I. Theme of the Week#
The core of this session is the introduction of a new portfolio backtesting simulation App, used to deeply analyze and compare the differences between stock pledging and non-pledging retirement withdrawal strategies. Through live demonstrations, Teacher James shows the maximum safe withdrawal rates (approx. 1.5%-1.8%) and risks of pledging strategies under different markets (Taiwan vs. US), interest rates, and LTV (Loan-to-Value) ratios. The core takeaway is: while pledging can significantly increase total terminal assets over the long term, it demands extremely high cash flow stability and very conservative withdrawal rates. Conversely, non-pledging strategies allow for a higher withdrawal rate (approx. 2.7%) but sacrifice asset growth for greater flexibility.
II. Presentation Highlights#
Investment Philosophy and Mindset Building#
- Ignore Market Noise: Teacher James began by emphasizing that daily market fluctuations, international tensions, central bank rate changes, economic data, and financial reports are irrelevant to our long-term investment strategy. Investors should focus on holding for the long term and moving forward.
- The Logic Behind Choosing QQQ: We invest in indices like QQQ not by “looking in the rearview mirror” at past performance, but based on a belief in the future—belief in human growth, technological progress, and the development of the United States. QQQ is the purest representation of these three beliefs.
- Scam Warning: Students are reminded again to beware of fake accounts (often with suffixes like ‘N’ or ‘M’ added to the ID). Teacher James has only one account on Clubhouse; please verify carefully.
Introduction to the Backtesting App and Simulation Analysis#
Developed by community member Martin, this App simulates long-term returns and risks under various asset allocations, pledging conditions, and withdrawal strategies.
Taiwan Scenario (40% QQQ, 30% QLD, 30% Cash)
- Parameters: Initial principal of 1 million, 3% interest rate, 60% LTV.
- Withdrawal Testing:
- Annual withdrawal of 1.5% (15,000): Results show assets survive safely from 2000 to 2025.
- Annual withdrawal of 1.6% (16,000): Results show the portfolio is liquidated (fails) in 2009.
- Conclusion: Under Taiwan’s pledging conditions, the upper limit for a safe withdrawal rate is very strict at 1.5%.
US Scenario (40% QQQ, 30% QLD, 30% Cash)
- Parameters: 6.5% interest rate, higher LTV (70% for QQQ, 95% for Cash, but QLD cannot be pledged).
- Withdrawal Testing:
- Annual withdrawal of 1.8%: Safely survives.
- Annual withdrawal of 1.9%: Results in failure.
- Conclusion: Due to more relaxed LTV conditions in the US, the safe withdrawal rate can reach 1.8%, showing slightly higher risk tolerance than in Taiwan.
- Impact of Interest Rates: When Teacher James lowered the US interest rate to 5% (the setting used in early Excel simulations), the safe withdrawal rate rose to 2.1%, proving that interest rates are a critical variable in pledging safety.
Comparison: Pledging vs. Non-Pledging Strategies#
Non-Pledging Strategy (80% QQQ, 20% Cash)
- Maximum Withdrawal Rate: 2.7% of assets annually.
- Outcome: While it safely survives 25 years, by 2025, the total asset value has barely grown, returning to its 2000 initial level. This strategy sacrifices capital appreciation for higher immediate cash flow.
Asset Comparison at Equal Withdrawal Rates
- Assume both strategies withdraw only 1.5% (15,000) annually.
- Non-Pledger: Assets grow to 1.61 million by 2025.
- Pledger (Taiwan Plan): Assets grow to 4.75 million by 2025.
- Conclusion: Given the same low expenses, the pledging strategy can result in several times more asset growth. Investors must weigh “higher asset growth” against “higher current cash flow.”
Teacher James’ Suggestions#
- Pledging Risks are High: A 1.5% withdrawal rate means your total assets must be 66 times your annual expenses, a high bar for most people.
- Combine with High-Dividend ETFs: Retirees might consider allocating a small portion (e.g., 10%-20%) to high-dividend products (like QYI) to generate stable cash flow, reducing the amount and pressure of pledged loans.
- For Those Still Working: You can experiment with pledging while continuing monthly contributions, which makes the outlook much more optimistic.
