Six Reasons to Buy Funds

Six Reasons Why Buying Funds is Better Than Buying Stocks#

Many people, when they first enter equity investment, primarily buy stocks. Some friends have been trading stocks for a long time and are not very clear about what funds are.

In fact, equity funds (stock funds, index funds, mixed funds) are more suitable for ordinary/amateur investors compared to stocks. Fund investments also involve stocks, and the nature of equity is similar, but the benefits are greater. Today, let's discuss six reasons why buying stock funds is better than buying individual stocks.

Index Funds are the Best Choice for Ordinary Investors#

The most commonly used method for index funds is regular investment in funds, which is the simplest and easiest method to operate. However, if you persist in the long term, you can often achieve very good returns and generally won't incur losses. The longer you persist, the lower the probability of loss. If you stick with it for more than five years, you can basically guarantee a 100% profit. Therefore, many stock market novices have defeated seasoned investors who have been in the market for over a decade by using regular investment in funds.

How to Avoid Common Pitfalls in Fund Investment?#

Fund investors often ask these three questions: Should I buy funds with low net values? Should I choose funds with the best past performance? When I need money, should I redeem the profitable funds first or the losing funds? We hope to provide relatively objective advice on these three questions.

About Fund Fees#

A considerable portion of the expenses incurred by fund investors in China is paid to sales institutions. In addition, custody fees increase the cost of funds. Currently, one-third of public funds in China charge sales service fees, with rates ranging from 0.01% to 1.5% per year. The customer service fee is a certain percentage of the management fee income paid to the sales agency by the fund company. For Chinese public funds, a significant portion of the expenses incurred by investors ultimately goes to sales institutions.

Choose These Types of Funds Without Fear of Bull or Bear Markets#

In the investment process, we should not always think about how our assets will perform if a bull market comes. The market value driven by valuation bubbles is hard to come by. What if the market really moves slowly like the US stock market in the future? So, what is "non-bull thinking"?

Introducing Three Practical Fund Investment Methods#

Here are three practical fund investment methods based on my investment experience over the years. These methods are certainly not the optimal methods, but they are simple, practical, and suitable for China's national conditions. They can definitely make money in the long term and won't incur too much loss in the short term.

Carefully Select Index Funds#

Index funds and ETFs are simple and transparent investment tools. Fund holdings are transparent, but investing in index funds and ETFs is not that simple. In this article, I want to help everyone choose good index products, see through the true nature of the index using publicly available information, and tell everyone how to select suitable investment varieties among similar index funds.

My View on Fund Selection: Equity Funds#

Equity funds can be divided into actively managed, passively managed, or constrained active management based on management methods. From the investment market perspective, they can be divided into domestic, foreign, and cross-border categories. Ordinary investors should try to choose low-fee ordinary index funds and ETF-linked funds from the perspective of staying away from the market, maintaining a calm investment mindset, keeping investment discipline, and saving time costs, rather than directly placing orders to buy and sell ETFs.

My View on Fund Selection: Fixed Income Funds#

There are many investment strategies for equity funds, but fixed income funds are also an important part of our asset allocation and should not be overlooked. My view on fund selection starts with fixed income funds.

Looking at Convertible Bond Funds from the Perspective of Value Preservation and Appreciation#

Most bond funds can invest in convertible bonds, but due to different investment strategies, some funds only supplement convertible bonds, while others focus on investing in convertible bonds. Here, I define funds that contain the words "convertible bond" in their names as convertible bond funds.

The three best convertible bond funds have recently changed fund managers. Choosing at this time is not easy; we hope the overall investment research capabilities of the fund company can ensure stable fund performance.

Regular Investment in Funds and Its Seven Good Friends#

Regular investment is undoubtedly an excellent means for ordinary investors to conduct forced savings for long-term investment. However, while regular fixed investment is good, we always hope to add more to it to make the returns sweeter. Indeed, there are various optimization methods available for regular fixed investment. Below are some common methods; using these regular investment "good friends" well may make your investment performance even better.

