00528 Achieving Financial Freedom with Correct Asset Allocation and Stock Pledging: A Long-Term Investment Strategy from 60 Million to 700 Million

I. Theme of the Session

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The core theme of this session is to adhere to long-termism and not fear short-term market fluctuations. Teacher James emphasizes that the only secret to successful investing is to “buy whenever you have money, and never sell,” as the market will inevitably reach new highs in the long run. Investors should not be influenced by sensational media headlines or short-term market volatility but should focus on a simple buy-and-hold strategy. Additionally, this session delves into asset allocation methods for different capital sizes and how to use financial tools like stock pledging to achieve exponential wealth growth.

II. Briefing Content

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Core Investment Philosophy & Learning Tools

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• Core Philosophy: The market has no ceiling; it will only go higher. The simplest and most effective investment method is to “buy whenever you have money, and never sell.” The only thing investors need to do is buy; they don’t even need to consider selling. This simple truth is often not understood by the public, while the media prefers sensational and “bloodthirsty” headlines to attract attention.
• Investing Cannot Be Taught, Only Learned: The teacher stresses that even if the audience listens to what he says, they may not truly learn it. True mastery comes from investors spending their own time watching videos, thinking independently, and studying.
• Introduction to a Powerful Learning Resource Library:
  1. Chen Feng’s Platform: Page 20 of the lecture notes provides a link to the platform organized by Chen Feng, which integrates all of CLEC’s important resources.
  2. Annual Playlists: The platform allows direct access to the complete course playlists for 2023 and 2024, making it convenient for new students to learn systematically.
  3. AI Interactive Tool (NotebookLM): Chen Feng has “fed” the content of CLEC’s long and short videos into an AI model to create a knowledge base. Students can log in with their Google account and ask the AI questions in a conversational manner. The AI will provide relevant answers based on the questions and indicate which videos the knowledge comes from, greatly improving the efficiency of learning and finding information.
  4. Financial Statement Learning Resources: The teacher specifically shared the 2018 and 2022 course playlists on the YouTube channel, which contain complete instructional content on financial statement analysis, suitable for students who want to study in-depth.
  5. The Teacher’s ChatGPT: Page 23 of the lecture notes provides a link to the ChatGPT trained by James himself, which is also a powerful learning tool.

Asset Allocation Strategies for Different Stages

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• For the Young or Those with Insufficient Funds:
  • Prerequisite: When your total capital is not enough to cover three years of annual expenses, complex asset allocation is not recommended.
  • Action: First, save up one year of emergency funds (in cash or a money market fund). Any amount exceeding the emergency fund should be fully invested in QQQ or 00662.
  • Example: If your annual expense is 100,000 and your total assets are 160,000, then 100,000 should be kept as an emergency fund, and only 60,000 can be invested.
  • Turning Point: When the cash portion can reach about 30% of your total assets, and this amount already exceeds one year’s expenses, you can start considering a more systematic asset allocation. For example, with total assets of 500,000 and annual expenses of 100,000, 30% cash is 150,000, which is higher than the 100,000 emergency fund requirement. At this point, you can start asset allocation.
• Asset Allocation and Pledging Strategy for High-Net-Worth Individuals (433 Model):
  • Case Study: A 35-year-old friend with 60 million in assets uses a 433 asset allocation (40% QQQ, 30% QLD, 30% short-term bonds/cash).
  • 2% Living Expense Rule: Borrow 2% of total assets annually for living expenses through stock pledging. In this case, it’s 2% of 60 million, which is 1.2 million per year. The key is that it’s based on total assets, not 2% of a single holding (like QQQ).
  • The Power of Long-Term Growth:
    • In the 10th year: Total assets are expected to grow from 60 million to about 200 million, while total debt (including interest) will be around 14 million, resulting in a very healthy debt ratio of only 7%.
    • At that point, the living expense standard can be raised, for example, to live on 1% (2 million/year) or 2% (4 million/year) of 200 million.
  • Rebalancing and Taxes: After significant asset growth, you can re-allocate your assets. For U.S. investors, rebalancing within a ROTH account can effectively avoid capital gains tax, which is highly efficient.

