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Basic Ways to Accumulate Wealth:#

(1) Employment - The Addition and Subtraction of Wealth Accumulation
The entry threshold for employment is not high, but it is accompanied by the erosion of time and opportunity. Successful individuals can turn simple addition into multiplication, or even transform it into an investment, typically through promotions or changes in job roles, such as mid-level management, CEO, or partner; while failures are forever stuck in repetitive addition, and in harsh environments, may even face subtraction, such as severe inflation, layoffs, or industry changes.
(2) Independent Business - The Multiplication and Division of Wealth Accumulation
The entry threshold for independent business is not low; it requires not only a wise mind but also high emotional intelligence, exceptional willpower, and significant energy expenditure. Although successful individuals may shine in wealth, they will certainly be physically and mentally exhausted, suffering from serious internal injuries.
(3) Investment - The Exponential Multiplication and Division of Wealth Accumulation
Investment has the lowest entry threshold but permeates all aspects of life and reveals various facets of human nature. Where in life is there no investment? Successful individuals not only gain wealth but also enjoy great mental and physical comfort, leading a relaxed and pleasant life, steadily improving their quality of life; while failures suffer minor financial losses, their mental and physical well-being is often completely shattered, living in hell, never to see a turnaround.
Investment is a choice, a choice of your own life path;

Valuing investment is valuing yourself.

The First Money Invested in Yourself: What Attitude Should College Students Have Towards Saving/Spending Money?#

Generally, people do not earn big money before the age of thirty.
To earn big money after thirty, the prerequisite is to see if you have "invested in yourself" before thirty.

If you are unwilling to invest in yourself, your boss and employees are even less likely to see your potential and will not invest their precious resources in you.

If this is the case, after thirty, you will truly experience the taste of "life starting to go downhill."
You will regret the "small savings" you made.

But remember, money spent does not necessarily mean it can be earned back; only spending aimed at "investing in yourself" has the chance for recovery.

ps:

Someone asked, what does "investing in yourself" mean? My opinion is as follows:

Learning unknown knowledge. Practicing lacking skills. Experiencing unfamiliar worlds. And, making friends who are better than you.

More importantly, giving yourself the opportunity to make mistakes.

In the end, it all comes down to one thing: making mistakes.

Without making mistakes, one cannot grow.

Before thirty, you should realize all possible "madness" such as absurdity, stubbornness, courage, dreams, childishness, irrationality, illogic, and passionate persistence, regardless of what others say. Even if you cannot realize them, even if you fail miserably, you can still rise again and turn things around.

After thirty, you are no longer living for yourself; you are living for your boss, your employees, your wife and children, and your aging parents. In my view, after thirty, the vast majority of people begin to lose themselves. Perhaps some can "continue to make mistakes," but various constraints will come uninvited, and you cannot escape them.

The important thing is to make mistakes.

Thirty is a threshold; because you know there is this threshold, you will "go against the tide" before thirty. You must "go against the tide." You must hit the wall. If you do not hit the wall, your life will lose much meaning, and one day you will surely regret it. You will be disappointed in your younger self…

Let Go of Your Credit Card
What should you pay attention to when using a credit card? What are good habits? Why?

Li Miao

Thank you for the invitation.

I once encountered a credit card crisis, so I want to talk about this matter seriously.

1. Try to pay off the full amount every month.

I have insisted on paying off the full amount every month for about 5 years. Previously, due to low income but too many things I wanted, I could only make the minimum payment each month. Although the bank's collection calls did not come, by the end of the year, the interest was almost equivalent to half a month's salary.

2. Pay attention to how to use your credit limit.

A high credit limit means more big-ticket items can be purchased, which is naturally a good thing. However, when your income cannot support a high repayment plan, a high limit may become a trap. My suggestion is to use only an amount equivalent to three months' salary.

3. Absolutely do not borrow money to pay off credit cards.

It is better to make short-term sacrifices in quality of life than to rob Peter to pay Paul.

Back in Japan, because the bank interest was very low, many people did not take credit card overdrafts seriously. Japanese banks generally give cardholders a grace period of 3 months or longer for credit card overdrafts. So many people, even with negative assets, still happily swiped their cards.

After the grace period, the bank's collection calls will become very frequent. If someone had previously purchased goods through installment payments, they might even have their goods repossessed. Some people, unable to bear the pressure, or whose credit cards have simply been canceled by the bank, have to apply for credit cards from other banks to withdraw cash to pay off the due card.

Due to shared credit information, it won't be long before most banks will stop issuing cards to that person. Thus, the cardholder will have to seek small loans to pay off the credit card, ensuring they can still swipe their card.

However, small loans will also gradually increase interest rates based on the borrower's amount. This way, the borrower's neck is tightened more and more, with unimaginable huge loans on one side and insufficient income on the other. Many people thus find themselves on a dead end.

4. Installment payments are a more "dangerous" credit card strategy.

The danger of installments lies in: if you swipe 50,000 at once, your psychological pressure will be very high; but if you divide it into 20 installments, the psychological pressure will be much lower—only 2,500 per installment. But the problem is, you are still carrying a debt of 50,000.

In the first situation, if you swipe 50,000 at once, you will likely consider paying it off quickly to relieve this debt. In the second situation, with installments, you might remind yourself to make payments at first. But after a month, you will feel the repayment burden is not heavy, and you can afford more debt… The expansion of debt risk begins with an inability to correctly recognize one's asset situation.

Mr. Toyy, I will try to discuss this from a financial perspective.#

The cash transaction method familiar to ordinary people is what is known in accounting as "cash basis accounting." The characteristic is that cash receipts and payments serve as the basis for accounting records, which is simple, intuitive, and easy to understand. How much salary was paid, how much was spent on meals, how much was spent on purchases, and how much is left this month is all clear at a glance.

Credit cards are a tool for personal small consumer loans. Using this tool for payment does not require immediate payment but rather deferred payment, which means incurring a debt. Ordinary people who are only familiar with cash transactions may neglect their future repayment ability due to the characteristics of deferred payment with credit cards, leading to uncontrolled spending of future income and discovering their inability to repay when it comes time to pay off the debt, falling into a credit card crisis.

However, should we give up using credit cards because of their "harmful" characteristics? It is important to know that credit cards are a very convenient personal financing tool. If used properly, they can even provide low-cost funds for personal investments.

So, how should we manage credit cards to both prevent ourselves from falling into a credit card crisis and allow credit cards to help our personal assets appreciate?

The answer is to introduce the accounting concept of "accrual accounting" to manage credit card expenditures. This sounds very professional and profound, but it is actually simple and easy to understand. In simple terms, it requires considering the current month's credit card expenditures along with cash expenditures, following the principle of "spending within one's means." The way to achieve this management method is to keep accounts. Record all your income and expenditures, including those involving cash and those not involving cash. Review your income and expenditures every month to ensure that even with a large cash surplus, expenditures remain less than income.

I have created an Excel accounting software and have been keeping personal accounts for 5 years. During this time, although there have been occasional expenditures exceeding income, I have worked hard to save afterward to ensure total expenditures do not exceed total income. The result is that my financial situation is very good, and I have never fallen into a credit card crisis. Since my software requires professional accounting knowledge to use, I recommend everyone use online accounting software, as many of them are very simple and easy to use.

Stick to keeping accounts and adhere to the principle of "spending within one's means." With these two points, you will not fall into a credit card crisis. So, how can credit cards bring you benefits?

The so-called financial functions offered by credit cards, such as points redeemable for expenses, are all tricks. These points can save some expenses but will never bring financial returns.