Choose Highly Volatile Funds
The advantage of regular fixed investment compared to equal amount investment is that it buys fewer shares at high prices and more shares at low prices, thus achieving a lower average cost. Therefore, the more volatile the fund, the more suitable it is for regular fixed investment.
Choose the Right Investment Date
Generally speaking, most regular fixed investment practitioners currently adopt a monthly investment method. When to execute the monthly investment? If we analyze the data from 1991 to February 2009, we find that the stock index level is relatively low in the first four days of each month. If we execute the investment during these days, we can obtain a relatively low entry point. Of course, with the continuous improvement of various institutions' investment platforms, more and more institutions can now achieve weekly or even daily investments. Therefore, another way to avoid slight differences caused by timing is to shorten the investment interval, such as changing a monthly investment of 4000 yuan to a weekly investment of 1000 yuan, or even changing it to every 2 or 3 days, thus getting closer to the average price of the market over a period.
Clever Use of Fund Conversion
Many investors who execute regular fixed investments often choose to keep excess funds in money market funds and redeem them before the investment execution date to ensure sufficient funds for investment. This operation is not only cumbersome but also incurs a loss of one day or more of money market fund returns due to the time difference between redemption and investment.

In fact, many fund investment platforms not only support regular purchases but also support regular conversion functions. You can set it to convert a certain amount of money market fund into the fund you plan to invest in every month, which not only eliminates the hassle of manual operation but also allows for same-day transactions, avoiding idle funds. Of course, the premise of the above method is that the two funds must belong to the same fund company, and the subscription platform must support the regular conversion function.
Value Averaging Investment Method
The value averaging strategy proposed by American scholar Michael Edleson has been proven by a large number of empirical studies to be a better fund investment strategy than regular fixed investment. Unlike regular fixed investment, which focuses on how much to invest each month, the value averaging strategy focuses on how much our net asset value increases each month.

Suppose we plan for the fund's market value to increase by 1000 yuan every month. Please note that it is the fund's market value that increases by 1000 yuan, not the purchase of 1000 yuan of funds. In the first month, you bought 1000 shares at a net value of 1 yuan, and in the next month, the stock market performed well, and the net value of the fund you bought increased to 1.2 yuan, meaning your fund's market value became 1200 yuan. If you follow the regular fixed investment method, the amount of fund you need to purchase next month is still 1000 yuan, but the value averaging strategy is different. What we require is just for the fund's market value to reach 2000 yuan by the end of the second month. Since we already have 1200 yuan now, we only need to invest 800 yuan to buy 666.67 shares of the fund this month.

Suppose in the next month the stock market performs even better, and the fund's net value quickly rises to 1.9 yuan, then the market value of the 1666.67 shares held reaches 3166.67 yuan. According to the set requirement, we only need 3000 yuan of fund market value this month, so we should not continue to purchase funds but instead redeem 166.67 yuan of funds, i.e., 87.72 shares, leaving us with 1578.28 shares.

Although the above method is good, it must significantly increase the investment amount when encountering a major market decline.
Asset Combination + Dynamic Balance
Generally, when we talk about regular fixed investment, we often refer to a single fund or a type of fund. In fact, asset allocation is also an indispensable concept for long-term investment, so it can be completely combined with the two. For example, if we decide to build a regular investment combination of 50% stock funds and 50% bond funds with a monthly investment of 3000 yuan, then initially, 1500 yuan will go into the bond fund and 1500 yuan into the stock fund. However, if after a month, the stock fund drops to 1300 yuan while the bond fund rises to 1600 yuan, in order to maintain a 50:50 asset allocation, we need to dynamically balance during the investment process, that is, invest 1650 yuan into the stock fund to bring its total market value to 2950 yuan; invest 1350 yuan to also bring the bond fund's market value to 2950 yuan, maintaining the 50:50 ratio. Similarly, if the next month the stock fund surges, causing its proportion of total assets to exceed 50%, we should reduce the investment amount for that month or even reduce some shares to bring its proportion back to the predetermined 50%.

The above method, under the premise of fixed monthly investment, can also achieve a strengthened investment strategy similar to the value averaging method, which undoubtedly better meets the needs of ordinary investors.
Point Strengthening
The so-called point strengthening refers to increasing or decreasing the share of a certain type of fund at specific moments based on our own judgment, in order to enhance returns through a certain degree of subjective judgment.

Common point strengthening methods can be based on indices or valuations. The former stipulates that if the Shanghai Composite Index or other benchmark indices fall below a certain point, additional funds will be added to accumulate more shares at relatively low points. For example, Huashang Fund supports such a model; the latter is based on valuation indicators such as price-to-earnings ratio or price-to-book ratio, where additional funds are added when the ratio falls below a certain multiple, which requires investors to monitor and operate themselves.

