00544 The Market Will Fall for 10 Years, Are You Ready? Survival Rules for Cash, Debt, and QQQ

I. Theme of the Issue

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The core theme of this episode revolves around adhering to the “buy and do not sell” index investment discipline and applying it to financial decisions in real life. Teacher James emphasizes that investors should completely ignore all external noise such as market fluctuations, macroeconomics, and corporate earnings reports. He focuses on arguing that young people should prioritize increasing liquid assets rather than purchasing real estate, and shares how to solve housing and living cash flow problems by activating assets (such as selling a house to invest), thereby avoiding the trap of being “house rich, cash poor” (poor until only a room is left). In addition, the course delves into principles for the safe use of leverage and loans, and how to conduct robust asset allocation based on individual circumstances.

II. Briefing Content

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Opening Reminders & Core Philosophy

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• Beware of Scams: Teacher James first reminded everyone that scam accounts imitating his identity have appeared in the community (e.g., ID clecchermannn). His real ID is cleccherman, and he will never actively contact students privately to recommend investments. Students should contact him through the official Email channel.
• The Investor’s “Ignorance” Principle: For index investors, market volatility, international situations, central bank policies, market analysis, corporate earnings, and economic data are irrelevant. The core strategy is to buy the index, hold for the long term, and ignore market ups and downs.
• Risk Disclaimer: All content is for education and experience sharing, not investment advice. Investment risks are extremely high; everyone must self-assess whether they can withstand extreme scenarios where assets may continue to fall for 10 years with a depth of up to 85%.

Misconceptions About Real Estate Investment

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• Governments and Banks Sell Fear: They often use concepts like “if you don’t buy now, you won’t be able to afford it” or “you won’t have a place to live when you’re old” to create anxiety, urging people to take on mortgages prematurely.
• Increase Liquid Assets First, Then Buy a House with Ease: One should first increase liquid assets through investment. When assets are substantial, buying a house is as simple as buying slippers, and one can even use stock pledging to borrow money for the purchase (“empty-handed white wolf” strategy) instead of draining one’s own cash flow.
• A House is a “Prison,” Not an Asset:
  1. Mindset Trap: Ordinary people buying a home for self-use is different from a developer’s high-turnover business model. Living in it for decades locks up the asset completely, eventually leading to being “poor until only a room is left.”
  2. Difficulty in Liquidation: Even if the house price rises, it cannot be easily liquidated for living expenses. Transaction costs are high (taxes, agency fees), and the turnover rate is extremely slow.
  3. Maintenance Costs: Old houses face various maintenance issues like leaks, termites, and burst pipes, consuming mental energy.

Asset Activation & Cash Flow Strategy

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• Case Study: Sell House to Rent, Activate Million-Dollar Assets:
  • Taking the US as an example, a retiree with a $1 million property should not live a frugal life guarding the house.
  • Solution: Sell the $1 million house.
    • Option 1 (Solve Housing): Take $300,000 and invest in high-dividend products (like QQQYI, 12% annualized yield), generating $36,000 in cash flow annually, sufficient to pay a monthly rent of $3,000. The remaining $700,000 can be used for investment and living.
    • Option 2 (Solve Housing + Living): Take $600,000 to invest in QQQYI, generating $72,000 annually. This not only covers rent but provides an extra $3,000 monthly for living expenses.
  • Core Point: Why use assets worth $1 million or even $3 million to lock down a problem that can be solved with $300,000? This is the meaning of asset activation.

Loans & Risk Management

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• Correct Use of Credit: Any loan (credit, mortgage) must be based on “stable salary income.” After deducting all living expenses, there must still be spare capacity to repay principal and interest. Borrowing limits must never be determined based on how much cash reserve you have.
• Be Wary of Loan Models in Different Regions:
  • Taiwan: Most credit loans require repayment of principal and interest together, clearing the debt at maturity. This is relatively sound.
  • Mainland China: Some credit products are “interest-only first, principal repayment at maturity.” This is extremely risky during market downturns. If the market is at a low point when the loan matures and is not renewed, investors may be forced to sell assets at a low point to repay, causing huge losses.
• Acknowledge the Unknown, Remain Humble: In front of the market, admit that you “know nothing.” Avoid overconfidence and attempts to predict the market; this is the foundation for long-term survival in the market.
• Australia Info Sharing: Provided links for Australian students regarding stock pledging and using SMSF superannuation accounts to invest in US stocks for tax savings.