Life and Other Important Advice

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• Health First: Low-Dose Computed Tomography (LDCT)
  • Importance: The teacher strongly recommends that everyone, especially friends over 40, pay for an LDCT lung cancer screening.
  • Judgment Criteria:
    • If a nodule smaller than 0.6cm is found, there is no need to worry excessively; annual follow-ups are sufficient.
    • If a nodule larger than 0.8cm is found, you must immediately consult a thoracic specialist. The doctor will arrange for follow-up tracking (usually covered by health insurance). If the nodule shows signs of growth during the observation period, it needs to be dealt with promptly.
  • The Core Idea: Early detection and early treatment are key. Do not neglect screening out of fear of “false positives.”

III. Q&A Session

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Chenfeng

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• Sharing:
  1. He has integrated all the links introduced by the teacher (long/short videos, AI interactive tools, data downloads, etc.) into a single portal (the CFN link on page 20 of the lecture notes), allowing everyone one-stop access and operation.
  2. Scope of the AI Knowledge Base: Long-form videos now cover content from mid-2022 to the present; nearly 100 short-form videos have been included and will be continuously updated.
  3. Value of the AI Tool: Through AI-powered summaries and Q&A functions, it can help everyone quickly find the information they need in a vast sea of data, making it smoother to get on the “train to wealth.”
  • Teacher James’s Comment: Everyone should go and actually operate and experience these tools. You can only appreciate their value by playing with them yourself.

Bruce

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• Question 1: My son lives in Taiwan, but his US dollar income is directly deposited into a Hong Kong account. Should he bring the money back to Taiwan to buy 00662, or open an account in Hong Kong to buy QQQ?
  • Teacher James’s Reply: The core principle is “If you are in Taiwan, your money should be in Taiwan.” Funds should not be kept in Hong Kong. Remit the money back to Taiwan and declare it as income for tax purposes normally. Don’t worry about exchange rate fluctuations; in the long run, the average exchange rate from remitting in batches will tend towards an expected value. The exchange rate is irrelevant to long-term investment. If you have money, you should buy immediately and not let the exchange rate influence your decision.
• Question 2: Regarding the 60 million asset case, living off a 2% pledge (1.2 million) annually, if I only need 1% (600,000), should I only withdraw 1%, or withdraw 2% and invest the extra 1% back?
  • Teacher James’s Reply: Just withdraw the 1% you need. You can choose not to use the extra credit line, or you can borrow it to reinvest, which will make you grow faster. Both are acceptable.

Winnie

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• Question 1: She is 63 this year and has already converted part of her Traditional IRA to a Roth IRA. Her company’s 401k also allows Roth contributions. Should she, from now on, choose Roth for everything she can convert and contribute to?
  • Teacher James’s Reply: Yes, that is very correct and urgent. First, all future contributions should go into a Roth 401k. Second, she has 1.7M in a Traditional IRA and must speed up the conversion. Otherwise, she will face a huge tax burden at age 75 due to RMD (Required Minimum Distribution). Based on calculations, she needs to convert about 270,000 per year to finish before age 75. It’s easier to convert now while she has work income than after retirement when she has no cash flow. Consider borrowing from a pledged account to pay the conversion tax.
• Sharing: After learning about investing, her energy and confidence have both increased. She has become more confident and bold at work, daring to express herself and take action.

Li

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• Question 1: Is it necessary for high-net-worth individuals to do stock pledging?
  • Teacher James’s Reply: Not necessarily, but this is precisely the difference between being “rich” and being “super-rich.” He used a striking example: with 60 million in assets, if you use pledged loans for living expenses (allowing the principal to compound at 15%), your net worth could reach 15.8 billion after 40 years. However, if you don’t pledge and instead sell assets for living expenses each year (causing the total return rate to drop to 13%), your assets will only be 800 million after 40 years, a difference of nearly 20 times.
• Question 2: What should be the order of borrowing? Mortgage, personal loan, stock pledge—which takes priority?
  • Teacher James’s Reply: You can use lower-interest mortgages or personal loans to borrow funds and invest them in the market (buy QQQ/00662), and then use the money borrowed from stock pledging to pay the monthly installments of the mortgage or personal loan. This frees up your salary, allowing 100% of it to be reinvested, creating a powerful positive cycle. This is the most efficient way to grow wealth.