Another point strengthening method combines with asset combination + dynamic balance, not adding or reducing the overall fund shares, but adjusting the proportion of stock and bond assets. For example, when the price-to-book ratio exceeds 4.5 times, the proportion of the held stock fund and bond fund should be adjusted to 50:50, while also dynamically balancing the investment amount at 50:50 each month; when the price-to-book ratio is below 2.5 times, it will choose to adjust the proportion of the held stock fund and bond fund to 90:10, while also dynamically balancing the investment amount according to this ratio, thus ensuring that the fixed monthly investment amount remains unchanged while adjusting the share of stock funds.
Closed-End Funds
Although regular fixed investment has always been advocated for open-end funds, closed-end funds can also be invested regularly, but this requires us to operate in the secondary market. Compared to open-end funds, closed-end funds can provide us with more safety margins due to their discount rates, and the commission for buying and selling closed-end funds is also lower than the subscription fees for open-end funds, thus achieving lower entry costs.

At the same time, we can easily observe the changes in the premium rate of closed-end funds based on the net value announced weekly, and dynamically adjust the investment amount based on the premium rate. When the premium rate exceeds 30%, we can invest more in closed-end funds, and when the premium rate is too low (for example, below 10%), we can reduce some closed-end funds to further strengthen the regular fixed investment.

Regular investment, however, is different. In a major decline, regular investment will buy while it falls, which is consistent with the mentality of many ordinary people to average down—making it easier for ordinary people to persist. However, regular investment differs from the average down strategy of ordinary people. Ordinary people's average down strategy is often impulsive and reckless, with the biggest problem being that they often increase their positions too quickly in the early stages and then run out of ammunition later, unable to lower their costs. But regular investment is different because, for ordinary people, it is essentially a market entry strategy that matches salary income. For example, if you earn 8000 yuan a month and invest 1000 yuan regularly, you won't have to worry about running out of funds, which allows the strategy of averaging down to play a greater role.

In this article, you won't see any technical introductions; it only discusses mindset. Perhaps those who want to see hard facts will be disappointed, feeling it is too hollow. But when you invest for a long enough time, you will know how much impact investment mindset has on results and how important it is to have an investment method that matches your mindset and can be persisted in long-term. So, let me first talk more about the abstract, and then we will discuss the technical aspects.

Fund Regular Investment (Regular Fixed Investment in Funds)#

Fund regular investment is a common investment strategy that involves regularly purchasing fund shares with a fixed amount to achieve long-term stable investment. This method has its unique advantages but also certain drawbacks. Below are the benefits and drawbacks of fund regular investment:

Benefits:#

Averaging Investment Costs (Diversifying Risks):
- By investing regularly, investors can purchase fund shares at different points in time, unaffected by market fluctuations. When the market is sluggish, regular investment will buy more shares, and when the market rises, fewer shares will be purchased. This "buy low, sell high" effect can reduce overall investment costs in the long run.
Reducing the Pressure of Market Timing:
- Regular investment does not require selecting the right timing to buy; investors only need to invest regularly, avoiding the difficulty of trying to catch market bottoms or tops, thus reducing psychological burdens.
Long-Term Compound Growth:
- Since regular investment is usually a long-term investment method, funds can grow through compound interest over a longer period. The compounding effect can significantly enhance investment returns, especially with long-term regular investments, where returns become more apparent.
Suitable for Small Investments:
- Regular investment typically involves small amounts of money, making it suitable for investors without large sums of capital who wish to diversify investment risks. Investors can invest regularly according to their financial situation, reducing financial pressure.
Suitable for Investors Without Time to Manage Investments:
- For investors who lack time or knowledge to manage investments, regular investment is a simple, automated way to help them invest long-term without needing to constantly monitor the market.

