00518 From Houses to Bonds: Asset Allocation is a Master Strategy, Avoid Scams, Understand Risks, and Return to the Index

I. Theme of the Session

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The core of this lecture is to emphasize persisting in long-term investment in the Nasdaq 100 index fund, prioritizing risk control and reasonable asset allocation, and maintaining an extremely optimistic investment mindset. Teacher James points out that market volatility is normal; investors should ignore short-term fluctuations, focus on long-term growth, recognize the critical role of cash in asset allocation, and ultimately achieve financial freedom and life’s purpose.

II. Briefing Content

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Opening and Investment Mindset

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• The Market’s Normal State: Global situations and market turmoil are normal. Investors should remain calm and not be disturbed by short-term volatility, international affairs, market analysis, financial statements, or economic conditions.
• Disclaimer: This channel is a pro bono sharing platform and does not constitute investment advice. There are no fees, no alternate accounts, and be wary of scams. Investing involves risk, which you must manage yourself. Relevant links are pinned in the YouTube comments section.
• Learning Path: Newcomers are advised to start with “00451 The One-Dollar Investment Lecture,” think independently, and find a method that suits them. Quiet study improves the quality of thought more than joining too many groups.
• Core Investment Vehicle: Focus on the Nasdaq 100 index fund (like QQQ). Page 10 of the handout provides a selection of related funds worldwide. The videos started in 2018, and there is a complete 2022 course playlist available.
• Investment Mentality: Always be extremely optimistic, always face the sun; the market will eventually go up. Investing requires patience (ignoring market fluctuations), and financial freedom is worth the wait. Please like, comment, and subscribe on all platforms.

Macroeconomics and the Bond Myth

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• Stablecoins and Short-Term Treasuries: A student asked if the issuance of stablecoins would increase demand for short-term treasuries and lower their interest rates. Teacher James believes short-term treasury rates are tied to the central bank’s rates and won’t fall significantly because of this. Short-term treasuries are similar to money market funds with low volatility. The central bank’s rate is the benchmark; no one would buy a bond with a lower rate.
• The Trap of Long-Term Bonds: Long-term bond interest is linked to inflation expectations for many years to come, and the interest is fixed.
  • Example: For a 30-year Treasury bond with a 5% coupon rate, if inflation is 3%, the real annualized rate of return (Real IRR) is only 1.94%. In contrast, if short-term rates are 4%, it is far superior to the real return of long-term bonds. The $5 in interest you receive after 30 years will have long been devalued.
  • Conclusion: It is not recommended for individual investors to buy long-term government bonds. Issuing long-term bonds is advantageous for the U.S. Treasury because the long-term interest is close to zero for the issuer (after considering inflation). Even if the central bank’s rate is below 2%, buying long-term bonds is not necessarily a good deal. The Treasury has its own issuance plan and won’t easily change it due to shifts in the central bank’s rates. The idea of issuing 100-year bonds is impractical and tantamount to default.

Risk Control and Asset Allocation

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• Risk Awareness: The first priority in investing is risk control; the world is full of uncertainties (like the conflict in Israel).
• The Importance of Asset Allocation: Good asset allocation is a “master strategy” (奇门遁甲), a powerful “Army, Navy, and Air Force” deployment.
  • Cash: The “food and air” of asset allocation, the most important part. Sufficient cash prevents market panic.
  • Index Fund: The “aircraft carrier” of asset allocation.
  • Leveraged Fund: Like the “missile force.”
  • Stock Pledging: The “Transformer” of asset allocation.
• The Courage to Sell a House for Investment: Selling your primary residence to rent and investing the funds in an index is an excellent financial strategy, but it requires a strong mind and the courage to face social judgment (e.g., fear of being told you’re “not doing well”). In reality, this is a sign of “doing exceptionally well.”

