John Lee: "The 4% Rule" That Prevents Poverty in Old Age

1. Buying Individual Stocks vs. Index Investing (ETF)

Risks of Directly Purchasing Samsung Electronics and SK Hynix

• Even if you buy an index (ETF), about 40% of the total assets consist of SK Hynix and Samsung Electronics.

• The public thinks, "If that is the case, isn't it better to just buy those two stocks directly?" However, this is a mistaken thought.

• A structure that entirely ties an individual's entire old age to just two companies is highly dangerous from a risk management perspective.

• If those two companies go wrong, one cannot handle the fatal consequences.

The Impatience of the Public and the Hope of Investing

• The public turns away from safely diversified ETFs and shows impatience to get rich quickly by purchasing only specific stocks.

• When stock investing is maintained systematically, assets can multiply by 3 times, 4 times, 5 times, or in some cases, up to 10 times after 10 years, and this is the true hope of investing.

• You will absolutely not regret it 5 years later.

2. Causes of the Recent Kospi Plunge and Market Overview

Geographic Risk and Public Panic

• The cause of the Kospi suddenly plunging by about 5% is due to the worsening of US-Iran relations and worries over the possibility of an actual war breaking out.

• News reporting that "If they do not lift the blockade of the strait within 48 hours, they will bombard the power grid" was broadcast.

• Consequently, the public has stepped forward into panic selling, thinking 'let's sell for now'.

Keeping the Center as an Investor

• Currently, only negative information such as anxiety over exchange rates and oil prices is compounding, and the public is shaking even more at the news of foreign investors selling.

• However, if you are a person with a clear purpose of 'investing for old age preparation', you do not need to worry at all when thinking about it coldbloodedly.

3. Short-Term Volatility and Risk Management Strategy

The Principle of Prohibiting Leverage (Investing by Borrowing Money)

• The fundamental cause of why investors feel anxious is that they over-unify and immerse themselves in short-term issues.

• Stock investing must absolutely be done only with surplus funds, and investing with debt🚫 is strictly prohibited.

• People who invest by borrowing money cannot help but feel anxious due to a breakdown in mental state even if the market drops by just 5% (which translates to a 10% loss based on a 2x leverage).

The Public's Fatal and Repeated Mistakes

• The time when everyone is negative is the optimal investment opportunity, but the public cannot summon courage due to the fear that it might drop even further.

• The vast majority of investors who fail infinitely repeat the wrong pattern of 'buying when it rises and selling when it drops'.

• If you invest by borrowing money, you cannot overcome the fear that a world war might break out, and you end up panic selling in the basement.

4. Analysis of the Difference Between Speculation and Investment, and Trading Behavior

The Illusion of Timing Trading

• The act of repeating the act of increasing or decreasing cash proportions by dwelling on short-term fluctuations is not investment, but is identical to casino gambling. If the companies I invested in are sturdy, there is no reason to be shaken by short-term political situations or a focus on oil prices.

Down Markets are a 'Bargain Sale' Opportunity

• To long-term investors preparing for old age, a short-term sharp drop is a 'bargain sale' where the stocks they usually wanted to buy have become cheaper. ⇒ This is the truth.

• The time when it is cheapest is when everyone is worried and screaming that it is going to ruin. Capital of good quality, such as retirement funds, finds now to be anむしろ better timing to invest.

The Contradiction of the Public Seen Through Samsung Electronics and SK Hynix Trading

• When the stock price breaks through 200,000 won or 1 million won and rises, everyone wants to buy it from each other, but when it actually drops to 170,000 won or 180,000 won, they do not buy it.

• Then, when it rises to 200,000 won again, they resolve to buy it, but when it plunges like today, they step back again, refusing to buy.

• Because they view the market too shortly, they degrade stock investing into an act of gambling.

5. The Necessity of Asset Allocation and a Long-Term Capital System

The Core of the US Market's Upward Trend: The Retirement Pension System (401k)

• The decisive reason why the US stock market was able to rise without shaking for 50 years is thanks to the retirement pension system.

• It is a structure where, if an employee invests 10% of their salary into stocks, the company matches and adds 50% or 100% of that fund. This long-term capital of good quality shifted the paradigm.

• Korea has too high a proportion of individual investors, and long-term investment capital is severely lacking. Individual investors break down when a short-term sharp drop comes because they are not trained to cope with it. Since stock investing is investing in ⏳time, the answer is to look past short-term fluctuations and buy and gather steadily today and the day after tomorrow as well.