Drawbacks:#

Inability to Avoid Short-Term Fluctuations:
- Although regular investment helps to spread risks, it still cannot completely avoid short-term market fluctuations. If the market experiences a significant decline, regular investors may also face substantial losses, especially if their funds have not recovered in the short term.
No Strategy to Avoid Losses:
- While regular investment can lower overall purchase costs, it cannot determine market trends. If the market remains in a bear phase for an extended period, regular investment may lead to prolonged losses without timely adjustments to strategy.
Not Suitable for Investors Eager for High Returns:
- For those seeking short-term high returns, regular investment may not be suitable, as its returns primarily depend on long-term market growth, making it difficult to achieve quick high returns during periods of significant short-term fluctuations.
Potentially Missing Other Investment Opportunities:
- While regular investment is stable, due to its fixed investment approach, investors may miss other more promising investment opportunities, especially when market changes occur, as regular investment cannot respond flexibly.
Management Fees and Other Costs:
- Long-term regular investment may face relatively high fund management fees, especially when the purchased fund performs mediocrely, as management fees can impact overall returns. Additionally, some platforms or funds may charge other fees.

Regular investment is suitable for long-term investment, helping investors average costs, diversify risks, and not requiring excessive attention to market fluctuations. However, it also has certain limitations, especially in long-term market downturns or when short-term high returns are urgently needed. Therefore, investors should assess whether this strategy suits their risk tolerance and investment goals before choosing regular investment.

Why Regular Investment is Fixed Amount Instead of Fixed Quantity#

First, let's talk about another common term for regular investment: "regular fixed amount."

To be honest, these three "fixed" aspects reflect three dimensions of this investment philosophy. "Regular investment" emphasizes the action of investing; "regular" emphasizes the time period, requiring continuity; and "fixed amount" refers to the scale, requiring a fixed amount.

Here comes the question: why fix the amount instead of the fixed quantity that many stock investors are accustomed to, such as buying 100 shares each time?

First, you need to know that regular investment essentially stems from "forced savings." Yes, it first requires white-collar workers to set aside a portion of their income for savings; only then should this money not just be saved in the bank but invested in the securities market.

Since it is taken from income, it is naturally an amount—if we set aside 20% of our income for forced savings, then an income of 10,000 yuan means a monthly investment of 2,000 yuan, which is simple and clear.

It is important to note that compared to fixed amounts, fixed quantities are very volatile.

For example, if you buy 500 shares of a certain ETF every month, and if the price of this fund is 2 yuan, that corresponds to 1,000 yuan; if it rises to 5 yuan in a bull market, that corresponds to 2,500 yuan; and if it crashes to 1 yuan in a bear market, that corresponds to 500 yuan.

This creates two problems: First, the funds needed to buy 500 shares in a bull market may exceed the amount you can save as a fixed-income worker in that month; second, and more critically, this is a strategy that spends more when prices are high and less when prices are low.

"Regular fixed amount" is an investment strategy that typically involves investing a fixed amount at regular intervals in specific assets, such as funds or stocks. Its advantages and disadvantages are as follows:

Advantages:#

Reduce the Impact of Market Fluctuations:
- Since the investment amount is fixed, investors will buy more units when the market is down and fewer units when the market is up. This practice helps to average the purchase cost, thereby reducing the impact of short-term market fluctuations.
Forced Savings and Discipline:
- Regular fixed investment requires investors to deposit a certain amount regularly, which helps cultivate the habit of saving and the discipline of long-term investment.
Suitable for Long-Term Investment:
- This strategy does not rely on market timing, making it suitable for those with long-term investment goals. Regardless of market fluctuations, consistently adhering to regular fixed investment may yield relatively stable returns over time.
Reduce Emotional Fluctuations:
- Investors do not need to operate frequently, avoiding impulsive decisions due to market fluctuations (such as excessive panic or greed), which helps maintain rationality.
Suitable for Investors with Limited Funds:
- For those with limited funds or who do not wish to make a large one-time investment, regular fixed investment is a very suitable investment method, allowing them to spread risks over time.

Disadvantages:#

Cannot Avoid Long-Term Losses:
- If the invested asset remains in a downtrend for an extended period, regular fixed investment may not avoid losses. In such cases, although investors may have a lower average purchase cost, the continuous decline in asset prices will still lead to losses.
Missed Market Lows:
- Since regular fixed investment does not consider the current state of the market, investors may miss opportunities to make a one-time investment at market lows, resulting in suboptimal returns.
Not Suitable for Short-Term Goals:
- The regular fixed investment strategy is primarily suitable for long-term investments and may not meet the needs of investors with short-term investment goals. If funds are needed in the short term, the returns from regular fixed investment may not suffice.
Opportunity Cost:
- For those who can better judge market trends and operate flexibly, regular fixed investment may miss market opportunities. Flexible asset allocation or timing operations may yield higher returns.
Cannot Avoid Portfolio Risks:
- Although regular fixed investment helps to spread market timing risks, if the selected assets themselves have high volatility or risk (such as certain industries or individual stocks), significant investment risks will still be faced.