Investment Concepts and Behavioral Psychology

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• The Difficulty of Educating Family and Friends: Family and friends would rather trust the annuities and savings insurance (1% return) recommended by bank advisors than accept advice about index funds (10% long-term return), even when presented with spreadsheets. The main reason is the fear of “what if it drops?”
  • Counter-strategy: First, become a “big tree” yourself and influence them with your own success. Your words carry little weight when you’re insignificant; “familiarity breeds contempt” (近庙欺神). It’s hard to distinguish “saints” from “demons” in society.
• Cognitive Roots of the Wealth Gap: Poverty is often caused by a lack of awareness, not systemic issues. CLEC aims to “cure” this “disease of poverty,” but it’s very difficult; even family members may not accept it. Some people can’t accept good medicine and instead buy things like long-term bonds.
• The Challenges of Individual Stock Investing:
  • Example: NVIDIA’s stock price fluctuates wildly. It was once sold off due to poor sales and excess inventory, then soared because of AI. It’s difficult for individual investors to grasp; even if you bought it, you might not have held on for the entire ride.
  • Conclusion: Individual stocks are volatile, information is asymmetric, and they can suddenly be cut in half or go to zero. ETFs provide a more stable way to share in market growth. It’s also very hard to stick with a portfolio of mixed-quality individual stocks.
• The Dangers of Short-Term Trading: Short-term trading is like “gambling + drug addiction.” It’s addictive and leads not only to financial loss but also the loss of family, health, and self, potentially ruining one’s entire life. There’s no need to become a “boy wonder trader.”

Critique of Chaos in the Financial Industry

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• Profit Motives of Banks and Insurance Companies: Criticizes post offices and banks for persuading depositors (especially the elderly) to buy annuity insurance, structured notes, and similar products. This is a failure of financial regulators.
• Regulatory Issues: Believes financial regulators should ensure the separation of savings, insurance, wealth management, and lending to avoid conflicts of interest. American commercial banks (like BofA) don’t proactively sell insurance. Taiwan’s “Financial Holding Company” model is described as an “all-encompassing, one-stop-shop scam.” Charles Schwab only mentions loan options when a client has a large funding need.
• The Goal of the Insurance Industry: To convert large amounts of fixed deposits into insurance policies, which is the main objective of the insurance industry, given the huge amount of fixed deposits in Taiwan.
• The Risk of Mortgaging Property to Buy Insurance: There have been cases where the property mortgage remains, but the insurance policy’s value drops to zero, leaving people homeless. These institutions “will go as far as making people homeless.”

Responses to Chat Comments and Additional Remarks (Teacher James’s collective response to student comments and personal reflections)

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• On Publishing a Book/Media Exposure: Teacher James frankly states that if he were to publicly promote his ideas like “investing with loans” and “not buying a house,” he could violate financial regulations (practicing without a license), offend powerful interest groups (real estate, insurance, finance), and even face cyberbullying and political pressure (being labeled “pro-Taiwan independence” or “pro-CCP”). He could be “torn to shreds” or even “end up in jail.” If he doesn’t discuss many of these topics, the teaching loses its meaning. The very people you help might turn around and curse you.
• Insurance: An insurance policy with a 1.06% annual return is acceptable if it includes protection, but it’s generally not recommended.
• Caring for Parents: Re-emphasizes the loneliness and health risks of elderly people living alone (not taking medicine on time, not measuring blood sugar/pressure, leading to complications like worsening COPD, minor strokes, brain atrophy, mental disorders). Advises children to pay attention and provide companionship early. Even if parents seem self-sufficient, consider arranging for a caregiver early to prevent accidents and ensure a regular routine (medication, diet, avoiding falls). Shares his regret of not returning to Taiwan in time to accompany his mother, who, despite having other children in Taiwan, was not adequately cared for while living alone. Emphasizes that parents’ health is the children’s happiness.
• A Partner’s Investment Philosophy: Accept individual differences. Due to different upbringings and personal experiences (like living through the dot-com and 2008 bubbles), security levels and cognitions vary. Lead by example and influence them gradually with long-term results; don’t force it. It’s normal for them not to listen to you, just as you may not listen to them.
• 00662 (Taiwan ETF) Currency Impact: Short-term currency fluctuations are normal. For instance, when the Taiwan dollar depreciated in the previous two years, 00662 outperformed QQQ. In the long run, currency effects tend to cancel each other out.
• Credit Loans vs. Stock Pledges: Credit loans are relatively independent and safe. Stock pledges are high-risk; a sharp market downturn could trigger a margin call, making it like a “loan shark” — you have to pay back when they demand it, or you’re “shot dead with one bullet.”
• Brokerage Firms Raising Pledge Rates and Risks: Brokerages like Capital Securities in Taiwan might raise interest rates after a client has borrowed, or even restrict withdrawals (due to limited funding pools), “luring you into a trap.” It’s advisable to prioritize more stable brokerages like Yuanta Securities.
• Apply for Credit Loans Early: Bank credit policies can change. When you qualify (e.g., with an interest rate below 2%), you should apply early. Seize the opportunity when a bank proactively offers you a loan.
• Stock Pledging in Hong Kong: HSBC is a good choice, especially for VIP clients with large capital (e.g., over 1 million HKD). HSBC’s pledge interest rates are currently low. Friends from Malaysia, Singapore, Australia, etc., who successfully open an account and get a pledge loan from HSBC are welcome to share their experiences.
• QQQ Compounding: The annualized rate of return (CAGR), according to Teacher James’s research, is around 18% (including dividend reinvestment).
• Repayment of Investment Mortgage: Typically, it’s a lump-sum repayment at maturity (10-15 years). By then, you can sell some stocks or use another pledged loan to repay it. You need more than 15 years to ensure profitability.
• Compound Frequency: Refers to capital gains and dividend reinvestment.
• Philosophy of Helping Others: There are different levels of helping others. The lowest is for others (hoping for their well-being). The next is for oneself (deriving happiness or meaning from it). The highest is selflessness (helping is a natural act, regardless of for whom, or whether it brings happiness, like the Buddha or Jesus; it’s natural ethics). Using helping others to add meaning and happiness to one’s own life is actually “not right.” The highest state is “like water flowing without a trace” (传过水无痕).