The following financial advice should be implemented under the premise of "keeping accounts and spending within one's means," otherwise, you will fall into a credit card crisis.

Credit cards generally have a 20-50 day interest-free period. The more you use credit cards for this month's expenditures, the more cash you will have left this month, and this month's consumption only needs to be paid next month. If you persistently use credit cards for payments every month, then in reality, you can have an extra month's worth of cash on hand. This cash is lent to you by the bank and does not require interest! Make good use of this money to make some small investments, and it can easily bring returns.

Credit cards can also provide personal interest-bearing loans, with the biggest advantage being that they do not require approval and the loan is disbursed very quickly. Generally, the rate for 6 months is 4.5%, equivalent to an actual annual interest rate of about 18%; for 12 months, the rate is 8%, equivalent to an actual annual interest rate of about 16%. In other words, the longer the borrowing period, the lower the actual interest rate. Sometimes, for investment opportunities that you are sure about, you can make good use of credit cards to make an investment, which may bring you a small amount of extra wealth. As for how to use credit card limits for investment, there are certainly many methods, commonly used ones include purchasing on behalf of others. If you happen to encounter credit card installment promotions, the interest rates will also be significantly reduced.

Of course, borrowing to invest will amplify risks. Before investing, consider whether you can bear the losses, as once the investment fails, the losses may be difficult to accept.

Basic Principles and Methods: What are the Basic Principles and Methods of Personal Finance?#

A personal opinion—

Cash is king: Do not overspend, do not use credit cards, do not incur debt (except for mortgages).

In today's mainstream credit consumption, emphasizing cash usage seems out of touch with the times. The reliance on credit consumption often stems from several seemingly powerful viewpoints:

1. Credit consumption can build personal credit.
2. Cash on hand can be used for investment, which is more cost-effective than spending it now.
3. Consumption points can be exchanged for gifts.

However, in reality, the above viewpoints are not as solid as they seem:

1. Credit consumption can build personal credit.

We might further ask, what is the purpose of building personal credit? To increase credit limits, to apply for housing loans more easily. In summary, we are currently in debt to be able to incur more debt in the future. Unless people can derive pleasure from debt, this is not a reasonable justification.

In the current situation where banks are excessively issuing housing loans, even requiring a series of policies to curb it, concerns about whether one can apply for a housing loan are unfounded. Even in the long run, families or individuals with the ability to purchase homes face the issue not of whether they can apply for a loan, but of how much they can apply for. A good credit record can help you apply for more loans, but does that mean you will also incur more debt, live in a house that exceeds your family's financial capacity, and expose your income to the risk of falling property prices?

2. Cash on hand can be used for investment, which is more cost-effective than spending it now.

Not to mention that this idea merely postpones cash flow for at most one or two months, in terms of investment itself, the opportunities for gains and losses are always equal. When we think about using credit consumption to free up cash for investment, we often only see the potential for gains while ignoring the downside risks of investment. Can the investment returns from one or two months offset the risks incurred? That is a big question mark.

3. Consumption points can be exchanged for gifts or miles.

A fact proven by many experiments and consistent with our common sense is that under the stimulation of consumption points, people tend to spend more money, much of which is unnecessary. As a result, to obtain many gifts or tickets that we do not really need, we willingly spend a lot of unnecessary money without realizing it. This mentality is actually akin to leveling up in online games, and it is undoubtedly falling into the trap set by the designers.

Suggestions:

Establish a monthly budget: Ensure every penny is properly allocated, achieving a balanced income and expenditure each month.

Emergency funds: Maintain a long-term reserve of emergency funds equivalent to 3-6 months of living expenses in a savings account to cope with short-term uncertainties.

Housing: The mortgage term should not exceed 15 years, and the interest rate should be fixed, with monthly payments not exceeding one-quarter of the family's after-tax income.

Cars: Buy only second-hand cars with guaranteed conditions to avoid significant depreciation in the short term.

Investments: Focus on publicly offered funds that have performed well over 5-10 years, using a systematic investment approach for long-term investment. Try to avoid investing in high-risk or low-return investment vehicles like stocks and gold.

Life insurance: The three principles of life insurance are:

1. Choose term life insurance over whole life insurance: Whole life insurance premiums are higher than term life, and although insurance companies claim to return the principal with some interest similar to savings, the average annual yield is generally below 5%. Moreover, there are many hidden costs; once you cancel the policy, a lot of the premiums paid before will be taken by the insurance company, possibly even all of it. Opt for consumption-type term life insurance and invest the saved premiums, which will yield far more than the insurance company's savings rate.

2. The coverage amount should be at least 10 times the individual's annual income: This is an empirical value used to ensure the beneficiary's basic living for 10-20 years.

3. The term of term life insurance should be 15-20 years: After reasonable investment over 15-20 years, the individual's net asset level can naturally provide financial security for the family, making life insurance unnecessary, thus no longer requiring additional coverage.

Pension: Lower expectations for government pensions and establish your own pension plan.

Set up a regular investment plan for yourself early on to replace the social insurance system that does not provide 100% guarantees. The specific operation method is:

1. Estimate the annual living expenses after retirement (expressed in current currency value), assuming 5,000 yuan per month, which equals 60,000 yuan per year.

2. This living expense will be obtained from investing in publicly offered funds, so the fund principal amount at retirement should be 60,000 yuan / 8% = 750,000 yuan, where 8% is based on the expected average annual return of the fund at 12% minus the expected inflation rate of 4%. The average annual return of the fund should be calculated over a 10-20 year period; looking only at the performance of the past one or two years is not the proper attitude for fund investment.

3. Estimate your retirement age to determine the investment period, starting from age 25 to invest monthly until retirement at age 60, with an investment period of 35 years, or 420 months.

4. Use the present value of annuity formula to calculate, still taking 8% as the average annual investment return rate, resulting in a monthly investment amount of 327 yuan; the calculation process is: 750,000 × (8%/12) / ((1+8%/12)^420 - 1).

Others: Try not to have financial relationships with friends and family, do not borrow money from friends and family, nor lend money to friends and family; couples should use the same bank account; set up a will as early as possible.

Finally, I want to add that 80% of personal finance is behavior, and only 20% is various knowledge and calculations. The above content, whether in terms of percentages or compound interest calculations, is not absolute and is not profound. The most challenging aspect of personal finance is not mastering these algorithms but putting into action and being able to consistently adhere to simple, correct principles.

Accumulating wealth is very similar to maintaining physical fitness in many cases: everyone knows that a healthy diet combined with reasonable exercise can shed excess fat, but why is it that not everyone can have a good figure? It is not that everyone does not understand the reasoning, but rather that few can practice it seriously. To solve this common inertia, two aspects can be considered:

First, do not be too aggressive when formulating a plan; take it slow, and do not let your mind and body develop a subconscious resistance. When deciding to lose weight, how many people start by running 10,000 meters? Initially, they are full of motivation, firmly believing they can stick to it, but although they say so, they are actually aware that their bodies are experiencing "harm" and cannot bear it, and they may give up at any moment. This is because when a person's lifestyle habits are disrupted, they instinctively develop a resistance, ultimately leading to abandonment.

In such cases, it is better to take gradual steps. In terms of finance, initially, the monthly savings or systematic investment does not need to be too much, so as not to affect the existing lifestyle. Slowly develop new saving and investment habits, and then increase the amount based on your situation.