Regular fixed investment is a strategy suitable for long-term investment, focusing on stable growth. It helps to spread market risks and cultivate investment discipline, but in long-term downturns or short-term investment goals, it may lead to significant losses or opportunity costs. Therefore, investors need to assess whether to adopt this strategy based on their risk tolerance and investment objectives.

Is It Feasible to Invest Regularly but Not Periodically?#

Regular investment seems simple, but each detail, when examined, is quite significant. Next, we will delve into the nuances of the terms "regular" and "fixed amount."

The most basic approach to regular fixed investment is to invest a certain amount each month. Here, "monthly" refers to a fixed period.

When to execute the monthly investment?

One approach is to follow cash flow. For example, if your salary arrives before 3 PM on the 5th, then choose the 5th for your investment—this way, you can enforce savings before spending, avoiding overspending and leaving no money for investment.

Of course, for those who can control their spending, a more reliable approach is to follow the investment target, trying to enter when prices are low.

Although, from a long-term trend perspective, the Shanghai Composite Index does not show strong monthly patterns, it can still be said that low points can be found: for example, on the 1st and the 17th of each month.

So, if you can control your spending, consider investing on the 1st or the 17th; perhaps over time, you will have a greater chance of buying at lower points—whether it’s the 1st or the 17th depends on whether your salary is received in the first half or the second half of the month.

Is Weekly or Daily Investment Necessary?#

Although traditionally, regular investment is primarily done once a month, some practitioners are not satisfied with this and worry that once a month is too infrequent and they might miss opportunities. For example, they might only invest on T1, T3, and T5, fearing they will miss the low on T4. Thus, they hope to change it to weekly or even daily investments.

In my opinion, reducing the interval of regular investment can avoid missing opportunities, but it also brings the downside of reducing the amount invested each time—originally investing 1,000 yuan monthly becomes 250 yuan weekly, which limits the amount.

So what to do? Instead of weekly or daily investments, I suggest a combination of automatic monthly investments and manual investments during significant declines.

Regular monthly investments are essentially a forced savings process. But what if there is a significant drop, such as a 5% or even 7% drop in a single day since 2016? I would choose to advance the next month's investment and switch to manual investment.

For example, if your regular plan is to invest 2,000 yuan on the 1st of each month, and on the 5th, the A-share market suddenly drops 7% in a single day, you can activate the manual addition mode—such as investing an additional 2,000 yuan for every 7% drop (5% could also be considered, depending on your sensitivity to declines). If it drops around 20% in just a few days, it would mean adding three times of investment—of course, the prerequisite for additional investments is that you have enough spare cash to handle three additions, which should not be an issue for ordinary white-collar workers with cash reserves.

So what happens after making three additional investments? Since this is equivalent to completing the future three months of investments in advance, I believe unless there is a new low triggering another manual addition, the regular investments for the next three months can be paused, and the funds that should have been invested can be used to cover the three additional investments.

Should Regular Investments Always Be the Same Amount?#

Next, let’s discuss whether it can be variable amounts instead of fixed amounts.

As mentioned earlier, regular fixed investment is essentially a forced savings process. If you earn 8,000 yuan a month and set aside 1,000 yuan for investment, it’s a natural process.

However, many people are not satisfied with such a mechanical investment method—so a common workaround is to have variable amounts for regular investments.

If the amounts are variable, then we need to figure out how to make them variable. Currently, the popular methods are either technical analysis or valuation-based.

Technical analysis involves using moving averages and other technical methods to determine upward or downward patterns, then adjusting the investment amounts accordingly. However, while I am a fan of technical timing, I do not recommend this investment method—simply because if technical timing were reliable, you should use it for full offense or defense, deciding whether to be fully invested or not (like my 80/20 rotation model). Trend investing is fundamentally at odds with regular fixed investment.

Yes, the compatible approach with regular fixed investment is valuation-based—investing less when overvalued and more when undervalued.

For example, if you earn 8,000 yuan a month and normally invest 1,000 yuan, but during a bear market, you can save and find ways to invest 2,000 yuan monthly; conversely, during a bull market, you can cut your investment in half to 500 yuan or even pause it.

