax filing, the tax rate will be higher. You should retire early to do the convert.
  2. You can put it in brokerage. You can just put it directly, right? It is still worth putting it. James suggests starting investing as soon as possible and not letting cash sit idle.

Ly

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• Sharing: Joined CLEC in September 2023. I am very grateful to the teacher for opening up my financial quotient. The 433 configuration has been completed, and I don’t feel anything about this wave of decline because I can do pledge and credit.
  • Question: Mortgage-linked wealth management loans can be used to borrow new ones to repay old ones. 75 years old can continue to borrow cyclically. 45 years old still has 30 years. Is there a better way to use this? With 33 times the annual spending in assets, can selling rental houses to achieve 40 times allow you to stop working? A two-times leveraged QQQ in Canada has a small scale. Is it safe?
  • James’s Reply:
    1. You should just go and borrow it without hesitation, as long as it doesn’t want me to repay it, or ask me to repay it after 40 years. As long as you invest for more than 15 years, you cannot lose money, so 30 years is guaranteed to have at least a 9% return, so there is no problem. The key is that you have to persist long enough and not be affected by market fluctuations, which is more important. How will you feel if the market you borrow from this mortgage-linked wealth management loan falls by 20% from today? Just ask yourself. If you are okay, then it is okay.
    2. Living off 2-3% of your current QQQ and SPY (75% and 25%) is better than selling the rental house.
    3. The safety of the ETF has nothing to do with its volume. As long as you can buy and sell it, it’s fine.

IV. Wonderful Views

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All our investment news and suggestions are independent of the market. – James

The core of this investment philosophy is to establish an investment mindset that is “independent” of market fluctuations, avoiding investment decisions from being affected by market ups and downs.

We ignore the existence of the market from beginning to end. – James

Emphasizes a long-term investment strategy, do not try to predict the market, but adhere to the established asset allocation plan.

Life is not to be a worker. We are here to experience a happy life. – James

Encourages everyone to actively pursue financial freedom, get rid of working for money, and realize their dreams.

It seems that we have bought a lottery ticket for an amusement park. We come in with the entrance ticket and experience all the happiness inside, instead of repairing the machine there. – James

Encourages everyone to actively experience life and not miss opportunities because they are afraid of risk.

If you borrow 10 million, then your cash position is 433, you will become one level lower. You don’t have to be 433. You can also be 523. – James

Emphasizes the flexibility of asset allocation, which can be adjusted according to the actual situation.

When the market rebounds and comes up, maybe next week there is a chance for everyone to adjust the beta. At that time, the market rises, then you quickly lower the leveraged fund, or raise the cash, that’s it. – James

It is right to lower the beta when the market rebounds and rises. When the market falls, lowering it is to sell low.

• James

If you convert 100,000 annually, you will cover it in 15 years. – James

When time is fixed, you need to evaluate the amount of conversion.

Life is for experiencing. You can leave whenever you want, you can break up whenever you want, you can give birth whenever you want. Isn’t that it? There is no problem, don’t worry too much, we have to be free and easy. – James

Life is short, be brave to try and don’t miss the opportunity to experience life because you are afraid of risk.

Stable growth is more important than you can’t stand it. – James

Asset allocation should be based on the risk that can be tolerated, rather than blindly pursuing high returns.

It is most important for us to live in the market. – Cathy

Emphasizes the importance of long-term survival in the market, avoiding losses caused by excessive risk-taking.

V. Summary

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In this episode, James answered in detail the asset allocation issues during market volatility, emphasizing the importance of long-term investment, ignoring market fluctuations, and managing risks well, and encouraged everyone to adjust the asset allocation ratio according to their own situation to achieve financial freedom and enjoy life. At the same time, he also emphasized the concept of “living in the moment” and making the best choice at the moment.