Second, the plan should have a purpose that allows you to feel a sense of achievement from time to time. For example, if you decide to stop using credit cards, and you currently have several, but you decide to say, "Okay, I won't use them anymore," pay them off and close the accounts. I suggest you sort the cards by the amount owed, starting with the one with the least debt, saving unnecessary expenses to focus on paying it off, and once you finish one card, move on to the next. The benefit of this approach is that you will soon feel the joy of having one less card and one less burden, which will motivate you to continue clearing the remaining debts.

In summary, people are not completely rational animals, so in personal finance, we should not demand that we strictly adhere to rational thinking or impose a set formula on ourselves. Consider your personal lifestyle habits and temperament in your plan, and take action; this is the true essence of personal finance, after all, "personal" comes before "finance."

Analysis of Financial Tools: What Investment Tools are Suitable for Chinese Families, and What are They Suitable For?#

Thank you all for your support; I didn't expect this question to receive so much attention, so I will add some information.

I. Common Investment and Financial Tools

1. Bank Deposits. Good safety and flexibility, but low yield, generally unable to beat CPI. Compared to other financial tools, the biggest advantage of bank deposits is their highest flexibility: even on holidays or dark nights, you can withdraw deposits through card swiping, counters, or ATMs for timely payments. Other tools like funds and bank wealth management have limited trading hours and slow arrival speeds, making it impossible to act 24/7. Because of this feature, bank deposits are almost always a necessary financial tool for residents.

However, with the country's promotion of interest rate marketization reform and the future deepening of the banking industry, the safety of deposits from different banks will show differentiation, and corresponding interest rates will also differ. At that time, investors will need to conduct bank credit risk analysis rather than just considering yield rates as they did in the early stages of reform.

2. Money Market Funds. Safety is almost the same as deposits, but with higher yields and similar flexibility; the downside is that it usually takes 1-2 business days to arrive. In a rate-cutting cycle, bank deposits will have higher selection value, while in a rate-raising cycle, money market funds will have comparative advantages. Compared to deposits, money market funds have an advantage: if you withdraw from a bank's fixed deposit early, it will turn into a current interest rate, but money market funds calculate interest based on the number of days held, with no maturity date, avoiding situations where early withdrawal of a one-year fixed deposit leads to a loss.

The starting amount for money market funds is 1,000 yuan.

3. Government Bonds. The yield of savings-type government bonds is higher than bank deposits, with the highest safety (this is a somewhat strange phenomenon; generally, safer investment tools should offer lower yields). The liquidity of government bonds is average; they can be withdrawn early but at a discounted yield. One downside of savings-type government bonds is that they are in short supply and difficult to purchase at bank counters. Book-entry government bonds can actually be bought through exchanges, but most investors are unaware, and some conservative investors seem to be inherently afraid of price fluctuations. In reality, if one can judge that a rate-cutting cycle is about to begin, buying book-entry government bonds will be more ideal. The starting amount for savings government bonds is low, at 100 yuan.

4. Bank Wealth Management. Fixed-income bank wealth management products generally have yields higher than deposits and government bonds, but lower liquidity, requiring holding until maturity. Safety is generally not a concern, as there is bank credit involved. Bank wealth management is generally suitable for investment periods of less than one year. The starting amounts are 50,000, 100,000, or 300,000, which are relatively high. In addition to fixed-term, fixed-yield wealth management products, there are also many bank wealth management products that are flexible in terms of duration and have floating yields. The specific safety and yield depend on the investment direction, which can be analyzed through product brochures or with the help of financial managers.

5. Corporate Bonds/Company Bonds. This refers to corporate and company bonds traded on exchanges. The default risk of bonds on Chinese exchanges has been effectively zero, as there have never been any default events. China's strict bond approval mechanism ensures that bonds are currently a low-risk investment tool with yields significantly higher than bank deposits and government bonds. For example, currently, the 09 Mingliu bond held for 2 years can yield an annualized return of 6.5%... The flexibility is excellent; you can buy and sell on the same day. The starting amount is 1,000 yuan.

However, investing in bonds involves facing price fluctuation risks. Therefore, if you do not have a certain level of professional knowledge or guidance from professionals, mid-term investment behavior is not recommended due to price fluctuation risks. However, for investors who can hold until maturity, it is still advisable to consider. The favorable timing for bond investment is during a rate-cutting cycle, so closely monitoring interest rate trends will be very helpful for bond investment. In the long run, defaults in China's bond market will eventually occur; this possibility is gradually increasing, so we need to enjoy the good times while also being cautious about risks.

6. Publicly Offered Funds. There is a lot of knowledge in this area, as there are many types of funds that can meet the needs of investors with different risk preferences, investment durations, and liquidity preferences. In short, there are various levels of safety and yield, and it cannot be summarized in a short time.

The starting amount is 1,000 yuan. Additionally, I want to specifically mention tiered funds, as the low-risk share of tiered funds is very suitable for long-term investment. Based on the current price (February 29, 2012), the long-term annualized return is basically above 8%. For investors who enjoy volatility, they can consider high-risk shares to satisfy their speculative needs. Everyone can choose according to their needs. The starting amount is incredibly low: 100 yuan is enough to buy one lot in the secondary market.

7. Sunshine Private Equity Funds. Compared to publicly offered funds, the overall performance is better, with the top-ranked sunshine private equity yielding over 30% in 2011, but performance differentiation is also significant. It should be noted that the top investment experts in China's stock market are mainly concentrated in the sunshine private equity field, so there are still many funds that have long outperformed the market. The starting amount is 1 million or 3 million.

8. Trusts. Fixed-income trusts have seen increased risks compared to 2006-2011. Expected yields are high, generally around 7%-12%, with poor liquidity. Trust companies have strict risk control measures, conducting due diligence on projects and requiring financing parties to provide collateral. Even if the financing party ultimately cannot repay, the collateral provided can partially or fully cover the financing amount and yield. On the other hand, the trust industry has a hidden rule of "rigid repayment," meaning that even if all previous risk control measures are insufficient to pay investors enough principal and interest, the trust company may voluntarily make up the difference to maintain its reputation and image.

Because, although the contract states that there is no commitment to guarantee principal and yield, if it truly cannot be repaid, a large number of clients will lose trust, and it will also be easy to be attacked by peers. Therefore, it is better to lose money than to ruin one's reputation. However, there is a difference between the willingness to do this and whether it can actually be realized. If a project has a very large financing amount, leading to heavy losses, it is not ruled out that the trust company will act according to the contract and not "rigidly repay." The trust industry will eventually see the first case of unrealized expected returns; it is only a matter of time.

Overall, the risk level of the trust industry is still relatively low. For investors with large amounts of capital seeking stable returns, trusts are a good choice, but it requires more homework and thorough analysis of project risk factors from the perspectives of investment project risks, financing party strength, and trust company strength. The starting amount is high, at 1 million or 3 million.

9. Gold. Gold has always been regarded as a financial tool for preserving and appreciating value, and the trends of the past decade have confirmed people's views. However, the commodity nature of gold also carries certain risks, as reflected in its tumultuous trends over the past six months. Liquidity is acceptable. Regarding future trends, I am relatively neutral, with a 55% probability of going up and a 45% probability of going down. Therefore, I suggest choosing the right timing to allocate gold products with risk awareness. Additionally, gold is a good method for asset inheritance, and it can still avoid taxes. Some people also use gold bars for gifts or bribes, which is another advantage of gold.