In fact, the logic of valuation-based investment is simple, but the key lies in determining when valuations are high and when they are low.

This question leads to practical insights. Although the A-share market is not as long-standing as the US market, there is still nearly 20 years of reference data available. Therefore, the general valuation ranges can still be estimated.

First, I prefer using the price-to-book ratio (P/B) for valuation, as it is more stable compared to the traditional price-to-earnings ratio (P/E)—Nobel laureate Eugene Fama's three-factor model also uses P/B for valuation.

Let’s take a look at the Shanghai Composite Index, which generally represents large blue-chip valuations. Since 1997, the P/B ratio of the Shanghai Composite Index has ranged from 1 to 7, with an overall downward trend, currently around 1.5.

While the historical position can be visually seen from the chart, I prefer percentage values for a more intuitive understanding.

When the P/B ratio of the Shanghai Composite Index reaches 50%, it is at 2.76 times, meaning that since 1997, the valuation has been ranked from high to low each month, with 2.76 being the median.

Based on the above table, you can actually modify your strategy. For example, when the P/B ratio of the Shanghai Composite Index exceeds 4.8 times, pause regular investments; when it drops below 1.68 times, double your investments. Of course, if you want more tiers, you can increase investments by 50% when it drops below 1.68 times and only double investments when it falls below 1.38 times.

Of course, the A-share market is extremely polarized. Therefore, simply looking at the valuation distribution of the Shanghai Composite Index is not very useful for small and mid-cap stocks.

So, I calculated the P/B ratio distribution of mid-cap and small-cap indices in the Shenwan scale index since 2000, which is currently at a moderately high level. Based on this table, you can control the doubling or halving of your regular investments.

Closed-End Funds are the Best Choice for Regular Investment#

In fact, when it comes to regular investment, closed-end funds have long been the best partners for investors. Closed-end funds have a unique feature: they tend to trade at a higher discount during bear markets and a lower discount during bull markets, which makes their declines in bear markets more severe, and the effect of increasing holdings at a discount more pronounced.

Think back to the great bull market in 2006, when many closed-end funds were trading at a 50% discount. Investors who persisted in regular investments during that time truly reaped the benefits in the subsequent bull market.

Although many of the older closed-end funds expired in 2016 and 2017, leaving only their residual heat, there is still an annualized return of 7% to 10% from the discount. If you want to take advantage of regular investment products, it’s better to focus on these "fund XX" varieties.

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Note: Data source from Jisilu.

The issue of regular investment is not really a regular investment issue, because regular investment itself is just a simple market entry strategy, not a complete trading system.

The Problem with Regular Investment: The Effect of Cost Dilution Decreases Over Time#

This is easy to understand. Suppose you decide to invest 2,000 yuan every month. In the early stages of regular investment, your monthly investment accounts for a relatively high proportion of the total invested amount. For example, in the second month, the previous 2,000 yuan investment and the new 2,000 yuan investment are 1:1. If the second investment can be made at a relatively low cost, it can quickly lower the average cost.

However, as you transition from a novice investor to an experienced one—like many people I know who have been investing for four or five years—if we calculate based on a monthly investment of 2,000 yuan over five years (60 months), the total investment would be 120,000 yuan. If after five years of regular investment, you haven't made a profit and your market value is still 120,000 yuan, then you might wonder how much impact a future investment of 2,000 yuan will have on the total cost at the Shanghai Composite Index at 2,000 points or 4,000 points.

The following is a trial calculation table showing the effects of different years of regular investment while controlling the average cost at 3,000 points on the Shanghai Composite Index. In the first year, if you invest at 2,000 points, you can lower the cost by 112 points; but in the second year, if you invest at the same point, you can only lower it by 59 points. By the tenth year, it’s less than 13 points. It can be seen that the dilution effect of regular investment becomes increasingly insensitive.

First, you need to have an asset allocation, part in stocks and part in bonds. For example, at age 30, according to the 100 rule (100 minus your age), if you are 30, you should allocate 70% in stocks. Set aside 70% for stock funds and the remaining 30% for fixed income or bond funds. Of course, if you are more aggressive, you can use the 110 rule (110 minus your age), allocating 80% in stocks and 20% in bonds.

With such an asset allocation, the greatest benefit of regular investment is that you always have a certain proportion of funds available for stock market investments, rather than decreasing over time.

