00531 Correct Asset Allocation: More Stable Than Real Estate and Avoids the Risk of TQQQ Going to Zero!

I. Theme of the Session

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The core of this session is the mindset and strategy investors should adopt in an ever-innovating market. Teacher James emphasizes that the market’s long-term trend is upward, and one should enter as early as possible and hold on. At the same time, he deeply analyzes two common yet high-risk assets: real estate and leveraged funds. He argues that real estate is not a good investment and carries extremely high risk. As for leveraged funds, while their short-term returns are tempting, their violent fluctuations can lead to a total loss of investment. Therefore, it is essential to control risk and lock in profits through “smart rebalancing.” Ultimately, only index funds are quality assets that can be passed down through generations.

II. Briefing Content

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Insights from “The Bible of Wealth Management” and Long-Term Investment Philosophy

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• Teacher James once again recommended “The Bible of Wealth Management,” published in 1996, believing its philosophy is still highly relevant today and is a national treasure of a book.
• Core Philosophy: “Buy anytime, buy casually, don’t sell.” This strategy, similar to buying and holding the entire market, aligns perfectly with the philosophy of index funds.
• The Power of Compounding: The book gives an example: investing just 1200 yuan a month at a 20% rate of return can grow to 100 million in 40 years. This demonstrates the astonishing power of long-term investment; the key to wealth is investing, not saving or having a high income.
• The Root of Wealth Inequality: The book also mentions that wealth inequality stems from a lack of financial education, which aligns closely with the mission of this channel. If you don’t have enough funds to retire at 65, the problem lies in your personal investment failures, not society.

Real Estate: A High-Risk Consumer Good, Not a Quality Investment

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• The teacher clearly states that from a return on investment perspective, a house is not a good investment and is extremely risky.
• Financial Risk: A 30-to-40-year mortgage is like a chain. If you face a crisis like mid-life unemployment, you risk foreclosure. Without a mortgage, this worry doesn’t exist.
• Physical Risk: Natural disasters like earthquakes and fires are frequent. Even with insurance, the process of rebuilding and relocating is filled with pain and inconvenience, like carrying a “powder keg.”
• Judgment Standard: The teacher offers a vivid analogy: “You should only buy your first house when you have the ability to buy two.” Buying a house should be like buying slippers—if they break, you can easily get a new pair. Only then is it not a risk.
• The Correct Path: First, work hard on investing to become wealthy. When your wealth reaches a certain level (e.g., 100 million, 500 million), then use borrowed funds (e.g., borrow 20 million, 100 million) to easily buy a house, achieving a “no-money-down” acquisition.
• Index Funds are the True “Real Estate”: Compared to physical property that depreciates and has holding costs (like management fees, property taxes), only index funds are quality assets that can last for a century, be passed down through generations, and become more stable over time.

The Truth About Leveraged Funds and “Smart Rebalancing”

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• The teacher referenced a chart from the “JSON Model Lab” channel to show the extreme risk of TQQQ (3x leveraged QQQ).
• Historical Simulation: The simulation shows that one dollar invested in TQQQ in 1985 would have grown to $3,510 at the peak of the 2000 dot-com bubble, but then crashed to $1.13 in the subsequent bear market, a staggering drop of 99.96%, nearly wiping it out.
• The Trap of Long-Term Returns: Over the long period from 1985 to the present, due to decay from market volatility, TQQQ (18.28% annualized) performed worse than the 2x leveraged QLD (19.39% annualized).
• The Long Recovery Period: After the 2000 crash, QQQ reached a new high around 2014, and QLD broke even around 2022. However, if you held only TQQQ, it could take over 22 years to recover your losses, which would be devastating to any retirement plan.
• The Only Solution for Risk Control: Smart Rebalancing
  1. Purpose: To prevent TQQQ from dropping over 99% from its peak, which would wipe out a lifetime of investment.
  2. Method: At the end of the year or the beginning of the next, transfer one-third of this year’s profits from the leveraged fund to a cash position to lock in profits and reduce risk.
  3. Warning: The decline of a leveraged fund is instantaneous; it might go to zero before you have a chance to rebalance. Therefore, the amount invested must be money you can afford to lose completely. The teacher does not recommend leveraged funds for beginners or those unfamiliar with their characteristics. A 70/30 (QQQ/cash) allocation is relatively stable.

Investment Notes and Views

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• Pledged Asset Line (PAL) Fund Flow Warning: For investors at Charles Schwab in the US, the teacher warned that their software is now very intelligent and can track the flow of funds borrowed through a PAL. Even after multiple transfers, if the funds eventually end up in a brokerage account and are used to buy stocks, the system will detect it. You might receive a warning the first time, and subsequently, your PAL privileges could be revoked. Be careful to avoid such operations.
• View on Financial Professionals: The teacher pointedly noted that the experts and financial professionals who talk loudly in the market mostly fall into two categories:
  1. Ignorant: “Demons and monsters” who don’t know what they don’t know.
  2. Fraudulent: Those who know the truth but deceive the public for profit.