Vini

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• Sharing: When sharing investment concepts with elders, an elder sent him news articles stating that “95% of AI companies are not profitable” and “OpenAI CEO warns of an AI bubble.” At the time, he responded that it was market noise, but he still felt a bit uncertain inside.
• Question: He would like to ask the teacher’s opinion on these two news items.
  • Teacher James’s Reply: This information is all “demons and ghosts”; you must dispel them with facts. The so-called “unprofitable AI companies” refer to small startups, which is normal. But the large tech companies in the QQQ components that we invest in (like Meta, Google, Microsoft) are not only profitable but are also growing rapidly, especially in the B2B sector, where AI is generating very substantial revenue. Communicating with data and facts is the only effective way to dispel these rumors.

S

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• Question: To reconfirm the case of using 2% of a 60 million asset base annually, does this refer to selling 2% of stocks or taking a pledged loan?
  • Teacher James’s Reply: The case we discussed refers to pledged loans. Of course, for those who do not use pledging, they can also choose to sell 2% of their stocks each year to cover living expenses.

Wu

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• Question 1: Is investing in QQQ equivalent to investing in a country (the United States) and the future of humanity?
  • Teacher James’s Reply: Yes, investing in QQQ is about believing in technology, believing in America, and believing that humanity will continue to progress.
• Question 2: How should we view the Buffett Indicator (Total US Stock Market Cap / GDP Ratio) being at a historical high, suggesting the market is overvalued?
  • Teacher James’s Reply: This is a fundamental conceptual error. GDP is like your annual salary, a flow concept; market capitalization is like your total net worth, an accumulation of stock over decades. Comparing your one-year salary to your decades of total assets and then saying your assets are in a bubble is completely illogical. This indicator has no reference value.
• Sharing: He personally believes that QQQ represents the strongest productivity of humankind and, through its dynamic adjustment mechanism of survival of the fittest, will always contain the 100 strongest tech companies of the time.

Iam

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• Sharing 1: He feels that the more he learns, the harder it is to communicate with friends who don’t understand investing.
  • Teacher James’s Reply: That shouldn’t be the case. In theory, the more you know, the easier it should be to communicate with others in simpler, more accessible terms, just like a university professor can explain complex mathematical concepts to a middle school student. The key to communication is to listen and adjust your frequency to match the other person’s, rather than adopting a “teaching” mentality. If the other person cannot accept it, you can say, “Perhaps you are right,” and end the conversation.
• Sharing 2: When he talks about investing with friends, their first reaction is always “I don’t have money,” and they hope to find a “guaranteed profit, no-risk” method.
  • Teacher James’s Reply: This is the “fatalistic” thinking instilled in many people by their families of origin and culture, such as “there’s no such thing as a free lunch” and “only hard work leads to wealth.” The truth is, it is very difficult to become rich through work alone. Only those who understand financial operations and investing can achieve financial freedom. The financial system in the United States (like the 401k) encourages the entire population to invest, whereas many emerging countries are still stuck in the stage of encouraging hard work alone.

Penny

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• Sharing 1 (The Importance of Roth): She is in the US, and one of the biggest changes after getting to know the teacher was converting all her 401k to Roth. She reminds everyone that a Traditional 401k is only tax-deferred, not tax-free. For those who know how to invest, retirement accounts will grow to a very large amount, and withdrawals from a traditional account will face terrifying tax rates. Young people must choose Roth.
• Sharing 2 (New US Tax Law Rule): As a payroll system expert, she shared a new rule effective in 2025: for people over 50 with an annual income exceeding $145,000, their additional “Catch-up” contributions can only be put into a Roth 401k, no longer into a pre-tax Traditional 401k.
• Sharing 3 (Pledging vs. Selling): She strongly agrees with the teacher’s “chicken and golden egg” analogy. Selling stocks is like killing the chicken that lays golden eggs. Not only is the chicken gone, but you also have to pay taxes on the income from selling the chicken, which is a double loss. Pledging allows the chicken to continue laying eggs; you are just borrowing some future eggs. It is a superior strategy.
• Question: She is planning her post-retirement operational sequence: first, sell company stock and convert to QQQ; then, convert SPY to QQQ; and finally, convert Traditional 401k to Roth annually as needed. She asks if this sequence is reasonable.
  • Teacher James’s Reply: The sequence is reasonable. The key is to calculate and control the annual operations to fall within the ideal tax bracket. He also suggests that she can allocate some cash within her Traditional 401k to slow its growth rate, thereby reducing the future tax burden upon conversion. However, she should also be careful not to sacrifice too much of the overall portfolio’s return (Beta) in the process.