III. Q&A Session#
Martin#
- Sharing:
- Introduced updates in App v0.2: Configuration export/import to avoid resetting; simplified strategies into “No-brain Rebalancing” and “Smart Rebalancing”; added detailed monthly ledgers and semi-annual balance sheets.
- Added risk assessment metrics to performance reports: “Worst Yearly Return,” “Maximum Drawdown,” “Calmar Ratio,” and “Pain Index.”
- Reports can be downloaded as PDFs and include JSON data that can be fed into LLMs (like ChatGPT) for plain-language analysis and interpretation.
- He has open-sourced the App’s source code link for collective verification and improvement.
Chen Feng#
- Sharing:
- Based on his own Excel models, he believed a 2% or even 2.2% withdrawal rate should be safe. He questioned the strict 1.5% result from the App and offered to help verify the source code.
- Shared a Taiwan-version “Buy vs. Rent” spreadsheet, proving with data that over the long term, those who rent and invest will end up with assets vastly exceeding those who buy, with the gap reaching the “hundreds of millions” level.
- James’ Comment: James adjusted the simulation interest rate from 6.5% down to 5% on the spot, showing that a 2.1% withdrawal rate then became viable. This confirmed that the interest rate is the key variable and validated Chen Feng’s calculations in a lower-rate environment. James thanked him for the significant time spent creating tools and educating the community.
Ponting#
- Sharing: He pointed out that from 1999 to 2006, there was no real trading data for QLD. Different simulated extrapolation methods used by various platforms lead to differences in backtesting results. This may explain the discrepancies between models.
- James’ Comment: James agreed and explained that the QLD backtesting data used in the App originated from his early Excel files, which indeed affects precision. However, he emphasized that the primary purpose of this tool is to help everyone grasp the “vague correctness” of different strategies rather than pursuing absolute numerical precision.
L#
- Question: When doing a Roth Conversion after retirement, if one does not use stock pledging, how should taxes be paid?
- James’ Reply: There are two ways. One is paying with cash from your Brokerage Account, which is the best way as it maximizes the funds moved into the Roth. The second is having the broker withhold taxes during the conversion (e.g., convert 200k, withhold 20k for tax), but this reduces the principal entering the Roth.
Andy#
- Sharing: Expressed deep gratitude for the sharing, which put him and many others on the right path to financial freedom. This sense of peace from “knowing where the finish line is” has significantly elevated his quality of life and freedom of choice—which is far more important than the wealth itself.
- James’ Comment: Our greatest reward is hearing that students’ lives have become more relaxed. Even if not yet retired, knowing you are on the right path with a secure future brings a peace of mind that we most hope to provide.
Clark#
- Q1: In worst-case simulations (like the year 2000), cash positions and debt get very close. Is this safe enough?
- James’ Reply: Yes, the simulation result is a “narrow escape.” In an extreme market crash of 85%, the assets just barely avoid liquidation. This illustrates why the withdrawal rate cannot be higher—2% is the tipping point.
- Q2: When markets crash and cash is tight, should one be more cautious with “Smart Rebalancing,” such as reducing or pausing cash injections?
- James’ Reply: Excellent question. We are indeed exploring more conservative approaches. One principle: if your cash reserve is lower than 15 (or even 20) years of living expenses, you should not touch it for rebalancing. An alternative is to sell some QQQ to buy QLD for rebalancing instead of using cash, preserving your safety net.
- Q3: When should company-issued semiconductor stocks be sold? Given tax issues, is it worth waiting or using complex Exchange Funds?
- James’ Reply: As long as you have held them for over a year, a fixed long-term capital gains tax applies, which is independent of your personal income. Don’t wait; sell after one year to diversify risk early. Avoid complex financial products like Exchange Funds—simple is best.
Shu Fen#
- Question: Teacher mentioned a Chinese High Dividend ETF (008163) last week. Its holdings are mostly traditional sectors like banks, unlike the tech-heavy QQQI. Can it serve as a substitute?
- James’ Reply: Absolutely. Our goal is to obtain cash flow. Just as Americans eat bread and Chinese eat rice, both fill you up. Products in different markets have different underlying assets, but as long as it consistently provides high cash flow, it meets our strategic objective.