III. Q&A Session

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Haiwai

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• Question: How to distinguish between necessary expenses and deferrable pleasures? For example, how to decide whether to buy a car or travel abroad? Is there a metric to avoid impacting future wealth through overspending?
  • Teacher James’s Reply: This is a great question that can be solved with planning.
    1. Set a Goal: First, clarify your retirement goal, for instance, how much money you want in 20 years (e.g., 60 million).
    2. Calculate Required Investment: Use an investment calculator. Based on your current assets and expected rate of return (e.g., 14%), calculate how much you need to invest each month to reach your goal.
    3. Spend Freely: After deducting the required monthly investment from the money you can save, the remainder can be freely spent, used for travel, or put into a travel fund.
    4. Dynamic Adjustment: This calculation is dynamic. For example, if you have 10 million now and your goal is 60 million in 20 years, the calculator might show that you can even spend 66,000 per month and still reach your goal.
    5. Conclusion: Don’t save all your money; learn to spend it. You should start planning your consumption from a young age. As long as your retirement plan is not affected, you should enjoy life. Otherwise, earning a lot of money becomes meaningless. The teacher added that if you are going to spend, the memories from travel are eternal—a form of spiritual consumption more valuable than material goods that depreciate.

Jenny

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• Sharing: After listening to the teacher’s classes for three months, she cleared out over a dozen miscellaneous stocks in her Canadian Tax-Free Savings Account (TFSA) and switched everything to TQQQ and QLD. She convinced her husband they could retire because their assets were sufficient. She is now allocating cash and QQQ in her taxable account (IBKR).
• Question: In the future, with new TFSA contribution room each year (e.g., C$7,000 per person) and new funds coming in monthly, how should she invest? Should she buy according to the target allocation (e.g., 40% QQQ, 35% cash, 15% TQQQ), prioritize building up the cash position, or decide based on the beta value at the time?
  • Teacher James’s Reply:
    1. Account Separation: Leveraged funds (TQQQ/QLD) should be in the tax-free account (TFSA); QQQ and cash should be in the taxable account (IBKR).
    2. Tax-Free Account: When new contribution room is available, just buy more leveraged funds. Only rebalance if the leveraged funds become an excessively large portion of your total assets.
    3. Taxable Account: For new monthly funds, you can simplify the process. For example, in a year with 12 months, you could designate that the savings from 4 of those months go directly to cash, and the savings from the other 8 months are used to buy QQQ. This ensures the cash position grows, and you can review and do a major rebalancing at the end of the year.

Henry

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• Sharing: Responding to the previous student’s question about consumption, he used to be someone who saved fanatically and was afraid to spend. After listening to the teacher, he understood that if you want to buy a car, for example, you can do so as long as you ensure you still have an equivalent amount of money to continue investing in QQQ. Between memories and material things, one should invest more in creating memories (like travel).
• Question: He received an email and a call from QQQ about a special meeting to vote on changing the fund structure from a “Unit Investment Trust (UIT)” to an “Open-End Fund.” He wanted to ask for the teacher’s opinion on this.
  • Teacher James’s Reply: This is a normal and positive change. The vast majority of ETFs today (like QQQM) are already open-end funds. This change allows the fund to have its own board of directors for management, freeing it from bank trusteeship, which can lower fees and increase management flexibility. My personal recommendation is to vote “approve.”

Hao Qing

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• Sharing: A client of his, a cardiologist from a wealthy family, was outbid for a luxury mansion by a woman. This woman offered a higher price and had 150 million USD in cash in her bank account, wealth that came entirely from early investments in stocks like Nvidia. This story illustrates that the wealth created by successful equity investing can easily surpass the accumulation of several generations of elite professionals.
  • Teacher James’s Comment: This is very normal. For someone who understands investing, 100 million USD is the minimum threshold. Your professional income doesn’t determine your ultimate wealth; only long-term, stable financial investment is the key to riches.
• Question: Why was the market reaction negative when the US government initially proposed to exchange subsidies for equity in companies like TSMC, but the stock price rose after the company refused? Aren’t government subsidies the people’s money? What’s wrong with letting the government (the people) share in the profits?
  • Teacher James’s Reply: You have to look at this from the perspective of shareholder interests.
    1. It’s Bad for Companies Not Lacking Cash: For a company with ample cash flow like TSMC, it doesn’t need the money. Accepting government funds and issuing new shares to the government would dilute the equity of existing shareholders, which is detrimental to them. If the government wants to own TSMC stock, it should buy it on the open market, not ask the company to print shares for it.
    2. It’s Good for Companies on the Brink of Bankruptcy: However, for companies in financial crisis like Ford and General Motors (GM) at the time, they desperately needed funds to survive, so they were willing to accept the government’s terms for taking an equity stake. This was a bailout, not a normal business investment.
    3. Conclusion: A healthy company has no reason to sacrifice shareholder interests to take government money.