III. Q&A Session

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Naixin

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• Share:
  1. Community Management Update: As the administrator of the Taiwan 00662 community, announced that due to the surge in members to over 4,600 within two years, the volume of information has become too large, causing management difficulties and “internal friction” among members.
  2. Temporarily Closing New Memberships: To let the community return to its original intention of helping newcomers and to improve discussion quality, it was decided to temporarily close new member joins and reorganize internally.
  3. Improving Discussion Methods: Future newcomers will be guided to use the “Threads” function for questions, facilitating concentrated and in-depth answers from seniors and preventing chat flooding.
  4. Book Recommendation: Recommended the book Leveraged Investing for Adults (《大人學的槓桿投資術》), believing its content well supports understanding Teacher James’s philosophy on leveraged investing.
  5. Appeal: Hoped that senior students would share more in the community to help newcomers and share the burden of answering questions.
  • Teacher James’s Comment: Thanked Naixin and all admins for their hard work. Community management should rely on “moral management” rather than mandatory rules. He believes the perfect state of a community is when everyone understands the true meaning of investment and there are no more questions, resulting in silence. At that time, consider gradually introducing newcomers for teaching.

Melody

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• Question: A new student of two weeks in Taiwan, currently investing in high-dividend and market-cap ETFs (ratio 3:2). Has a mortgage but enough funds to pay it off. To retire within 10 years, considering a “financial mortgage” (interest-only, 7-10 year term) to cash out more funds for investment. Worried that the 10-year loan term is shorter than the 15-year “guaranteed profit” cycle mentioned by the teacher. If the market drops 85% at maturity and the bank pulls funding leading to bankruptcy, how to resolve this?
  • Teacher James’s Reply:
    1. Do not recommend financial mortgages: This type of short-term loan with non-renewal risk is very dangerous. Once unemployed or if the market falls for a long time, you face bankruptcy risk.
    2. Suggest Traditional Mortgage: Suggest converting the mortgage to a 30-year principal and interest repayment loan. Extend the term as much as possible to lower monthly payments, thereby releasing more cash flow for investment.
    3. Initial Allocation Suggestion: For funds of 6 million TWD, start with a robust allocation, such as 70% 00662 (tracking Nasdaq 100) and 30% 00865B (Short-term Treasury/Cash). Do not rush into leverage.
    4. Gradually Adapt to Leverage: Since she previously invested in high-dividend products, her volatility tolerance is unknown. Suggests starting with a 10% position if trying leveraged funds (like 00670L) to personally experience the feeling of a 30%-60% market drop, then adjust gradually.
    5. Keep Sufficient Cash: Must reserve 2-3 years of living expenses as cash. Overall, a 6:1:3 (60% Market Cap, 10% Leverage, 30% Cash) allocation is a suitable starting point for now.