10. Foreign Exchange. General investors usually do not engage in foreign exchange investment, and I personally prefer the Australian dollar. If you bought Australian dollars during an economic crisis and invested in financial products, an 80% return is possible, and such opportunities are hard to come by again. Some investors have some understanding of the international market, believing that the US dollar is the safest and that the RMB is continuously depreciating, so they exchange RMB for USD. This is not advisable. Overall, the RMB against the USD is still on an appreciation trend, and exchanging local currency for a depreciating currency is clearly not advisable. Americans hope to exchange more RMB to profit from the appreciation of the RMB; why should we operate in reverse? Overall, it is better not to touch foreign currency unless you are immigrating or encounter a major opportunity like in 2008, or if you are specifically looking to invest in foreign exchange and have the ability to profit.

11. Insurance. I personally do not reject protective insurance. A teacher once said that buying insurance is like hiring a bodyguard. You cannot say that if the bodyguard does not help you block a few knives, you will not pay the bodyguard fee; hiring a bodyguard is to prevent risks, and when risks occur, the bodyguard can help us settle things, and we need to pay for the bodyguard's constant vigilance, which is reasonable. However, I personally feel that the suitable audience and occasions for investment-type insurance are relatively limited and need to be analyzed on a case-by-case basis. Investment-type insurance has a long investment period and poor flexibility.

12. Real Estate. High threshold, not suitable at this stage. Just listen to the party and follow the party.

13. Futures. I have never dealt with this; it is high risk and has a high threshold, so I will avoid it.

II. Financial Tools and Methods Suitable for Different Family Life Cycles

The family life cycle can be divided into four stages, each of which can be reflected in four aspects: time period, income, expenditure, and status.

The first stage, family formation period, starts from marriage and ends with childbirth, typically between the ages of 25 and 35. People in this stage are in the growth phase of their careers, pursuing income growth, and family income gradually increases. Expenditures are reflected in spending on romance due to youth, normal household expenses, social interactions, and some may also have significant expenses for further education, in addition to considering mortgage payments and preparing for the next stage of childbirth. The phenomena of "moonlight clan" and "credit slaves" are common in this stage. The financial methods suitable for this stage are money market funds and systematic investment. Because savings are limited, these two investment methods balance safety, yield, liquidity, and low thresholds. Additionally, this stage has a strong risk tolerance, and a portion of funds can be allocated to stock assets, but if one is not familiar with this area, it is essential to consult professionals and consider investing in funds to reduce risks.

The second stage, family growth period, starts from childbirth and ends with children becoming independent, typically between the ages of 30 and 55. At this stage, individuals are in the maturity phase of their careers, with significant increases in personal income, accumulating family wealth, and possibly inheriting wealth. However, expenditures are also substantial, such as parental support, normal household expenses, social interactions, and children's education costs, as well as preparing for personal health expenses and considering upgrading housing or vehicles once a certain economic foundation is established. The status is characterized by heavy responsibilities, significant pressure, greater income than expenditure, and slight surpluses. This stage can consider bonds, funds, bank wealth management, and equity assets, systematic investment funds, and purchasing good insurance products for family support. Those with financial strength can consider products like trusts and sunshine private equity.

The third stage, family maturity period, starts from children becoming independent and ends with retirement, typically between the ages of 50 and 65. This stage is the peak of one's career, with individual income reaching its peak and significant accumulation of family wealth. Expenditures include parental support, normal household expenses, social interactions, and considering housing costs for children. The status is characterized by greater income than expenditure, reduced life pressure, and strong financial needs. This stage requires a more conservative financial approach, considering trusts, bonds, bank wealth management, and other stable products, with a small allocation to stock assets, and preparing for retirement through systematic investment.

The fourth stage, family aging period, starts from retirement and ends with the death of one party, typically between the ages of 60 and 90. Normal income includes pensions, support payments, rental income, and some financial income. Expenditures include normal household expenses and health expenses, as well as some leisure expenses, such as travel. The status may be one of insufficient income, requiring assistance from children. This stage is suitable for fixed-income tiered funds, bonds, government bonds, bank wealth management, and deposits, all of which are very stable methods.

Planning First: What is the Difference and Connection Between Financial Planning and Investment?#

In China, financial planning and investment have basically become equivalent, but in reality, there are significant differences between the two.

Financial planning, as the name suggests, is about managing finances, requiring attention to both income and expenditure. If we were to define it, financial planning is the process of planning existing and future financial resources to meet the different needs of life stages and achieve predetermined goals, enabling individuals to achieve financial independence and autonomy. In simple terms, financial planning is about how to make current and future earnings work better for goals related to housing, children's education, retirement, and wealth transfer.

Thus, investment is a part of financial planning, a means to help achieve financial goals, and the two are in an inclusive relationship. To give a simple example, an elderly person currently has 1 million yuan and expects to live for another 11 years, needing 100,000 yuan per year. If no financial planning is done, it is clear that this 1 million will not be enough. However, through reasonable investment planning, wealth preservation and appreciation can be achieved, thus bridging the gap of 100,000 yuan needed for annual expenses.

A specific financial plan generally includes the following parts:

1. Declaration and Summary
2. Client Basic Information
3. Macroeconomic and Basic Assumptions
4. Family Financial Statement Preparation and Financial Diagnosis
5. Client Financial Goals and Risk Profile Definition
6. Insurance Planning
7. Proposals for Achieving Financial Goals or Solving Problems
8. Investment Planning
9. Risk Disclosure and Regular Review

Recently, I participated in a competition and created a financial plan; if anyone is interested, you can take a look: A Financial Plan for an IT Company Executive.

Looking back at 2013, it was an extremely unusual year. The wave of financial management swept across the country, and financial awareness was stimulated like never before. However, what exactly is financial management? Most people do not have a clear understanding and often equate financial management with investment. In fact, the connotation of financial management far exceeds that of investment; investment is merely one component of financial management. Financial management involves both increasing income and reducing expenditure, and more importantly, how to analyze personal finances, clarify financial goals, formulate financial plans, make investment plans, and control various risks, so that one's existing and future financial resources can effectively serve the different financial goals and support needs of families and individuals, ultimately achieving financial freedom, autonomy, and ease.

According to the International Financial Planning Standards Committee's textbook, a comprehensive financial plan includes the following parts:

Table of Contents

1. Declaration and Summary
2. Client Basic Information
3. Macroeconomic and Basic Assumptions
4. Family Financial Statement Preparation and Financial Diagnosis
5. Client Financial Goals and Risk Profile Definition
6. Insurance Planning
7. Proposals for Achieving Financial Goals or Solving Problems
8. Investment Planning
9. Risk Disclosure and Regular Review

Below is an example of a comprehensive financial plan for a high-income IT professional, which can help everyone understand the basic framework.

This plan is systematic and professional, but it feels a bit rigid and lacks warmth.

1. Declaration and Summary

(1) Declaration

Dear Mr. Wang:

I am very pleased to have the opportunity to provide you with comprehensive financial planning services. First, please refer to the following declaration:

1. This financial planning report is intended to help you clarify financial needs and goals, make better decisions regarding financial matters, and achieve the life goals of financial freedom, decision-making autonomy, and ease of living.

2. This financial planning report is based on the information you provided, based on generally acceptable assumptions and reasonable estimates. It comprehensively considers your asset-liability situation, financial goals, and cash flow situation.

3. All analyses in this financial planning report are based on your current family situation, financial status, living environment, future goals, and plans, as well as assumptions about some financial parameters and the current economic situation. The above content may change. It is recommended that you regularly evaluate your goals and plans, especially when significant changes occur in life stages, such as changes in family structure or job changes.