III. Q&A Session

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Kacy

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• Sharing: An elderly friend, who was once very influential in the market, agrees with Teacher James’s index investing philosophy. This elder confessed that his past outsized returns were due to information asymmetry and his influence (manipulating small-cap stocks), which is not replicable for ordinary investors. He believes it’s not easy for ordinary people to make money in the market, and index investing is the most correct path.
  • Teacher James’s Comment: Index investing not only makes you money but also gives you a “life” (improves quality of life). Even if you make money from short-term trading, you might lose your life due to constant anxiety (e.g., being unable to take a 15-day vacation with peace of mind).
• Sharing (Follow-up):
  1. Reflecting on her family life, she emphasizes love and companionship for her parents to avoid regrets. She sees Teacher James’s actions as “dedication” rather than “charity” with a sense of superiority and feels for the misunderstandings he might face.
  2. Shares her future plans: to establish a women’s financial academy (focusing on female financial awareness, as Chinese women are relatively disadvantaged, and financial independence provides more confidence), volunteer in hospice care (to learn about “fasting until death” and euthanasia), travel, read, and set up scholarships, reflecting a desire for “altruism” (influenced by Kazuo Inamori’s philosophy of “altruism”).
  • Teacher James’s Comment:
    1. Commends Kacy’s practice of accompanying her parents. Shares the joy of his own father, in his 90s, still planning a trip to Korea. Advises that for elderly parents, even if they appear healthy, one should consider arranging for a caregiver early to prevent accidents and ensure a regular routine (medication, diet). Parents’ health is the children’s happiness. If parents have medical needs, like follow-up visits every three months or low-dose lung cancer screenings, they should be supported.
    2. Greatly admires Kacy’s “altruistic” plans, believing that from a women’s financial academy to educating disadvantaged groups, it’s all very meaningful. It’s right to start planning now.

C

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• Sharing: His mother noticed his mood has become calmer and happier recently. He explained it’s because through investing (practicing the teacher’s teachings), he has found meaning in life and is confident about his future wealth, no longer worrying about finances. This has led to an internal change from external influences.
  • Teacher James’s Comment: Shares his own longing and regrets regarding his mother, how in his youth he failed to fully grasp the loneliness and hardship of an elderly person living alone (e.g., his mother falling while going to the doctor alone, and his own failure to return to Taiwan to be with her). Reminds everyone to care for their parents, especially those living alone, after achieving financial freedom early, to avoid life’s regrets. Advises young people to learn from wise elders (like Warren Buffett) to avoid many pitfalls and find a “mental coach.”
• Question: Following the teacher’s guidance, he used an investment mortgage to invest in 00662. After using a portion of the funds from high-dividend ETFs to pay the monthly interest, there’s still a surplus each month. Should he invest this in 00865 (short-term bond/cash-like ETF) or continue buying fractional shares of 00662?
  • Teacher James’s Response: Continue buying 00662. The emergency fund (00865) only needs to be built up to a certain level (e.g., 2-3 years of living expenses for someone employed). Any excess funds should be invested in growth assets.