Xinhuang

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• Question 1: Father has dizziness issues, similar to what the teacher once shared about his own father (carotid artery issue). Asking for the contact of the doctor who performed the stent procedure for the teacher’s father.
  • Teacher James’s Reply: This is experience sharing, not medical advice. He pointed out that such issues should consult “Cardiovascular Surgery” or “Cardiology,” not the intuitive “Neurology.” He found Dr. Shih Chun-che (Cardiovascular Surgery) at Taipei Medical University, and the surgery was performed by his brother, Superintendent Shih Chun-min, at Wan Fang Hospital. Suggests consulting relevant departments at large teaching hospitals (e.g., NTU, Veterans General, Chang Gung).
• Question 2: How to educate the next generation (4 years old)? He told his child he doesn’t like his job as an engineer and encourages the child to learn arts (piano, dance) or become a dentist, hoping the child won’t become a “laborer” like him and fall into class reproduction.
  • Teacher James’s Reply:
    1. Correcting “Laborer Thinking”: The teacher pointed out sharply that the father’s educational method is essentially still “laborer thinking” because he links interests directly to “finding a job that won’t be replaced” and income.
    2. Interest Should Not equate to Income: The core of education is guiding children to explore and find what they truly love and want to do as soon as they wake up, not for making a living. Things you like don’t necessarily have to have a salary.
    3. Parents are the Backup: The parents’ responsibility is to be the safety net during the child’s life adventure, providing basic food and shelter.
    4. Cultivate Independence: After adulthood, children must learn to be responsible for their extra desires (like new phones, travel) and earn money to satisfy them.
    5. Correct Guidance: Parents should take children to experience the world, not instill concepts of “what job is good/bad,” and definitely not pass on their own negative emotions about work.

Sam

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• Share: Contacted the channel two months ago. Very grateful for the sharing; it made investing more confident and life more peaceful. Mentioned having insomnia before, but sleeps well after listening to the lessons.
  • Teacher James’s Comment: Glad the course helps everyone sleep peacefully. Used this to add a point on child education: The most important role for parents is “accompaniment,” ensuring the child keeps up with daily learning, especially basics. Once the foundation (like addition, subtraction, multiplication, division) is not laid well, failing to keep up with later courses leads to a loss of interest in learning, which is more serious than sending them to any cram school.

Hailing

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• Question: US citizen planning to retire and live in Taiwan for a few years starting in 2029. Asked about tax issues (whether to pay Taiwan tax), how to file taxes without a US address, and suggestions for Taiwan weather/travel.
  • Teacher James’s Reply:
    1. Taxes: She remains a US tax resident and only needs to file US taxes as usual. Since there is no income in Taiwan, Taiwan tax is not involved.
    2. Residency: Can use visa-free entry for several months, then apply for an extension or do a “visa run” (travel to a nearby country and return).
    3. Travel Advice: Weather is best from November to January. Transportation is convenient island-wide; recommends using public transport (like “Taiwan Tourist Shuttle” buses) to visit Taipei, Sun Moon Lake, Alishan, Hualien/Taitung, etc. International flights arrive at Taoyuan Airport.

Wang Zhihua

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• Question: Living in Mainland China, investing via a Hong Kong broker. Is QQQYI dividend taxable?
  • Teacher James’s Reply: Non-US tax residents buying through US brokers will have 30% tax withheld on dividends, discounting actual returns. Although theoretically one can apply for a tax refund, the process is extremely tedious. He suggests checking if the Hong Kong broker offers services to apply for refunds on your behalf. Meanwhile, he recommended a Mainland China OTC high-dividend fund, Southern Dividend Low Volatility 50 ETF (Code 008163), with an annualized yield of about 10%, as a local alternative.

Helen

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• Question: Why recommend investing in QQQ (Nasdaq 100) instead of S&P 500? Isn’t QQQ more volatile?
  • Teacher James’s Reply: Because QQQ has a higher long-term return rate. A portfolio of 500 companies is too diversified, affecting overall performance; 100 companies are diversified enough. For “buy and hold” investors, volatility during the process is not risk and can be completely ignored. Whenever there is money, one should buy.

Vicky

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• Question 1: Misunderstood stock pledging. She thought her 4:3:3 combination (400k QQQ, 300k QLD, 300k Cash) allowed her to borrow $540k based on the broker’s limit, asking how to use this money.
  • Teacher James’s Reply: This is an extremely dangerous misunderstanding. Borrowing such a high ratio means immediate bankruptcy if the market drops 80%. The principle of safe pledging is: borrow at most 2% of total assets annually. For $1 million in assets, the safe borrowing limit is only $20,000 per year for consumption or reinvestment.
• Question 2: For a retired person, if the 30% cash is only enough for 10 years of living expenses, and part of it is spent when the market falls, is there extra money to “buy the dip”?
  • Teacher James’s Reply:
    1. Non-retirees should not live off investment principal.
    2. For retirees, ideal cash reserves should cover 15 years of expenses (corresponding to total assets being 50 times annual expenses). If cash only covers 10 years, it means total assets are insufficient to support a leveraged configuration like 4:3:3, and high-dividend ETFs should be added to supplement cash flow.
    3. The 15 years of living expenses used for safety must never be used to buy the dip, as this is for survival. Only “extra” cash beyond 15 years of expenses can be considered for investment during market drops.