4. Professional Competence Statement: This financial planning report was prepared for you by our senior financial planner, Mr. XXX, whose experience and background are as follows:

1. Educational Background: X;

2. Professional Certification: Certified Financial Planner AFP by the China Financial Planning Standards Committee;

3. Work Experience: XX;

4. Expertise: Investment Planning, Comprehensive Financial Planning.

5. Confidentiality Clause: This planning report will be delivered directly to the client by the financial planner, and after sufficient communication and discussion, assist the client in implementing the recommended plan in the report. Without the client's written permission, the financial planner and assistant responsible for this company shall not disclose any personal information about the client.

6. Disclosure Items

1. This planning report charges a consulting fee of 1,000 yuan.

2. When recommending professionals, the relationship between the professional and the financial planner is independent, such as a consulting contract.

3. Whether the recommended products and the financial planner's personal investments have conflicts of interest: confirmed no conflicts of interest.

4. No written agency or employment contracts have been signed with third parties: XX Bank has not signed written agency or employment contracts with third parties.

(2) Summary

1. Purpose of Financial Planning: To measure how to arrange financial resources and investments from a comprehensive perspective to achieve financial goals.

2. Client Background: The client is a high-level executive in an IT company, 29 years old, spouse 29 years old. Preparing to have children in the next three years.

3. Asset-Liability Situation: Based on market prices at the end of May 2013, total assets are 158,000 yuan, current liabilities are 6,895 yuan, with self-use assets accounting for 6.33% of total assets, no government bonds, fixed deposits, or income-generating assets, 6.36% in stocks and funds, and 58.3% in liquid assets, with sufficient emergency reserves.

4. Income and Expenditure Situation: The family's after-tax annual income reaches 345,500 yuan, annual expenditure is 159,600 yuan, with a net savings rate of 53.8%, which is considered a high savings rate family, allowing for flexible financial planning. Mr. Wang contributes 88% of the income, far exceeding Mrs. Wang's 12%. The free savings amount is 185,900 yuan, which can be used for fund systematic investment according to the client's risk profile.

5. Financial Goals: The primary goal is to ensure monthly support for the elderly of 3,000 yuan, annual family visits costing 20,000 yuan; to purchase a house within 2 years with a down payment budget of 300,000-400,000 yuan, and to consider upgrading the house to improve living quality when conditions permit; to travel abroad once within 2 years, with a budget of 30,000 yuan, and to reserve sufficient retirement funds, budgeting for monthly expenditures of 10,000 yuan, with hopes for early retirement if conditions allow; children's education expenses should be at an average level, considering studying abroad only when resources are abundant; car purchase expenditure budget is currently valued at 150,000 yuan, with timing depending on circumstances; hopes to achieve an annual travel budget of 10,000 yuan for 40 years.

6. Career Simulation: Assuming a stable growth of 5% in income, to achieve all financial goals, the internal rate of return is 3.9%, which is lower than the reasonable return rate of 7.17% acceptable to the client; alternative plans can achieve goals such as upgrading housing, improving living quality, and increasing insurance spending, with an internal rate of return of 6.81%, making it not too difficult to achieve.

7. Insurance Product Configuration Plan

Based on Mr. Wang's personal wishes, we start with the minimum coverage to configure insurance products, with an annual expenditure of only 1,850 yuan, and recommend increasing premium expenditure to 5% of income, i.e., investing 17,000 yuan annually.

8. Investment Product Configuration Plan

According to the separation theorem, considering reasonable asset allocation based on risk profile, the client is classified as a conservative investor, suggesting an investment portfolio of 30% in stocks, 37% in bonds, and 33% in cash, with an expected investment return rate of 7.17%. The current proportion of demand deposits is too high, making it difficult to achieve the expected long-term investment return rate, so it is recommended to adjust the portfolio and adhere to a long-term systematic investment approach to accumulate wealth.

9. Based on the client's situation, it is recommended to conduct a regular review once a year. The next review is tentatively scheduled for early January 2014, at which time if there are significant changes in family or career, a new financial planning report will need to be prepared.

II. Client Basic Information

Mr. Wang, 29 years old, a senior executive at a company in Shanghai, with an after-tax annual salary of 300,000 yuan; his wife, Ms. Li, 29 years old, an art editor at a magazine, with an after-tax annual salary of 48,000 yuan.

The two have been working for 7 years and are very filial to their parents. In recent years, most of their income has been used to maintain basic family living expenses and to purchase properties for both parents in their hometown, so their total assets are relatively low.

From the perspective of the family life cycle, Mr. Wang's family is currently in the nesting phase.

Planning Constraints: 1. Avoid complex financial derivatives and other investment tools; 2. Due to a wait-and-see attitude towards domestic insurance products, Mr. Wang's budget for insurance products is limited to no more than 1% of income, and his wife's budget for insurance products is no more than 1% of income.

III. Macroeconomic and Basic Assumptions

This financial planning proposal is based on the current macroeconomic situation in China and related basic assumptions. When the economic situation and assumption variables change, it will affect the possibility of achieving goals.

Including inflation rates, etc. (omitted)

Note: 1. The annual inflation rate is 5%. Inflation refers to the phenomenon of a sustained general rise in the price level in society, which will lead to a decrease in the actual purchasing power of the currency in hand. In the long run, China's historical average inflation rate is between 3%-5%, with an average inflation rate of 3.55% from 2007 to 2012. Considering that inflation varies by region, we conservatively assume an inflation rate of 5% when making this financial planning proposal.

IV. Family Financial Statement Preparation and Financial Diagnosis

1. Family Balance Sheet (as of May 31, 2013, unit: yuan)

2. Income and Expenditure Savings Table (May 2013, unit: yuan)

Your family has a high income, and the debt ratio is low, indicating good debt repayment ability, but there are some shortcomings in asset preservation and appreciation:

1. The debt ratio reflects the family's repayment ability, and your ratio is 4%, indicating a very low family debt ratio, with a small possibility of financial risk. Properly using financial leverage can improve the overall return rate of family assets, so it is recommended to moderately increase liabilities when adding income-generating assets.

2. The liquidity ratio reflects the family's short-term repayment ability. This ratio is 13 times, indicating strong short-term repayment ability, with sufficient liquidity to pay off consumer liabilities. Since this is above the reasonable upper limit of 12 times, it can be appropriately lowered to increase the proportion of investment assets.

3. The investment-to-net-asset ratio reflects the proportion of investable assets in net assets, indicating the family's surplus capacity. This ratio is 37%, indicating the ability to actively accumulate wealth, but it is below the reasonable lower limit of 50%, so it is advisable to consider increasing the proportion of investment assets.

4. The average investment return rate is used to measure the ability of assets to generate returns, with a reasonable range of 4%-10%. Mr. Wang's family investment return rate is 0%, indicating that Mr. Wang may lack investment concepts or reasonable investment methods. It is recommended to conduct reasonable asset allocation and investment portfolio planning.

5. The "financial freedom degree" is 0%, indicating that Mr. Wang's family income is basically entirely dependent on salary income, with very low non-salary income, leading to significant pressure to work for a living. It is recommended to adjust the income structure as soon as possible to increase property income such as dividends and interest, reducing work pressure and laying a good foundation for housing, children's education, and early retirement.

6. Emergency reserves are a reserve for the family in case of unexpected situations, with a reasonable standard being 3-6 months of household expenses. Mr. Wang's family has sufficient liquid assets to cover 7 months of household expenses, slightly above the reasonable upper limit, so it can be appropriately reduced to increase investment assets.