What to do? You need to do a dynamic balance to restore the stock fund ratio back to 70%. A simple calculation shows that the amount of stock fund you need to increase is 86×70%-56=4.2 (ten thousand yuan)—where does this 4.2 million come from? If it is through advanced regular investment, we must prepay the funds for the next 8.4 regular investments—please note that this is only when you encounter a 20% drop. What if we encounter a super bear market from 6,000 points to 1,600 points in 2008? Clearly, relying on regular investment funds is not enough.

Fortunately, through dynamic balance, we can obtain funds for bottom-fishing stocks by reducing some pure bond funds. The existence of bond positions gives us backup funds for stock investments, so we don’t have to worry about the dulling effect of regular investment over time.

Dynamic asset allocation is an investment strategy aimed at dynamically adjusting the asset allocation in an investment portfolio based on changes in market conditions and economic environments. Unlike traditional static asset allocation, dynamic balance emphasizes flexibility in responding to market fluctuations and risks, adjusting the investment portfolio in a timely manner to achieve risk control and maximize returns.

Basic Concepts of Dynamic Balance#

Dynamic balance mainly focuses on the following aspects:

Adjustment of Asset Allocation: Adjust the proportion of asset classes, such as stocks, bonds, and cash, based on market trends and economic data changes.
Risk Management: By reducing the proportion of high-risk assets and increasing the proportion of low-risk assets, dynamic balance helps protect the investment portfolio from severe market fluctuations.
Market Timing: Dynamic balance does not mean simply holding a particular asset for the long term, but rather making buying and selling decisions flexibly based on market changes to seize market opportunities.

Implementation Methods of Dynamic Balance#

Fund managers typically implement dynamic balance through the following methods:

Combining Technical and Fundamental Analysis: By analyzing market trends, macroeconomic data, and company financial conditions, determine which assets are worth increasing or decreasing.
Market Sentiment and Cyclical Factors: Adjust the investment portfolio dynamically based on market sentiment, economic cycles, interest rate changes, etc., to reduce risks during market downturns.
Quantitative Models: Some funds use quantitative models to predict and adjust asset allocation based on historical data and market indicators.

Advantages and Disadvantages of Dynamic Balance#

Advantages:

Respond to Market Fluctuations: Can reduce the negative impact of severe market fluctuations.
Increase Flexibility: Funds can quickly adjust asset allocation based on market changes, seizing favorable market opportunities.
Risk Control: By flexibly adjusting risk exposure, it helps reduce risks, especially during periods of significant economic uncertainty.

Disadvantages:

Higher Costs: Frequent adjustments to asset allocation may increase transaction costs.
Requires Professional Judgment: Dynamic balance requires fund managers to have strong market judgment and analytical skills; otherwise, it may lead to poor decisions.
Potentially Missing Long-Term Opportunities: Frequent adjustments may miss potential returns from long-term holdings, especially in steadily growing markets.

Dynamic balance is an active strategy for portfolio management, suitable for investors who seek higher returns in dynamic market environments and can bear certain adjustment risks.

Closed-End Funds#

Although regular fixed investment has always been advocated for open-end funds, closed-end funds can also be invested in regularly, but this requires us to operate in the secondary market. Compared to open-end funds, closed-end funds can provide us with more safety margins due to their discount rates, and the commission for buying and selling closed-end funds is also lower than the subscription fees for open-end funds, thus achieving lower entry costs.

At the same time, we can easily observe the changes in the premium rate of closed-end funds based on the net value announced weekly, and dynamically adjust the investment amount based on the premium rate. When the premium rate exceeds 30%, we can invest more in closed-end funds, and when the premium rate is too low (for example, below 10%), we can reduce some closed-end funds to further strengthen the regular fixed investment.

Fund Regular Investment (Regular Fixed Investment in Funds)#

Benefits:#

Averaging Investment Costs (Diversifying Risks):
- By investing regularly, investors can purchase fund shares at different points in time, unaffected by market fluctuations. When the market is sluggish, regular investment will buy more shares, and when the market rises, fewer shares will be purchased. This "buy low, sell high" effect can reduce overall investment costs in the long run.
Reducing the Pressure of Market Timing:
- Regular investment does not require selecting the right timing to buy; investors only need to invest regularly, avoiding the difficulty of trying to catch market bottoms or tops, thus reducing psychological burdens.
Long-Term Compound Growth:
- Since regular investment is usually a long-term investment method, funds can grow through compound interest over a longer period. The compounding effect can significantly enhance investment returns, especially with long-term regular investments, where returns become more apparent.
Suitable for Small Investments:
- Regular investment typically involves small amounts of money, making it suitable for investors without large sums of capital who wish to diversify investment risks. Investors can invest regularly according to their financial situation, reducing financial pressure.
Suitable for Investors Without Time to Manage Investments:
- For investors who lack time or knowledge to manage investments, regular investment is a simple, automated way to help them invest long-term without needing to constantly monitor the market.

