About fund fixed investment

Fund fixed investment is one of the hottest topics discussed in major online financial management sections. Many big Vs with a large number of fans spare no effort to recommend to netizens to purchase funds through fixed investment.

Search for "fund fixed investment" in Zhihu, and you can see that some users held a Zhihu Live with the theme of fund fixed investment, attracting more than 5,000 participants. The title is also very attractive: Make money the stupid way. It feels like once you make a fixed investment, it's like having a money printing machine at home, and you can count money every day without having to use your brain.

Under the topic of fund fixed investment, there are about 30,000 users paying attention and more than 1,000 questions.

Among the top ten rankings of investment and financial management courses in NetEase Cloud Classroom, the third and sixth places are about fund fixed investment. On financial websites such as Snowball, there are hundreds of articles and discussions about fund fixed investment. It can be seen that many institutions or writers are working hard to promote fixed investment funds, and at the same time, many readers and investors are very interested in fixed investment funds.

This phenomenon is worrying. Many articles promoting fixed investment in funds are very unprofessional and suspected of misleading consumers. In response to this phenomenon, the author once wrote an article called "Why Fund Fixed Investment is a Bad Idea." However, some readers reported that my article was too professional and they only had a partial understanding of it. I hope I can use simpler language to help them explain the truth clearly. Therefore, in this article today, I will help you further analyze the pros and cons of fixed investment in funds.

In essence, fund fixed investment is an investment strategy for purchasing funds. There are many types of fixed investment, including quantitative, pricing, timing, loss determination, etc. The fund fixed investment discussed in this article refers to the simplest quantitative purchase method: that is, allocating a portion of funds on time (for example, 100 yuan per month) to purchase a certain fund. Regardless of whether the market is good or bad and the fund is up or down, continue to buy for many years.

This method of quantitatively purchasing funds on time is one of the simplest fixed investment strategies. Once you understand the logic in this simple example, it will be easier to analyze those slightly more complex examples.

Advocates of fixed investment in funds generally list the following benefits of fixed investment:

1. Automatically deduct funds from the account every month and buy funds to develop a habit of investing from a young age. good habit.

2. Young people don’t have much balance every month, so they can only participate in investment activities by saving a little every month and making fixed investments.

3. In the long run, the stock market will rise, so long-term fixed investment can obtain good investment returns.

4. The smile curve of fund fixed investment: keep buying when the market falls, and you can make profits when it rises in the future.

5. Newbies in finance don’t know much. Fixed investment is a “lazy person’s method” and is suitable for investors who don’t know anything.

The following will help you analyze whether these statements are reasonable.

The first and second items actually include two suggestions:

(1) Young people should develop a good habit of saving, and do not eat too much or over-consume.

(2) Invest as early as possible. Therefore, as soon as you save your hard-earned money (even if it is 100 yuan per month) when you are young, you should quickly send it to a fund company and buy a fund.

There is nothing wrong with suggestion (1). A responsible adult should restrain his desire to over-consume, use the habit of saving to accumulate small sums, and continuously improve himself and his family's financial strength. Most educated Chinese people should agree with such values.

The problem is that developing the habit of saving is not the same as using these savings to buy funds. The money you save each month can be placed in the bank, Yu'ebao, or fixed deposits/treasury bonds.

Here, the sales team of the fund company very cleverly confused the two concepts of "saving" and "buying funds". Therefore, readers need to be reminded here: It is a good thing to develop the habit of saving. But saving and buying funds are completely different things. Don’t be fooled by this specious propaganda.

Now let’s talk about suggestion (2): invest as early as possible.

This suggestion has similar logic to the third reason mentioned above: in the long run, the stock market always rises. Therefore, if you start early, you will be able to enjoy the investment returns brought about by the rising stock market earlier.

Buffett has written many articles emphasizing the importance of "compound interest". If you start investing a few years ago and the profits compound, you will probably be able to obtain an objective amount of wealth in 30 years.

This suggestion seems reasonable, but it actually has the following problems:

First of all, this suggestion is contradictory to the fourth reason mentioned above.

Is the stock market going up or down?

If it goes up, it will obviously be better to buy the whole position from the beginning, and there is no so-called smile curve.

If it is going down, then why do you insist on long-term fixed investment? If you tighten your belt every month and save your hard-earned money frugally, why not give it to a fund company to buy an asset that has been falling for a long time?