7. The premium burden rate has a reasonable range of 5%-15%, and Mr. Wang's family has not equipped any insurance products, which is significantly below the reasonable level. It is recommended to increase premium expenditure to cope with potential risks the family may face.

From the above financial indicator analysis, it can be seen that Mr. Wang's family has issues such as excessive reliance on work income, low property income, and insufficient protection, needing to increase income-generating assets, increase non-salary income, and increase premium expenditure to reduce risks. The family's asset allocation and specific product allocation lack planning and need reasonable long-term investment planning.

V. Client Financial Goals and Risk Profile Definition

(1) Setting Financial Goals

1. Supporting the Elderly. Ensure monthly support for the elderly at a present value of 3,000 yuan, expected to last for 30 years.

2. Housing Planning. Purchase within 2 years, with a down payment budget of 300,000-400,000 yuan, trying to use housing provident fund loans as much as possible and minimize commercial loans; consider upgrading to a larger house when financial resources accumulate sufficiently.

3. Traveling Abroad. Hope to travel abroad with his wife within 2 years, with a budget of 30,000 yuan.

4. Children's Education. The goal for children's education is to complete domestic graduate education, considering studying abroad only when financial resources are abundant.

5. Visiting Home. Hope to visit home once a year, with a budget of 10,000 yuan each time, lasting for 30 years.

6. Retirement Planning. Achieve a living standard of 10,000 yuan per month after retirement. If conditions allow, hope for early retirement.

7. Car Purchase Plan. Hope to buy a car valued at 150,000 yuan, with purchase timing relatively flexible, prioritizing house purchase over car purchase when resources are limited.

8. Travel Plan. Starting from 2015, annual travel expenses at a present value of 20,000 yuan, lasting for 40 years.

9. Insurance Planning. Does not like savings-type insurance products, willing to purchase a certain amount of consumption-type insurance products. The premium budget hopes to be controlled within 1% of income.

(2) Defining Risk Profile

Risk tolerance refers to your objective level of risk tolerance, which may relate to your age, investment experience, work, and other actual situations, and changes little over time;

Risk preference refers to your subjective attitude towards risk tolerance. Through risk preference testing, you can identify your misconceptions about your own risk preferences, understand your actual preference range, and based on the test results, recommend the most suitable asset allocation plan for you;

You believe your risk preference is conservative, and the risk tolerance type derived from the risk test questions is moderate.

Based on risk preference and risk tolerance testing, the suitable asset allocation plan for Mr. Wang is:

According to the scientific method of two-stage asset allocation, it is recommended to allocate as follows:

VI. Insurance Planning

Since this plan is for a married family, we will use the will need method, life value method, and minimum coverage needs to estimate life insurance coverage. Considering Mr. Wang's negative attitude towards insurance products, we will take the minimum coverage from the will need method, and the accidental insurance coverage will be twice that of life insurance to prevent situations of half-disability due to accidents.

Insurance Demand Analysis Table

Note:

1. Considering Mr. Wang's current wait-and-see attitude towards insurance products, we estimate his required coverage using the will need method, while Ms. Li's required coverage is estimated using the minimum coverage need method;

2. In this case, the calculation of the annual premium is based on the 20-year premium rate table for the Guotai Shunyi 100 term life insurance.

VII. Proposals for Achieving Financial Goals or Solving Problems

(1) Initial Problem-Solving Plan

Career Simulation Table (the table is too large, only part is displayed)

Note:

1. An average investment return rate of 3.9% is required to achieve all financial goals.

2. The total budget for purchasing a house is 1.3 million yuan, assuming a house price growth rate of 6%, the total price of the house two years later = 1,300,000 * 1.06^2 = 1,460,680 yuan, with a down payment of 438,204 yuan. If the loan interest rate is 6%, the loan term is 25 years, the monthly payment will be 6,587.83 yuan, and the annual payment will be 79,054 yuan.

3. Mr. Wang plans to have a child in three years (2016). Assuming the tuition level and growth rate are as follows:

xxxxxxx

4. In the three years after the child is born, to fully take care of the child, the wife will stop working for three years, and her income will temporarily cease.

5. Family living expenses will increase by a present value of 2,500 yuan/month after the child is born, continuing until 2039 when the child graduates, and starting in 2040, this expense will no longer be incurred; after retirement at age 60, family monthly expenses will increase to a present value of 10,000 yuan/month, with a future value of 544,565 yuan.

6. Mr. Wang can achieve the car purchase goal in 6 years, and assuming an annual inflation rate of 5%, the total price of the car will be 201,014 yuan.

(2) Plan Adjustment Suggestions

From (1) Career Simulation Table, it can be seen that as long as the average investment return rate reaches 3.9%, Mr. Wang's family can achieve all goals. This return rate is close to the risk-free return rate, meaning that as long as the actual investment return rate exceeds 3.9%, there will be a surplus of financial resources. Mr. Wang's expected return rate is 7.17%, so it is recommended to increase expenditures on housing, education, elderly support, insurance, etc., or consider early retirement.

Based on Mr. Wang's financial goal priority, combined with the potential need for risk prevention, we prioritize housing upgrade planning, insurance planning, quality of life improvement, and elderly support, considering other goals only when financial resources are surplus.

The adjusted career simulation table is as follows:

Internal Rate of Return Career Simulation Table

Note:

1. Achieving an average annualized return of 6.81% will allow for the realization of existing and new financial goals.

2. Housing Planning. Mr. Wang wants to change to a house of 80 square meters, with an average price of 25,000 yuan per square meter, currently valued at 2 million. If Mr. Wang changes houses in 6 years, the total price of the property in 6 years = 2,000,000 * 1.06^6 = 2,837,038 yuan. Six years later, the old house's future value = 1,460,680 * (1 + 6% - 2%) = 1,708,789 yuan, with a loan balance of 856,591 yuan, resulting in the remaining value of the old house = 1,708,789 - 856,591 = 852,198 yuan. The new house down payment gap = 957,500 - 852,198 = 105,302 yuan. According to the adjusted career simulation table, Mr. Wang's total assets at the end of the sixth year will be 390,000, which is sufficient to cover the down payment gap for the house. The new house loan amount will be 2,234,167 yuan, assuming a 20-year commercial loan with an interest rate of 7%, the monthly payment will be 17,321 yuan, and the annual payment will be 207,858 yuan.

3. Insurance Planning. Before the adjustment, Mr. Wang's family coverage was insufficient, and we recommend increasing premium expenditure to the lower limit (5% of income) to enhance premium investment.

4. Travel Planning. Increase travel expenses by 2,000 yuan per year.

VIII. Investment Planning

(1) Market Analysis

1. A-share Market

The internal growth momentum of the economy remains insufficient, while facing numerous challenges, including the disappearance of demographic dividends, the possibly maxed-out environmental carrying capacity, and the rise of asset bubbles. Resolving these contradictions can only rely on the dividends of reform. The new government may accept lower growth rates, focusing on economic structural adjustments and initiating important reforms in some key areas: "We must wade through deeper waters because we have no other choice." Although the overall growth of the economy will tend to be flat, structural factors such as income distribution reform, anti-corruption, haze, deepening medical reform, and the ease of knowledge dissemination will have a profound impact on related industries, and structural opportunities still exist.

On the other hand, from a valuation perspective, the current A-share valuation level is at historical lows, with limited downside potential, revealing long-term investment value.