Ling

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• Share (Supplement to Vicky): Suggested Vicky watch the teacher’s previous YouTube video on stock pledging and personally operate the Excel spreadsheet attached to the video. By modifying parameters to simulate her situation, she can deeply understand the safety margins and mechanics of pledging.

Haoqing

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• Share: Shared stories about financial advisors, including high fees (5-8%) and selling products that are “capital guaranteed but with very low return caps” by exploiting clients’ ignorance.
• Question: This gave him an idea: could he provide “more conscientious” asset management services for wealthy but financially illiterate people (like second-generation rich), charging only a 2% management fee to help them invest in index funds and do simple rebalancing? He feels not charging might make them suspicious.
  • Teacher James’s Reply: This is the reality of the financial services industry. The first step in financial management is to stay away from financial advisors and insurance agents. Although they seem to make easy money, they also face pressure from client complaints when the market falls. If Haoqing wants to enter this industry, it is feasible, but he must obtain relevant licenses (like CFA) to operate legally.

Jian / Nick

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• Question 1: If one has a separate stable cash reserve, can the investment portfolio be allocated as 60% QQQ and 40% QLD?
  • Teacher James’s Reply: You cannot view the investment portfolio in isolation like this. You must calculate the ratio with all assets (including that “separate” cash) together. For example, if total assets are 1.4 million (of which 400k is cash), then a 700k QQQ and 300k QLD allocation is actually 50% QQQ : 21% QLD : 29% Cash. This 5:2:3 ratio is reasonable because the leveraged fund (21%) does not exceed cash (29%) or the prototype fund (50%).
• Question 2: In the long run, is QLD’s return guaranteed to be better than QQQ?
  • Teacher James’s Reply: Absolutely not. After a deep bear market, leveraged funds may take decades to recover, while QQQ recovers much faster. The purpose of holding leveraged funds is to harvest profits into QQQ or cash through “smart rebalancing” during bull markets; it is not an asset to be held mindlessly forever. If the position becomes too high, it must be adjusted immediately; you cannot wait even one day.

A Mainland Student

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• Question: 36 years old, has $100k USD in a US broker and another 1 million RMB cash domestically. How to allocate the $100k USD between QQQ and leveraged ETFs?
  • Teacher James’s Reply:
    1. Primary Risk: Sternly warned not to use US brokers because inheritance issues for non-US residents are extremely complex, and family members may not be able to retrieve the assets in the future. Strongly recommended moving to a Hong Kong broker.
    2. Allocation Suggestion: Considering he has ample external cash flow, this $100k USD can use a 70% Prototype Fund : 30% Leveraged Fund allocation.
• Share: He shared that domestic (Chinese) Nasdaq ETFs have “tracking error” issues, recommending 159696 (E Fund Nasdaq ETF) for smaller tracking error. For Hong Kong stocks, he recommended the lower-fee new product Invesco QQQ (Code 3455).

JY

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• Question: Daughter is working; can she put her monthly investment of $500-$1000 entirely into QLD?
  • Teacher James’s Reply: No. Adults with income should not put their entire investment into leveraged funds. QLD is only suitable for investing very small amounts of “lucky money” (like $30-$50) for young children. His daughter should primarily invest in QQQ or QQQM.

K

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• Question: Can I swap the VOX (short-term bond ETF) used as cash reserve for QQQYI?
  • Teacher James’s Reply: Absolutely forbidden. VOX is a cash equivalent; the principal will not drop. QQQYI is an equity asset with a risk of dropping 30% and cannot be used as a cash reserve.