Rui

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• Question 1: The teacher says pledged loans should not exceed 20% of total assets. Is there a percentage limit for non-pledged debt like personal loans and mortgages? His current debt of this type is about 40% of his total assets. Is this too high?
  • Teacher James’s Reply: Don’t worry at all. Personal loans and mortgages are completely different from pledged loans. They don’t have market volatility risk and won’t trigger a Margin Call if stock prices fall. As long as your salary plus the 2% withdrawal from your pledged line of credit can comfortably cover the interest and principal payments, this debt is safe. A 40% ratio is very healthy, far safer than someone with zero assets but a 9 million mortgage.
• Question 2: Since the 1-2% withdrawal from the pledged line of credit is enough to cover all the interest on his personal loans and mortgage, does this mean he can spend his entire salary and enjoy life?
  • Teacher James’s Reply: Yes, that’s exactly right! Go spend your money, buy a Model X, go have fun, enjoy your life. The teacher also shared that he spent $7,500 on a professional monitor for eye comfort and work efficiency, encouraging everyone to learn how to spend money.

Huayin

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• Question: She has a down payment for a pre-construction home tied up and is thinking of taking out a personal loan or pledging 20% of her existing investment portfolio to invest an equivalent amount in the market. Which method is better?
  • Teacher James’s Reply: I recommend taking out the personal loan first. A personal loan is a loan without market volatility risk, making it relatively safer. You can take out the personal loan to invest in the market and then use the cash flow from your stock pledge (e.g., 2% annually) to pay off the interest and principal of the personal loan. Don’t start by borrowing a large sum (like 20%) from your investment portfolio to reinvest; that would increase the risk associated with market fluctuations. Safety first.

Mona

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• Question 1: All her leveraged funds are in a Roth IRA account, and she plans to leave them untouched for another 15 years. Is a Beta value of 1.3 acceptable?
  • Teacher James’s Reply: Absolutely not! 15 years is too short a time for a high-leverage allocation. If you encounter a major bear market (like in 2000), your assets might not recover before you retire. Historical data shows it took QLD (2x) 22 years to break even. A Beta of 1.3 is far too risky; you might not be able to retire smoothly. You must lower it immediately, do not exceed 1.0.
• Question 2: She is seriously considering selling her house because she calculated that investing the money in the market would give her an extra 2 million USD at retirement, and she would save 2 hours of commuting time every day. But she is struggling because her job is in the countryside, while she loves the convenience and life of the city.
  • Teacher James’s Reply: Sell it immediately, right now! This is more important than anything.
    1. Financial Priority: The huge financial difference is the primary consideration.
    2. Value of Time: The saved commuting time is for rest, relaxation, and enjoying life, not for taking on more work.
    3. Lifestyle: While working, you can rent a cheap place in the countryside. When you actually retire, you can move back to the city. At that point, you can choose to rent or buy, giving you complete freedom. Don’t sacrifice a huge present benefit for an uncertain future. Procrastinating is losing money.

Mike

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• Question 1: If the stablecoin bill (Genius Act) is so good, why is its implementation delayed until January 28th of next year?
  • Teacher James’s Reply: After any major bill is passed, it takes a few months for the executive branch to prepare the related regulations, website systems, registration processes, etc. This is a normal administrative preparation period, not an intentional delay.
• Question 2: Elon Musk criticizes the government for inefficient spending, but according to Modern Monetary Theory (MMT), the more the government spends, the better it is for the economy. How does the teacher view this contradiction?
  • Teacher James’s Reply: From an investor’s perspective, as long as the government is willing to spend money, whether it’s spent wisely or not, it’s a good thing. This is because money flowing stimulates the economy, which will ultimately be reflected in stock prices. The passage of the stablecoin bill will greatly increase market liquidity. When the Treasury issues a $1 bond and a bank buys it, the bank can then issue a $1 stablecoin using the bond as collateral. This effectively doubles the liquidity in the market, making capital extremely abundant. This is a huge positive for the stock market; stock prices will soar.
• Sharing: Mike also recalled that in the 1980s, you had to place stock trades using a public payphone keypad, with high transaction costs and information asymmetry. In contrast, RWA (Real-World Asset tokenization) and 24-hour trading will be another revolution, greatly promoting capital flow.

Chenfeng

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• Sharing: This week, he did a YouTube livestream for Taiwanese investors about the concepts and practical application of stock pledging. The first part of the video is already up, and the second part on practical operations will be uploaded after his equipment is repaired. He will share the channel link for interested partners in Taiwan.