2. Bond Market

It is expected that the economy will maintain a weak recovery in the second quarter, and the CPI level will remain low. The central bank may continue to implement a prudent monetary policy and may moderately increase the intensity of liquidity withdrawal. Since most credit bonds have already seen their yields drop to relatively low levels, supply is expected to further increase, which may lead to a temporary supply-demand imbalance. Overall, the bond market is likely to exhibit narrow fluctuations in the near future, with limited trading opportunities, so a neutral and cautious attitude toward the bond market is advisable.

3. Convertible Bond Market

Many varieties in the convertible bond market align with industry investment opportunities during economic transformation. In an overall uncertain market environment, the investment characteristics of convertible bonds—"offensive when possible, defensive when necessary"—are also conducive to attracting capital attention. Therefore, we consider increasing the allocation of equity convertible bonds and equity assets after the market has undergone a phase of adjustment. Especially after a series of regulatory policies have been introduced, the market has shown a certain level of panic, leading to a significant compression of overall valuations in the convertible bond market. We believe that both the valuation levels of underlying stocks and convertible bonds have room for further improvement.

(2) Asset Allocation

Based on the risk profile defined in Part V, Mr. Wang is classified as a conservative investor. The asset allocation suitable for his risk preference is: 33% in cash, 37% in bonds, and 30% in stocks.

Risk preference and risk tolerance testing assess Mr. Wang's personal factors, while market analysis provides a specific analysis of the current market environment. Only through comprehensive analysis can we provide the most suitable asset allocation recommendation ratio.

According to market analysis, we believe that under the current market conditions, it is reasonable to allocate up to 30% in stock assets.

The asset allocation before and after adjustment is:

Current available assets = demand deposits + investment assets - liabilities = 94,443 yuan

Specific adjustment actions are shown in the table below:

(3) Financial Product Allocation

1. Basic Ideas for Selecting Investment Targets

(1) Diversified Investment. Diversify the same type of assets across 1-3 specific targets, with a total number of investment targets not less than 5.

(2) Adapt to the situation, flexibly allocate according to the market environment. Under the current macro environment, convertible bonds can be both offensive and defensive, so we can overweight convertible bond assets at this stage.

(3) Select Investment Tools. Prefer long-term performance that is excellent, stable, and highly recognized by institutional investors.

(4) Focus on investment targets with strong risk control capabilities and high historical returns after risk adjustment.

(5) Based on Mr. Wang's investment experience and asset situation, choose suitable investment tools. Mr. Wang is more suited to fund-type investment tools, and the investment method is more suitable for systematic investment.

2. Initial Investment Amount Allocation

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Note:

• The standard deviation, Beta, minimum monthly return, Sharpe ratio, and Value at Risk in the investment portfolio are all simple weighted averages, not strictly theoretical calculations, mainly for ease of understanding;
• The expected return rate is an estimated value based on the long-term average return rates of major asset classes, the past returns of the product, and the current market environment;
• The standard deviation is the value for this month, the minimum monthly return is the value for this year, Beta is this year's value, and the Sharpe ratio is this year's value; these indicators represent the risk level of the investment tool, the extent of losses in extreme situations, the degree of systematic risk, and the return level after risk adjustment.
• The value at risk means that there is a 95% probability that the return rate of this portfolio will be higher than -1.56% in the next week, or in other words, there is only a less than 5% probability that the investment return rate of this portfolio will suffer a loss of -1.56%.
• The expected return rate of this portfolio is 7.53%, greater than the required return rate of 6.81% in the career simulation table, and there is a certain safety margin.

3. Monthly Savings Investment Planning

From the perspective of market environment, investment experience, and financial habits, systematic investment is the ideal choice for Mr. Wang. We prefer funds with long-term excellent performance, good growth, and high volatility as specific varieties for systematic investment.

Consider potential liquidity needs, and allocate some bond funds.

1. Preferred Fund Systematic Investment Portfolio

2. Historical Performance Backtesting of the Investment Portfolio

A. Recent two-year systematic investment return rate (monthly investment amount of 1,000 yuan, online banking subscription fee of 1.2%)

B. Year-to-date systematic investment return rate (unit: ten thousand yuan)

3. Stress Testing

We conducted a stress backtest of the preferred fund portfolio under a pessimistic market scenario: from August 4, 2009, to now, the market has dropped from 3,478 points to the current 2,210 points, a decline of 36.45%. During the same period:

IX. Risk Disclosure and Regular Review

Given our limited understanding of Mr. Wang's current situation, the judgments and plans made based on this may be biased. We will track the implementation of Mr. Wang's financial planning in a timely manner. To monitor and ensure the smooth execution of the financial plan, a preliminary review is scheduled for December 2013.

If there are significant changes in your family and career, please contact us promptly to adjust the financial planning report.

The responsibility of the financial planner is to accurately assess the client's financial needs and provide high-quality financial advice and long-term regular review services based on this. If the client has any questions, they are welcome to consult the financial planner at any time.

Based on the client's situation, we recommend a regular review method and frequency. Usually, at least once a year is required for regular reviews. The next review is tentatively scheduled for early June 2014, at which time if there are significant changes in family or career, a new financial planning report will need to be prepared.

Basic Methods to Avoid Being Scammed in Investment and Financial Activities#

1. First, distinguish types. Market vendors may sell pork as beef, which we can generally prevent, but the distinction between pork and beef in the financial market may not be so easy. Some practitioners may sell insurance as savings. Therefore, distinguishing types is the most basic requirement and a very important premise to prevent being deceived.

2. Distinguish product risk ratings. Whether it is a fund or bank wealth management, the product brochure will clearly state the risk type of the product. When reading the product brochure, be sure to pay attention. If you are someone who particularly dislikes risk, then no matter how the salesperson speaks, you should maintain a cautious attitude towards products with higher risk levels. Of course, risk tolerance is subjective and objective; it is possible that objectively you have the capacity to bear high-risk products.

3. Pay attention to the yield demonstrations by salespeople. This is crucial in fund marketing. "XX stock fund has accumulated a growth of 69% over the past three years, ranking in the top 1/5 of similar funds." If you hear a salesperson recommend a fund like this, how do you feel? Do you think it sounds good? If I only hear this sentence, I cannot confirm whether this fund is good or bad. The reason is:

A. What time period does this past three years cover? How did the overall stock market perform during that period? If the Shanghai Composite Index rose by 85% during the same period, then this fund actually underperformed the market.
B. Ranking in the top 1/5 of similar funds, how many similar funds are there in total? Nowadays, some fund rating agencies provide more than 10 classifications, and a small category may only have 20 funds, so ranking in the top 1/5 in a small total group is not impressive.
C. Is this fund's ranking in the top 20% based on other conditions being equal? Were some funds that were just established for a year pulled in to participate in the ranking?
D. Now it is ranked in the top 20%, but what was its ranking a month ago for the past three years? (Sometimes a difference of 10 days can lead to significant changes in ranking, especially for short-term rankings!) Therefore, this simple statement actually contains many questions that need to be considered. To avoid traps, a more comprehensive and objective analysis is needed, both qualitative and quantitative.

4. Pay attention to the identity of the salesperson. The position determines the words spoken. Be cautious when a securities company employee recommends stocks, when a bank wealth manager recommends funds, and when an insurance company employee sells insurance. Therefore, it is best to cross-examine: ask the bank's wealth manager about old closed-end funds (old closed-end funds can only be bought through a securities account, and it has little to do with their interests. Of course, most wealth managers may not understand, although I do), and ask the securities company employee about insurance products. This method has its drawbacks; if you ask them, they may not understand either, so you can ask several customer managers from the insurance company about the same product and share each other's statements, causing them to attack each other—this method is for reference only. The ideal method is undoubtedly to find an expert who understands all aspects and can maintain independence.