I know that some friends who advocate fixed investment may not be able to help but protest: the stock market will rise in the long term, but it will fall in the short term. Therefore, fixed investment can use the "smile curve" to reduce purchase costs in the short term, and then obtain long-term investment returns.

There is a proverb in English called "If it seems too good to be true, it probably is". If there really is such a magical investment strategy, you can catch the swings in the short term and buy low-priced assets, and then you can also enjoy long-term investment returns. Then many professional investment institutions may flock to it. (Have you ever heard of professional investment institutions such as pension funds, university foundations, large hedge funds, etc. doing fixed investment?)

In my "Why Fund Fixed Investment is a Bad Idea", I have already done this Mathematical analysis in this regard. Whether fixed investment can bring better investment returns to investors depends entirely on luck: if the market falls during the fixed investment period, investors can buy at a lower price, so they can get better investment returns in the future. On the other hand, if the market rises during the fixed investment period, investors will pay higher costs and their investment returns will also be dragged down.

Secondly, the suggestion’s assumption that China’s stock market will rise in the long run has no empirical support.

A very important logic behind the suggestion that you should invest as early as possible is that in the long run, stocks will rise. This rule does exist in developed countries.

As shown in the figure above, if we look back at the history of the United States over the past 200 years, we will find that stocks have given investors the best return on investment, which is about 6.6% per year after deducting inflation. Other assets over the same period, such as bonds, gold and cash, have underperformed stocks. This law is similar in other industrial countries such as the United Kingdom, France, and Germany. This is the logical basis for "buying stocks early" to work in these countries.

But this pattern is not obvious in China. If we calculate China's asset returns from 1993 to 2016, we will find that the return on investment given by stocks to investors is negative (after deducting inflation) and inferior to government bonds during the same period.

In other words, China’s stock price risk premium (Equity Risk Premium) is negative. In China, taking the risk of buying stocks does not give investors better returns than government bonds. Conversely, returns on stocks have been worse than on government bonds. Therefore, investors bear those additional risks in vain and are not compensated accordingly.

This issue is also analyzed in the first stock section of the online open course "Little Turtle Asset Allocation" taught by me. Interested friends can take a look (free preview).

Of course, some friends may say that the history of the past 20 years does not necessarily mean that buying stocks in the future will not make money. Indeed, China's stock market has its own particularities. Compared with developed countries, China's stock market has a much shorter history, and the country's economic environment has changed greatly during this period. Various laws and regulations related to listed companies often undergo major changes within a few years. Therefore, historical returns over the past 20 years are indeed not necessarily predictive of the future.

But if we want to make scientific predictions, we need to collect as much information as possible and make some judgments based on the longest possible history. What I want to emphasize here is that the returns from China's stock market over the past 20 years have not been as good as those from bonds. We should not blindly believe that stock investment returns will be good in the long term. This law has not yet been reflected in China.

Another big difference between China and foreign markets is the impact of taxation.

Many British and Americans do invest in stock funds/index funds in their retirement accounts (401k, pension account, etc.). But this is determined by the special national conditions of their country.

Take the UK pension account as an example. In order to encourage British people to save and plan for their future retirement, the government gives tax benefits to pension accounts. As we all know, the income tax in the UK is very high. Depositing a portion of your excess savings into a retirement account each year can be deducted against income taxes. So many British people will choose to do this. If there are no income tax deduction benefits, why do this? No reason.

Secondly, money in tax-free retirement accounts in the UK cannot be used to buy a house. It can only be saved until you retire. Therefore, some British people choose to regularly use their savings to buy funds. Anyway, it cannot be used. You can only withdraw it after you are in your 60s. There is a long investment cycle (counting from your 20s, 30 to 40 years), so you buy low-cost stock index funds/ETFs through fixed investment. , is reasonable.

The problem is that these conditions are different from Chinese investors. Whether it is tax incentives or policies for buying houses, the situation in China is different from that in the UK. How can we copy it completely? China has special national conditions. We cannot copy some foreign investment methods, use them unchanged, and sell them to young people with limited financial knowledge. I also hope that readers of this article can be more open-minded and rely on independent thinking to help themselves draw more rational conclusions.

Again, if we carefully analyze this fund investment recommendation, we will find that it is not suitable for the specific situation of young people at all.

Let’s take an example of an ordinary young man to analyze the rationale.

Assume that the young man graduates from college at the age of 22. If some young people choose to continue their studies (graduate school, Ph.D., go abroad, etc.), then their graduation age will need to be delayed to 25 or even later.