IM

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• Sharing 1: Recalls entering the market in 2018, with emotions fluctuating with the market, having once lost 50%. A wise friend enlightened her (“Save money when you’re making it, and just wait it out when it’s down”), teaching her to remain calm through ups and downs and become numb to the market. Mentions how wealthy people view money (a piece of clothing costs 500-600k; money is like trash to them). Grateful for the teacher’s guidance that has “filled her head.”
• Sharing 2: Has come to understand the teacher’s mindset that “all sharing is for self-fulfillment, not for rewards.” When sharing investment ideas with others, she encounters different reactions: some (who have worked for 20-30 years and are set in their ways) cling to old concepts, while others, despite living in hardship (a single mother working two jobs), are willing to listen. Through sharing, she has also gained a sense of value by giving back the knowledge she has learned.
  • Teacher James’s Comment: (Regarding Sharing 2) Helping others can bring happiness, but the highest state is to be “unaffected by helping,” meaning helping others is a natural act, not for happiness, not for self. The lowest level is “for others,” i.e., for their benefit; the second level is “for oneself,” i.e., achieving self-actualization through helping (the teacher admits his own teaching is to find value in retirement); the highest is “selflessness,” where even the thought of “for myself” is gone.
• Question: After sharing investment concepts with friends, how can she determine if they truly understand? Are there any questions to ask to test them? (Friends listen and think it’s logical but can’t articulate it themselves.)
  • Teacher James’s Response: It’s hard to judge with simple questions. True understanding is reflected in action (like opening an account to invest). A more effective way is like how Frank guided him back in the day (meeting for dinner every week, hand-holding him through opening an account, starting with a $200 Mutual Fund), guiding them step-by-step to open an account, make their first investment, and follow up continuously. This is a process of “sowing seeds”; whether and when they sprout is unknown. He himself was “led by the hand” by Frank to get started. Now, he is willing to be such a guide, with the Bodhisattva spirit of “If I don’t descend into hell, who will?”

Man

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• Sharing: Gained insights from gardening.
  1. Individual Differences: The same seeds planted result in different flowers, just as people receive information differently. Their internal “genes” determine their level of acceptance and reaction (some “get it,” others “laugh it off”). The gardener (the sharer) cannot change the seed’s nature.
  2. Patient Guidance: A good gardener will loosen the soil and water, helping it grow, just as a mentor guides students to open accounts and invest.
  3. Inner Joy: The pleasure derived from tilling the soil and weeding surpasses the rewards of all fame and fortune. This effort is not for a return but for self-actualization.
  4. Practical Example: She once guided a friend to buy QQQ. The friend sold during a dip and missed the subsequent 45% gain. She only sent a screenshot and said no more, believing it was also “fate.”
  5. Translating for the Elderly at a Doctor’s Visit: Shares her experience as a volunteer translator for the elderly, realizing their immense need in medical communication. Such small acts can bring great help and a ray of light into their lives.
  • Teacher James’s Comment: Agrees with the views on “destiny” and intrinsic motivation. Shares his own experience of planting tomatoes, where three seeds grew very differently; one was a “chosen seedling” and very robust, while others were “sickly.” Cites Dr. Yang Ding-I’s view to “look inward.” For people you can’t change, don’t force it. Be yourself, don’t be discouraged by it; giving up is an option. Affirms the value of her volunteer work.

Sifei

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• Sharing: Came into contact with CLEC in 2024 through a friend (who had mentioned it 5 years ago, but she was indifferent at the time). In her 50s, she has been interested in investing since graduating from college and has been exploring on her own for years. She was deeply moved after listening to the lectures and has invested a lot of time in studying (finished the 2021-2022 courses and is now re-listening). She shared it with a hundred people, and only two took action, but she still feels gratified.
• Question: Regarding the choice between a credit loan and a stock pledge in Taiwan. She leans towards using the stock pledge first (2.56% interest, no principal repayment, only interest), because of its convenience. She thinks she can use a credit loan (already approved for a 3 million TWD limit, but requires installment repayments) as a backup if the stock market crashes. She believes her job is stable (banks are always begging her to take out loans), so she’s not afraid of unemployment and can access the credit loan anytime.
  • Teacher James’s Response: (In a firm tone, repeatedly emphasizing) Absolutely do not do this!
    1. Core Principle: Money borrowed from a stock pledge must not be reinvested in the stock market. It can only be used for living expenses or to repay other loans. This is “the first thing.”
    2. Huge Risk: When the market crashes, banks may tighten credit (“take away the umbrella in the rain”), and you might not be able to borrow money then. If you lose your job at the same time, it’s even more impossible. A credit loan is not something you can just “hold there” forever.
    3. Deploy All Troops (韩信点兵): All available “forces” (including the credit loan) should be deployed to the “battlefield” (investment) as early as possible.
    4. The Correct Approach: You should first take out the credit loan (e.g., 3 million TWD) and invest it in the market. The monthly loan repayments can be paid using funds from a low-interest stock pledge. This way, the principal continues to work in the market, and your personal salary can also be invested. Don’t take a huge risk just because you’re “too lazy to repay the principal” or tempted by the short-term convenience of a pledge.
    5. Safety of Credit Loans: A credit loan is a relatively safe form of leverage, not directly linked to market fluctuations, and you won’t get a margin call. With a stock pledge, even if you only borrow 10% (e.g., pledging 1 million from a 10 million asset portfolio—the teacher thinks 10% is already a huge risk, let alone the 2-3 million she wants to borrow), you could face risks in an extreme market downturn.
    6. Brokerage Risk: Some brokerages in Taiwan (like Capital Securities) may change their pledge interest rates, and their limited funding pools might prevent you from withdrawing funds as needed. (Kacy and other students also chimed in, emphasizing the risk of banks “taking away the umbrella in the rain” and the fundamental difference between credit loans and pledges, and that pledged money cannot be used to buy more stocks).