Sherry

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• Question: Regarding stock pledging, do I borrow all the money now?
  • Teacher James’s Reply: No. It is obtaining a credit line. You take a little out from the limit only when you need money, not borrow it all at once.

Lala

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• Question: Is it safe to keep 10 million in one bank?
  • Teacher James’s Reply: No need to worry, this is overthinking. Many people have hundreds of millions in banks without issues.

Demo

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• Question: Should leveraged funds be placed in a Roth IRA account?
  • Teacher James’s Reply: Yes, for investors in the US, leveraged funds should only be placed in tax-free accounts like a Roth IRA. Never put them in a Traditional IRA or a standard Brokerage Account, because rebalancing in those accounts triggers tax issues.

Consense

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• Question: Holding leveraged funds in a Brokerage Account creates massive taxes when selling for rebalancing. What should be done?
  • Teacher James’s Reply: This is exactly why holding leveraged funds in taxable accounts is not recommended. When you need to make large sales for rebalancing, you face heavy capital gains tax, which is the difficulty in operation.

IV. Highlighted Views

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If you don’t buy a house quickly, prices will keep rising, and you won’t be able to afford it later… Only by understanding the principles of capitalism and increasing your liquid assets first will buying a house become as simple as buying slippers. – Teacher James

Context: The teacher criticizing the prevalent “home-buying anxiety” in society and proposing that after achieving financial freedom through investment, purchasing a home will no longer be a difficult problem.

Ordinary people buy houses… and after living there for forty-odd years, they become ‘poor until only one room is left.’ – Teacher James

Context: Describing the ultimate dilemma of ordinary people treating real estate as their only major asset—the asset is locked up and cannot generate cash flow.

In front of the market, we must admit that we know nothing… If you think you know, then you are too overconfident. – Teacher James

Context: Emphasizing that the primary mindset for successful investment is humility, admitting the inability to predict the market, thereby avoiding wrong decisions due to overconfidence.

If you can solve (the housing problem) with $300,000, why use $1 million, $2 million, or even $3 million assets to solve it? – Teacher James

Context: Explaining how to activate the vast majority of assets by selling a house and using a small portion of the funds to invest in high-dividend products to pay rent.

You are teaching your child entirely to be a laborer… Things they like shouldn’t be equated with income. – Teacher James

Context: Responding to a student’s question about child education, pointing out that directly linking interests to “finding a job/making money” is a limited “laborer mindset.”

We parents are their backup… at least they have a bed to sleep in and food to eat during their adventure process. – Teacher James

Context: Elaborating on the role of parents in children’s education, which is providing security and encouraging children to bravely explore their own life paths.

Leveraged funds… when they rise, you must move the earned money to cash or QQQ, otherwise the money you made is in vain, and eventually, one drop will send you back to pre-liberation days. – Teacher James

Context: Explaining that leveraged funds cannot be held stubbornly for the long term; profits must be locked in through rebalancing, otherwise floating gains accumulated will vanish rapidly in a bear market and be hard to recover.

The first step in financial management is to avoid financial management… you need to stay away from financial advisors. – Teacher James

Context: Commenting on the financial services industry, reminding students of the importance of self-learning and mastering their own financial destiny to avoid being exploited by professionals charging high management fees.

V. Summary

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This episode began with a warning about community scams, reinforcing the cornerstones of CLEC investment philosophy—discipline and mindset. Through a profound analysis of the concept of “real estate,” which is deeply rooted in Chinese society, Teacher James guided everyone to step out of traditional thinking frameworks, truly understand the value of “liquid assets,” and provided concrete and feasible asset activation plans. The Q&A session covered multiple levels from asset allocation, leverage use, tax planning to children’s education. The teacher’s replies not only offered operational advice but also conveyed the underlying philosophy of life and risk management thoughts. The entire sharing session warns us that true financial freedom stems from correct cognition, strict discipline, and reverence for risk, rather than chasing or predicting the market.