Drawbacks:#

Inability to Avoid Short-Term Fluctuations:
- Although regular investment helps to spread risks, it still cannot completely avoid short-term market fluctuations. If the market experiences a significant decline, regular investors may also face substantial losses, especially if their funds have not recovered in the short term.
No Strategy to Avoid Losses:
- While regular investment can lower overall purchase costs, it cannot determine market trends. If the market remains in a bear phase for an extended period, regular investment may lead to prolonged losses without timely adjustments to strategy.
Not Suitable for Investors Eager for High Returns:
- For those seeking short-term high returns, regular investment may not be suitable, as its returns primarily depend on long-term market growth, making it difficult to achieve quick high returns during periods of significant short-term fluctuations.
Potentially Missing Other Investment Opportunities:
- While regular investment is stable, due to its fixed investment approach, investors may miss other more promising investment opportunities, especially when market changes occur, as regular investment cannot respond flexibly.
Management Fees and Other Costs:
- Long-term regular investment may face relatively high fund management fees, especially when the purchased fund performs mediocrely, as management fees can impact overall returns. Additionally, some platforms or funds may charge other fees.

Regular investment is suitable for long-term investment, helping investors average costs, diversify risks, and not requiring excessive attention to market fluctuations. However, it also has certain limitations, especially in long-term downturns or when short-term high returns are urgently needed. Therefore, investors should assess whether this strategy suits their risk tolerance and investment goals before choosing regular investment.

Why Regular Investment is Fixed Amount Instead of Fixed Quantity#

First, let's talk about another common term for regular investment: "regular fixed amount."

Here comes the question: why fix the amount instead of the fixed quantity that many stock investors are accustomed to, such as buying 100 shares each time?

It is important to note that compared to fixed amounts, fixed quantities are very volatile.

Advantages:#

Reduce the Impact of Market Fluctuations:
- Since the investment amount is fixed, investors will buy more units when the market is down and fewer units when the market is up. This practice helps to average the purchase cost, thereby reducing the impact of short-term market fluctuations.
Forced Savings and Discipline:
- Regular fixed investment requires investors to deposit a certain amount regularly, which helps cultivate the habit of saving and the discipline of long-term investment.
Suitable for Long-Term Investment:
- This strategy does not rely on market timing, making it suitable for those with long-term investment goals. Regardless of market fluctuations, consistently adhering to regular fixed investment may yield relatively stable returns over time.
Reduce Emotional Fluctuations:
- Investors do not need to operate frequently, avoiding impulsive decisions due to market fluctuations (such as excessive panic or greed), which helps maintain rationality.
Suitable for Investors with Limited Funds:
- For those with limited funds or who do not wish to make a large one-time investment, regular fixed investment is a very suitable investment method, allowing them to spread risks over time.

Drawbacks:#

Cannot Avoid Long-Term Losses:
- If the invested asset remains in a downtrend for an extended period, regular fixed investment may not avoid losses. In such cases, although investors may have a lower average purchase cost, the continuous decline in asset prices will still lead to losses.
Missed Market Lows:
- Since regular fixed investment does not consider the current state of the market, investors may miss opportunities to make a one-time investment at market lows, resulting in suboptimal returns.
Not Suitable for Short-Term Goals:
- The regular fixed investment strategy is primarily suitable for long-term investments and may not meet the needs of investors with short-term investment goals. If funds are needed in the short term, the returns from regular fixed investment may not suffice.
Opportunity Cost:
- For those who can better judge market trends and operate flexibly, regular fixed investment may miss market opportunities. Flexible asset allocation or timing operations may yield higher returns.
Cannot Avoid Portfolio Risks:
- Although regular fixed investment helps to spread market timing risks, if the selected assets themselves have high volatility or risk (such as certain industries or individual stocks), significant investment risks will still be faced.