In the first few years after graduation, most young people are busy with nothing more than choosing a career and a spouse. Some people with slightly better economic conditions may buy a car.

Then we assume that the young man gets married around the age of 28/29. From this point on, you will find that this young man needs a lot of money. He needs the money to: get married, buy a house (the first wedding house he bought in his life), then give birth to a baby, and then send the baby to a nursery/kindergarten, etc. If you choose to have a second child, you need to do it again.

From here we can see: If they are not the second generation of rich people, or do not come from particularly high-paying industries (such as BAT, the middle and upper levels of top investment banks, etc.), most young people in China are under 29 ~At the age of 35, everyone is short of money. When it comes to buying a house, in many cases it is financed by parents + bank loan.

Now we assume that the young man starts investing at the age of 23/24. I decided to get married and buy a house after 5 years (at the age of 29). When he was most short of money, he couldn't use the money he gave to the fund company through fixed investment. The main reason is:

One of the characteristics of the stock market, especially the Chinese stock market, is that it is highly volatile and difficult to predict. The stock market in 4 to 5 years may be a bull, a bear, or neither rise nor fall.

As shown in the figure above, assuming that a young man starts investing in 2006, he is likely to lose money in 2011, five years later. Of course, if a young person is lucky and starts investing in 2002, and then sells at the peak five years later in 2007, he will indeed make a fortune. But this has nothing to do with fixed investment. It's just that he was very lucky. Just when he needed money, the stock market reached its peak.

The second reason why fixed investment funds cannot be obtained lies in the purpose of fixed investment.

From the beginning to the end, fixed investment promotes the concept of "long-term investment", which encourages young people to increase their savings and plan for future retirement. How can you take it out and use it when you are around 30 years old? Doesn’t this violate the original investment goal?

Therefore, those young people who participate in fixed investment will be in a very embarrassing situation between the ages of 28 and 35: on the one hand, they owe money to the bank and their parents (although the parents are willing to support their children to buy a house for free, but you At least they have to settle their accounts clearly) and pay interest to the bank; on the other hand, their own cash savings cannot be used, and they have to pay monthly payments to the fund company every month.

This situation is obviously unreasonable. A more rational choice is to work hard, strive for a salary increase, and save reasonably before buying your first wedding home, and then try your best to buy your first home through your own efforts (supplemented by your parents' sponsorship and bank loans). Then when there is a balance in cash flow every month, consider investing again.

The sales staff of fund companies and some so-called big Vs on the Internet specifically target young people under the age of 30 and encourage them to buy fixed investment funds. This phenomenon is worrying. For these young people, the fund company is like the tax bureau, which takes a tax from his salary every month. From the perspective of fund companies, we can generally understand their motivations. A young man has been buying a certain fund every month since he was in his 20s. Regardless of the wind and rain or the performance of the fund, he insists on buying the fund for more than ten years or even longer. Where can he find such a loyal customer? Simply a type A customer. Therefore, fund companies, together with some Internet celebrities, spare no effort to promote fixed investment in funds, and there are strong economic incentives behind them. But as ordinary investors, if we follow them around and are fooled into it, we have only ourselves to blame.

Let’s talk about the fifth reason mentioned above: Financial newbies don’t know much, and fixed investment is a “lazy person’s method”, suitable for investors who don’t know anything.

First of all, when we judge whether a certain investment strategy is good, the standard should be: How high are the investment fees? How good is the return on investment? How much risk is being taken? Is it the best investment strategy to suit an investor’s personal family situation? Not whether it's suitable for "lazy fools".

Secondly, if it is a long-term fixed investment (for example, fixed investment for more than 20 years), then investors first need to confirm that the fund/fund company to which the investment is scheduled can exist for more than 20 years. This itself is a big challenge in China (the first open-ended public fund was established in 2001, which means the oldest fund is less than 20 years old). If you invest in a fund/fund company that closes after 10 to 20 years, the blow to investors will be devastating. Most novice investors don’t even know the difference between closed-end and open-end funds, let alone have the knowledge and energy to make this judgment.

Suppose a fund novice purchases a certain fund through fixed investment. Xiaobai's starting point is: save worry and trouble, and you can make money just by sitting. Now let's assume that in 2007 or 2015, the fund's net value suddenly fell by 20%, 30% or more. Let us ask ourselves, can this novice calmly continue to stick to his fixed investment plan? To be honest, the first reaction of most ordinary people is to sell the fund and settle down. The so-called "fixed investment plans for retirement" are actually just a few more years of management fees earned by novice investors under these guise.