5. Pay attention to the compliance and legality of the financial institution. There are now online lending services. I have not tried it and do not understand it, but if you want to try it, there is no need to dismiss it outright, but it should be treated with caution. Even if you try, you should do so at the lowest possible cost. Overall, banks are relatively trustworthy, and state-owned banks are more reliable, although I personally think small banks provide better service. However, in some aspects, small banks can be overly meticulous, and some staff may take risks driven by interests, so if you encounter aggressive staff, it is better to be cautious.

6. Use platforms like Zhihu on the internet to discern truth from falsehood. If you cannot draw conclusions about a financial product, you can search on Baidu or ask on Zhihu, seeking objective explanations from people without conflicts of interest.

Unraveling the Riddles of Speech: What Are the Half-Truths and Lies in Insurance/Funds/Bank Wealth Management/Personal Investment That Are Easy to Fall for?#

In the summer of 2009, a sales manager from an insurance company approached me, persuading me to buy their insurance and wealth management project called "Fortune Life." Taking a thirty-year-old as an example, if you save 50,000 yuan each year for five years, you can immediately enjoy six benefits:

(1) Starting from the second year of savings, you can receive a fixed income of 9,000 yuan, and thereafter, every other year, you will receive 9,000 yuan in your account until the end of your life.
(2) At the same time, about 5,000 yuan of floating income will also be credited to your account on time, allowing you to enjoy the rich returns brought by institutional investment without leaving your home.
(3) Of course, if you temporarily do not need this money, we can also let it earn interest at 4% annually, and if calculated at 3%, by the time you are 80 years old, it can accumulate to 1.14 million yuan, which is 4.6 times the principal, allowing you to earn more wealth.
(4) In addition to the income mentioned above, during the period of receiving income, if you urgently need money, you can withdraw 300,000 yuan immediately without affecting the income, ensuring high flexibility of funds.
(5) All the benefits mentioned above are tax-free, allowing you to preserve your assets more completely while enjoying the safety and stable returns of institutional investment.
(6) More humanized, all the above benefits are guaranteed to be safe, and you have two options for flexibility: 1. You can safely transfer the principal to your beneficiaries; 2. You can choose to redeem it at any time when you are old to supplement your pension.

I initially agreed and paid for the first year, but later canceled it during the hesitation period. I also wrote a long letter with an accompanying Excel simulation chart explaining my reasons, and the other party did not say much afterward.

If you don't have time to read the long letter, I provide a summary as follows:

A. The cash value of insurance accumulates over time and may look high after a certain number of years. However, you can only transfer it to your beneficiaries when you die, and you cannot directly access it—unless you apply for a policy cancellation, which will incur significant losses. Therefore, insurance is essentially a channel for transferring inheritance but does not provide much help for your own enjoyment of life. Using the total value in the account when you are old to imply that this is all yours, without reminding you that this money is actually for the beneficiaries, is inappropriate.

B. In comparisons, people often compare it to bank savings, saying that the interest from the bank is so low. However, if you keep your money in the bank for N years, if the interest rate remains stable, the compound interest calculation can also be quite impressive. Comparing the total compound interest of your money decades later with the bank's annual interest is inappropriate.

C. To address A's concerns, people often offer survival bonuses and annual dividend interest, etc. However, the survival bonus is essentially the interest on your money paid in advance (don't forget, you have to keep this money in the account for decades for compound interest), and the biggest problem with dividend interest is that the percentage they describe is the annual profit rate of the insurance company, while the percentage you use to calculate annual dividends is Y%. But Y% is not known at that moment! Even the salesperson may not be able to clarify how it is determined; they can only say that actuaries will determine it based on the annual X%. Therefore, using the overall profit rate of the insurance company to mislead you into thinking that your dividend interest is also this is inappropriate.

D. In the final persuasion step, they often say that this is guaranteed to be principal-protected, and there are dividends for appreciation. In fact, the national policy is optimistic, the future is bright, and at the very least, you are guaranteed to be principal-protected; why worry? Wrong. With an annual inflation rate of 3%, that is an understatement (I wrote this in November 2009). Now a beef rice set at Yoshinoya has increased to nearly 30 yuan; it was only a dozen yuan in 2009! Not being able to keep up with bank interest is a mistake! Using "this investment project is at least principal-protected" to let you lower your guard is also inappropriate.

——
Hello XXX!

First of all, thank you for your careful help over the past period. I have gained a relatively rich understanding of the Fortune Life investment project. For any young person around 30, taking out 250,000 yuan to invest in their future is not an easy or simple decision. The method I use to make judgments is to persuade myself through logical thinking. Last Wednesday (the 4th), I signed the receipt for the policy, and I think I can take advantage of the 10-day hesitation period from November 5th to 14th to go over all the details again.

Attached is an Excel sheet I made, sharing it with you for your amusement! I want to discuss a few questions with you:

The Fortune Life project was launched in mid-2007. It has only been on sale for 2 years, and there have been three-year types, now all changed to five-year types. The most important feature of this insurance is that the principal is guaranteed (but must be transferred as inheritance; otherwise, you can only receive the cash value and survival bonuses before cancellation), and the only thing that can be confirmed is the survival benefit of 9,000 yuan every two years. As for the dividend and interest calculation, it is currently at 4%, but it is not guaranteed to be at least this number. This means:

1. At a medium dividend level, it can be seen that only after the tenth year can the survival benefit (cash value + dividend + survival bonus) exceed the principal + interest of a one-year fixed deposit. This means that if you cancel the policy after ten years, you can confidently say, "At least this is better than keeping it in the bank for ten years!" However, the above conclusion is based on the assumption that the annual dividends need to be at least at the medium level or higher. Your company does not guarantee dividends, which means it is possible for the dividends to be at a low level or even zero.

You can look at the low-level table; if the dividends are at a low level, it will take until the 21st policy year for the survival benefit to exceed the principal + interest of a one-year fixed deposit for 21 consecutive years, but it will never outperform a five-year fixed deposit.

2. Currently, I calculate bank fixed deposits in two ways: one is to save 48,630 yuan each year for the first five years, and for flexibility in receiving, I save them all in one-year fixed deposits; the other is to ensure maximum benefit for each 48,630 yuan saved, saving in five-year fixed deposits until the last years are insufficient for five years, then piecing together for maximum benefit. In previous understandings, we often overlooked the compound accumulation of bank fixed deposits. In fact, saving in five-year fixed deposits can yield considerable returns. If calculated as a five-year fixed deposit, after 30 years, the total return would be 575,200 yuan. It can also be expressed as saving 48,630 yuan for five years at age 31, returning 600,000 yuan at age 60; if saving in one-year fixed deposits, after 30 years, the return would be 453,589 yuan. Therefore, simply comparing the bank's annual fixed deposit interest of only 2% with the returns of Fortune Life ignores this stable return. Moreover, the bank interest rate is not stable, and I expect it will start to rise in the coming years.

3. The annual dividend level of your company, regardless of the profit rate, is not linearly related to the final dividend of this policy. For example, your company had profit rates of 8% and 4.5% in the past two years, which does not mean I will receive dividends of 8% or 4.5% of the principal or cash value. This merely reflects your company's earnings; regarding the annual dividends for each policy, they will be determined based on the years and the cash value situation. I made a curve chart for comparison, and it can be seen that if we use dividends/cash value to compare with bank