Min#
- Sharing: A new student from Xiamen who began investing after listening for six months. Today, he successfully convinced his girlfriend, who works three cleaning jobs, to start investing and urged her not to put money into building a house in the countryside that has no economic value.
- James’ Comment: This is a vital “awakening.” The younger generation shouldn’t rush to give “filial piety money” to parents whose financial concepts might be incorrect, wasting your “ammunition.” Use the money where it is most efficient (investing) to become the “big tree” of the family first. Only then can you truly protect the whole family and achieve a leap in social class.
Wu Li Yun#
- Sharing (Very Touching): A low-wage worker from Taiwan. Five years ago, when she started listening to the program, her assets were less than 1 million TWD. She followed the advice to increase income through side jobs and stayed committed to investing. Today, her assets are nearly 5 million TWD. She has moved from anxiety about money to a sense of inner confidence.
- James’ Comment: This is our most gratifying result. Now that she has 5 million, if she persists, having 1 billion TWD in her lifetime is not a dream. This proves that no matter how low the starting point, as long as you are on the right path, anyone can reach extreme wealth.
Katy#
- Sharing: While attending a Christmas lunch at an orphanage, she noticed they lacked financial education. She proposed teaching the administrative staff and volunteers first, who can then educate the children about to leave the orphanage on how to manage their first savings.
- James’ Comment: That is wonderful. We must find ways to reach these vulnerable groups and educate them.
Wonder#
- Sharing: Thanked the teacher for years of sharing, which allows for peace of mind even when the stock market drops. There is no longer a perceived economic burden for the future, providing confidence in life and in raising children.
IV. Brilliant Insights#
“Our entire nation deserves to be wealthy… If you earn money through labor alone, you are like the Boxers (insurgents using outdated methods); you must use financial warfare, financial weapons, and a capitalist’s mindset to win this war.” – Teacher James
Context: Responding to Min’s story, James explained the importance of financial literacy for individuals and families, comparing manual labor alone to the outdated tactics of the Boxers Rebellion.
“Although it may take some time—maybe five, seven, or even ten years—knowing that there is an end goal allows a person’s entire life to relax. They find true peace of mind.” – Teacher James
Context: Responding to Andy, James noted that the channel’s greatest value isn’t instant wealth, but providing a clear future to eliminate current anxiety.
“A profession will not make you wealthy; only investing will. Your job can be taken away by others, but your investments are yours.” – Teacher James
Context: Responding to Clark, James highlighted the fundamental difference between earned income and invested assets; the former is “passive” (at the mercy of others), while the latter is one’s true engine for wealth.
“For a person earning minimum wage to end up with 1 billion… wealth is a natural, beautiful gift, but we haven’t been educated on it.” – Teacher James
Context: After hearing Wu Li Yun’s story of growing 1M to 5M on a basic salary, James remarked on the power of capitalism and how proper education enables regular people to reach once-unimaginable levels of wealth.
“If you want a class reversal, a class migration, you must awaken… Once you become the ‘big tree’ of the family, you can flip the fate of the entire lineage.” – Teacher James
Context: Encouraging Min, James emphasized that young people should prioritize investing in themselves as the only way to achieve a leap in family wealth.
“Finance is finance; you must stand on the side of rationality, never on the side of emotion.” – Min
Context: Min sharing how he convinced his girlfriend to invest rather than spending money on an emotionally satisfying but economically unproductive countryside house.
V. Summary#
This session, through a practical backtesting App, turned the abstract concept of stock pledging into something concrete. Teacher James not only demonstrated the tool but, more importantly, revealed the trade-offs between risk and reward in different strategies. Pledging can significantly amplify wealth but requires extreme discipline; non-pledging is more flexible and suits those with higher cash flow needs. Most movingly, the real stories of students—especially Wu Li Yun from a grassroots background and Min’s hardworking girlfriend—vividly illustrated the core philosophy: “Investing can change your destiny.” This was not just a technical analysis class, but a deep exchange about hope, peace, and life awakening, reaffirming the community’s belief in long-term holding and simple investing.