Xiao Zhang

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• Did not speak or content was not recorded.

IV. Highlighted Quotes

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Market fluctuations have nothing to do with me, international affairs have nothing to do with me, market analysis has nothing to do with me, financial statements have nothing to do with us, and the economic situation doesn’t matter at all. Don’t pay attention to it. The more you pay attention, the more mistakes you’ll make. – Teacher James

Background: Teacher James emphasized at the beginning the composure investors should have, not letting external noise affect their investment decisions.

Investing requires patience, and financial freedom is worth the wait. What is patience? It is to be unconcerned with market fluctuations. – Teacher James

Background: Explaining that the core of long-term investing lies in the psychological tolerance for market volatility.

Cash is the food and air of asset allocation. – Teacher James

Background: Emphasizing the extreme importance of holding sufficient cash for risk management and psychological stability in asset allocation.

You are poor because of a lack of awareness, not because the system made you poor. – Teacher James

Background: When discussing the difficulty of teaching family about investing, pointing out that the wealth gap often stems from cognitive differences.

Short-term trading doesn’t just want your money; it will want your life and your lifelong happiness. – Teacher James

Background: A stern warning about the immense dangers of short-term trading, comparing it to gambling and drug addiction.

In investing, we first seek safety, then profit. First, seek safety; do what is foolproof first. – Teacher James

Background: Emphasizing that the primary principle of investing is safety, in response to a student’s question about credit loans versus stock pledges.

When you are making money, you should also be humble and look at everything with humility. Just as Teacher James taught me, whether the market goes up or down, OK, be numb to it. It doesn’t have a big impact on our daily lives. – IM

Background: Student IM sharing her transformation from anxiously watching the market to maintaining a calm composure towards market fluctuations.

The things we invest in others, when we invest, it’s not for a return. It’s because you have to do this thing. You have to do what is meaningful to you; this is the value of your being. – Man

Background: Student Man drawing an analogy from gardening to the intrinsic value of sharing knowledge and helping others, without seeking external rewards.

Life is really not just about money… Wealth is about having enough. – Kacy

Background: Student Kacy sharing her pursuit of quality of life, believing that more wealth is not necessarily better; having enough is sufficient.

The highest level is helping others without any sense of happiness, without feeling… Even the ‘for myself’ is gone. This is what I have learned, that even the ‘for myself’ is gone. – Teacher James

Background: When responding to IM’s question about the motivation for sharing, he explains the three levels of helping behavior, the highest of which is selfless altruism, a natural act.

V. Summary

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In this session, Teacher James systematically re-emphasized his core investment philosophy: consistently buy and hold the Nasdaq 100 index fund, fearless of short-term market volatility. He focused on analyzing the extreme importance of risk control, viewing reasonable asset allocation (especially an adequate cash reserve) as the cornerstone of investment success. Through specific examples, the teacher revealed the investment value trap of long-term bonds and severely criticized certain misleading and detrimental practices in the financial industry, especially warning investors against low-return products like annuities and savings insurance. At the same time, he pointed out the huge uncertainty of individual stock investing and the destructive nature of short-term trading. During the Q&A session, students actively shared their insights and confusions from their investment practices, family communication, and personal growth. Teacher James not only provided specific investment advice (such as the correct use and risk perception of credit loans versus stock pledges) but also guided students from a life philosophy perspective to reflect on the meaning of wealth, work, family, and personal value, encouraging everyone on the path to financial freedom to continuously enhance their cognition, maintain a positive mindset, pay attention to family and social responsibilities, and ultimately give back to society.