Selected Chat Questions

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• Question: If I am in the US, can I operate a brokerage account in mainland China?
  • Teacher James’s Reply: You can log in, but be wary of tax issues. Brokerages like Futu, Tiger, and Interactive Brokers are registered in the US as overseas brokers. Their assets are considered US assets and are subject to US estate tax, which requires special care.
• Question: If my company’s 401k investment options are very poor, should I give it up and only invest in a brokerage account?
  • Teacher James’s Reply: No. Even if the 401k options are bad, you still must have a Roth account. The advantages of Roth’s tax-free growth and tax-free withdrawals are unparalleled.

IV. Noteworthy Quotes

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The market has no ceiling, it will only go higher, so you don’t have to do anything, you don’t have to worry, it will hit new highs and bring you immense wealth. – Teacher James

Background: At the beginning of the session, the teacher emphasized the mindset investors should have—a firm belief in the long-term upward trend of the market, which is the cornerstone of adopting a “buy and hold” strategy.

Investing can’t be taught, it can only be learned by oneself. You won’t get it just by listening to me. If you don’t learn it yourself, you won’t get it. – Teacher James

Background: After introducing numerous learning tools, the teacher stressed the importance of proactive learning and self-exploration in the field of investment. Attending lectures is just the starting point; true understanding requires personal practice.

If you are in Taiwan, your money should be in Taiwan. – Teacher James

Background: When answering Bruce’s question about his son’s US dollar income in Hong Kong, the teacher gave this clear and concise principle, emphasizing that funds should be consistent with one’s place of residence for ease of management and tax compliance.

This (pledging or not) is the difference between being rich and being super-rich. – Teacher James

Background: When explaining why one should use stock pledging, the teacher used an example showing a nearly twenty-fold difference in assets after 40 years, vividly illustrating the huge impact of using (or not using) leverage tools on the ultimate scale of wealth.

Your salary is the so-called GDP, and your salary increase is GDP growth. Your assets are the result of past accumulation, so our market value is the result of past accumulation. – Teacher James

Background: When refuting the bearish market argument that the “Market Cap to GDP ratio is too high,” the teacher used the analogy of personal salary versus total assets to clearly reveal the logical fallacy of this indicator.

The more you know, the easier it should be to communicate with people. – Teacher James Background: In response to a student’s confusion about finding it harder to communicate as they learn more, the teacher pointed out that true wisdom is demonstrated by the ability to simplify complexity and communicate effectively with people at different levels of understanding.

If you just sell stocks… you are essentially killing one of your chickens. Not only will this chicken no longer lay eggs for you, but the chicken itself is also gone. – Penny

Background: In her sharing, Penny used the vivid “killing the goose that lays the golden eggs” analogy to profoundly explain the essential difference and the pros and cons between selling stocks for living expenses and using stock pledging to borrow funds.

It’s likely impossible to become wealthy through work. People who work longer might even become poorer. Only those who understand will become rich, and those who know how to borrow money will become super-rich. – Teacher James

Background: Commenting on the prevalent societal belief of “getting rich through hard work,” the teacher revealed the truth about wealth growth, emphasizing the importance of financial literacy and the skillful use of leverage.

V. Summary

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This session began by reaffirming the investment anchor of “buy and hold, never sell,” instilling strong confidence in investors amidst a volatile market. Teacher James and senior student Chen Feng detailed the newly integrated AI learning platform, tools that will significantly enhance students’ efficiency in self-directed learning. The core discussion, through an analysis of asset allocation strategies for young people and high-net-worth individuals, clearly outlined a path to wealth from accumulation to the skillful use of capital. The in-depth interpretation of stock pledging, in particular, revealed its immense potential as a wealth amplifier. The Q&A session was exceptionally insightful, not only solving students’ specific problems in areas like taxation, retirement planning, and asset allocation but also providing profound inspiration regarding investment mindset, communication wisdom, and information discernment. This was a comprehensive sharing that covered everything from the Tao (investment philosophy) to the techniques (specific strategies) and the tools (learning instruments).