IM

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• Sharing: He has come to deeply understand that QQQ is the master key to the door of wealth and has observed that the whole society encourages consumption.
• Question: With the development of AI and the massive liquidity from stablecoins, is it possible for QQQ’s annualized return to accelerate from the current 18% to 30% in the future?
  • Teacher James’s Reply: It’s very possible. I expect the annualized return to increase from 18% to at least 20% or more. The development of AI is exponential, and the productivity revolution it will bring is beyond imagination. Individuals and companies that do not understand or use AI will be eliminated. Investing in QQQ means you are standing at the forefront of this revolution, riding the wave with the best companies. The future growth will be astonishing, beyond all our imaginations.

Comments Section and Other Discussions

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• QQQ Voting Notice: A student mentioned not receiving the voting notice. The teacher replied that they should check their brokerage emails.
• 00670L Loss Issue: A student mentioned losing money on a leveraged ETF purchased this year. The teacher pointed out that the ETF is up year-to-date and the student should focus on annual returns, not short-term fluctuations.
• Smart Rebalancing Operation: The specific operation is to transfer one-third of this year’s profits from the leveraged fund to cash. For example, if TQQQ made $100,000 this year, you transfer $30,000 to cash.
• Tesla Purchase Advice: It is recommended to finance the purchase directly rather than leasing, as the car itself is very durable, and in the US, ordering before the end of September comes with a $7,500 discount.
• Nature of Money: The teacher explained that modern currency is essentially debt-based; a banknote is a short-term bond that can be paid immediately.

IV. Insightful Quotes

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The market has no peak; it will only go higher. So if you don’t get into the market quickly, you are losing a lot of opportunities. – Teacher James

Context: At the beginning of the session, Teacher James commented on the market continually hitting new all-time highs, encouraging investors not to be afraid of heights and to enter the market as soon as possible.

If you don’t have the funds to retire at 65, the problem is not with society, but with you. – Teacher James

Context: Quoting a viewpoint from “The Bible of Wealth Management,” emphasizing that personal responsibility in investing and financial planning is key to a wealthy retirement.

You should only buy your first house when you have the ability to buy two. Buying a house should be like buying slippers—if they break, you just get a new pair. Only then is buying a house not a risk. – Teacher James

Context: When explaining the huge risks of real estate, the teacher used a vivid analogy to define what constitutes a “risk-free” purchase.

Only index funds can be considered real estate; they can last for a hundred years without spoiling, and the longer you hold them, the more stable they become. This is the asset that can be passed down for generations. – Teacher James

Context: Comparing index funds to traditional real estate, emphasizing their superiority as long-term core assets.

Leveraged funds can go to zero in an instant, you have to know they can go to zero in an instant. So you should only buy them with funds you can afford to lose, and even after buying, you still must practice smart rebalancing. – Teacher James

Context: After showing the astonishing historical decline of TQQQ, the teacher repeatedly emphasized the risk of leveraged funds going to zero and pointed out the absolute necessity of smart rebalancing.

There are only two kinds of financial professionals: one is ignorant, and the other is fraudulent. There probably isn’t a third kind. – Teacher James

Context: The teacher’s sharp commentary on the nature of most financial experts and professionals in the market.

People who run businesses won’t become rich; you have to understand what is called financial operation. – Teacher James

Context: Responding to Hao Qing’s sharing, pointing out that it is difficult to achieve great wealth through labor income alone; financial tools (investing and borrowing) are the key.

If you only know how to invest but not how to borrow, you will still end up poor. – Teacher James

Context: Further emphasizing that on top of knowing how to invest, learning to use leverage (borrowing) wisely is the advanced path from being well-off to being truly wealthy.

The government’s debt is the people’s savings. – Teacher James

Context: Citing the core idea of Modern Monetary Theory (MMT) to explain why government spending and national debt growth are good for the economy and investors.

Individuals and businesses without AI will perish or become poor. – Teacher James

Context: When forecasting future economic growth, the teacher asserted the disruptive power of AI technology, stating that those who do not embrace AI will be left behind by the times.

V. Summary

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This session covered a rich and profound range of topics, from macroeconomic market trends and investment philosophy to specific asset risk analysis and practical personal financial planning. Teacher James once again reinforced the core strategy of long-term holding of index funds and provided an in-depth analysis and risk warning for two highly tempting yet perilous assets: real estate and leveraged funds. Through the specific method of “smart rebalancing,” he offered a clear risk control path for investors wishing to use leverage. The Q&A session tightly integrated theory with real-life situations, providing clear guidance on everything from consumption and debt management to understanding new financial legislation. Overall, this was an invaluable lesson that reminds us to stay clear-headed in a bull market—to be brave in embracing growth while always respecting risk.