Some so-called Internet Vs promote various investment strategies or funds based on their number of fans, and many people still believe in them. This also reflects the current "investment novice" in our country. "The current situation is that there are simply too many. In my opinion, before we believe the information posted by any user on the Internet, or follow his/her advice to engage in some investment activities, we should at least do the following due diligence:

1) Personal Information: What is the other person’s last name, what is his occupation, the name of the company he works for, and what are his academic qualifications? Work experience? What are the professional qualifications? Is there a company website?

I have seen a lot of big Vs on websites with a lot of fans, but if you check their profile information, you can’t find anything except a nickname. Do you dare to believe the advice given by such users?

Investment and financial management involve our hard-earned money, which reflects not only our responsibility to ourselves, but also our responsibility to our loved ones (lovers, children, the elderly). It is a very irresponsible investment attitude to follow a user on the Internet who does not even know his real name to buy this or that.

2) Knowledge system: Has the other party received professional training? Have you published any related books? Is the article you write logical and credible?

3) Investment ability: How many years of investment experience does the other party have? How much money do you manage? What is the return on investment? How big is the research team and how to conduct investment research?

4) Investment philosophy: Does the other party have a complete investment philosophy? Is this investment philosophy consistent with some of the more well-known investment methods? Is it empirically supported?

In this world, there are few "pies falling from the sky". If you want to save trouble and don't spend time and effort on the most basic learning and understanding, the price will be that you will be deceived by those people or institutions with ulterior motives.

Some friends may ask, what should I do?

My suggestions are as follows:

First of all, every investor needs to analyze his or her financial situation. Especially for young people, the first goal they need to achieve is to meet their immediate needs (such as buying a wedding house).

At the same time, young people should read some investment books in their spare time to arm themselves with knowledge. You don't need to be a financial expert, but you do need to know at least the basics.

Before considering their own investment decisions, investors’ household income and expenditure should preferably reach positive cash flow. If your monthly life is tight and you have very little left after deducting your mortgage and daily expenses, you should first think of ways to live a good life.

After meeting the above conditions, we can start to consider investment. The amount of money a person chooses to invest should be limited to what he can afford to lose.

In plain language, even if all the money you use to buy stocks/funds/financial products is lost (financial crisis/defrauded/breach of contract, etc.), it should not affect you and your wife. The basic life of a child.

I know many people don’t understand this. Their logic is: Isn’t investing just to make money? It’s just because I have no money that I invest!

Unfortunately, this logic is wrong. Mainly because: First of all, investing is risky. No one guarantees that you will make money. If your money will be used to buy a wedding house, a house in a school district, or for your children to study abroad in the future, these are very important living expenses, then these funds are only suitable for purchasing fixed-income assets (such as treasury bills, capital-guaranteed financial products, fixed deposits wait).

Secondly, the prices of risky investments will fluctuate up and down. The more important your funds are, the less they can withstand fluctuations. Do you think, if this money is used to treat your parents' illness, if it drops by 10%, would you dare not to throw it away? This can cost lives! To achieve high returns, you need to take risks. The more money you can afford to take high risks, the more money you don't need.

Let me give you a simple example. Among all the major investment institutions, the one best able to bear investment risks is the university endowment foundation. This is mainly because the investment cycle of university foundation funds is forever, so they can choose to participate in various high-risk investment activities with the longest time. In contrast, insurance companies and pension funds have to put a large part of their funds into highly liquid fixed-income assets (such as government bonds) because they have short-term and medium-term liabilities to deal with and cannot afford higher Investment Risks.

Next, for those investors with limited financial knowledge, the most suitable investment strategy is to establish a set of low-cost, cost-effective systems and long-term principles as the core. Diversified investment strategy. The specific details are introduced in detail in my book "Little Turtle Investment Wisdom", so I won't go into details here.

Note: Regarding the mathematical analysis of fixed investment, please refer to my book "Why Fund Fixed Investment is a Bad Idea?" " has been explained in ", so I won't go into details in this article.

Hope it is helpful to everyone.

Reference materials:

Wu Zhijian: "Little Turtle Investment Wisdom: How to Defeat the Strong with the Weak in Investment"

Wu Zhijian: "Little Turtle Investment Wisdom 2: Investment Jungle Survival Rules"