Systematic Investing (Dollar-Cost Averaging) and Tax Benefits

• Because people try to make money in a single rush impatently, they face the danger of even losing their homes by taking out housing mortgage loans to invest unreasonably.

• If one's monthly salary is 5 million won, one must continue to invest mechanically 500,000 won every month when the index is high, when it is at 5000, when it is at 4500, and even when it catastrophically plunges down to 3000.

• There is no one in the capitalist market who can beat a steadfast person who invests in time with surplus funds while looking 10 or 20 years into the future, utilizing accounts like the pension savings fund to see tax benefits (an effect equivalent to a 15% return rate). Complex trading that rides leverage or inverse funds📛 is a bad method.

6. Structural Upward Potential of the Korean Market

Three Major Factors for Paradigm Shift in the Capital Market

1. Effect of Commercial Act Revision: In the past, if the value of a single share of stock was 10, a structural level-up is currently underway, raising the value of a share to 15–20 due to shareholder rights enhancement policies.

2. Movement of Real Estate Funds: Funds that were excessively tied up in existing real estate will gradually flow into the stock market.

3. Retirement Pension System Improvement: Hundreds of trillion won of retirement pension funds (especially the DC type) that currently sit only in principal-guaranteed forms (such as bank deposits) must be driven into the stock market through incentives and matching systems. This becomes a sturdy cushion that sustains the market even if foreign investors exit.

Momentum of Manufacturing Boom

• Currently, Republic of Korea companies, particularly in the manufacturing sector, are enjoying an immense boom rarely seen in the past. If this market capitalization grows, the global competitiveness of companies becomes even more powerful. If only a master plan that connects the stock market, company value, and the public's old age funds into one is activated, the potential of the Korean market is tremendous.

7. Investment Habituation and Methods to Overcome Real-Time Value Evaluation

"If You Don't Look at the Price, That's It"

• The most certain way to overcome the pressure of asset value being evaluated in real-time is to not look at the market ticker window. ⇒ You have signed up for a Kospi 200 ETF or similar to have money go out mechanically, and it is an asset you will pull out and look at upon retirement 20 years later, so there is absolutely no reason to look into it every day and be curious.

Contrarian Psychology Regarding Asset Rise

• Life is a marathon. If you invested 10 million won and the market turned good so that it became 20 million won right now, it is not something to be happy about.

• Since you are in the position of a buyer who must continue to buy and gather stocks into the future for old age anyway, the fact that the price doubled is rather a bad situation (a loss). It is only when I have filled in all of about 1 billion won that I should be happy when the stock price rises. The public likes it when they put in 1 million won and it goes up 100%, but that money does not prepare for old age at all.

Conversion of Shopping and Private Education Fees Into Investment

• The public does not find the money spent on shopping or consumption wasteful at all, while they find short-term evaluation losses in the stock market extremely wasteful. A flexible allocation of capital is necessary.

• In particular, if you had immediately stopped the private education fees that spend tens of millions of won every year and bought an ETF for your child with that money, that child would have become an immense asset owner 20 years later. In the AI era, a child who is only good at studying by memorizing correct answers has no competitiveness at all.

8. Educational Reform in the AI Era and Value Investing Philosophy

From Education of Matching Correct Answers to Education of Finding Problems

• In an era where AI steps far beyond human productivity, university titles or score competitions are meaningless. Occupations that were once envied will also disappear.

• The Korean-style injection education that forces one to choose only one correct answer out of a multiple-choice structure degrades competitiveness. We must encourage curiosity in children and teach them the 'ability to discover and solve problems that have no answers by themselves'.

Thorough Partner Spirit and Convergence to Company Value

• Dwelling in anxiety that individual enterprises (Samsung Electronics, SK Hynix, etc.) might receive a blow from war is a meaningless worry. The blow that war will inflict on company sales is minimal.

• The current panic is due to the short-term imagination (noise) of the public that oil price rise → stimulates inflation → leads to the impossibility of interest rate cuts, and when viewed long-term, it will all pass.

• Buying a stock means partnering with that company. If a company increases its sales and profits and grows, there is no reason to sell it. The act of selling because it rose 30% or panic selling because it dropped 20% is gambling. If choosing is difficult, you can just buy and gather index ETFs. The price of a company eventually converges to its fundamentals.

Absence of True Financial Experts

• People predict that due to the semiconductor/AI boom, unit prices will skyrocket and they will earn hundreds of trillions of won, but the public does not trust it, saying the stock price already rose 3 times.

• Through this, one must realize the fact that there is no expert in the world who hits the exact price of a stock. A true expert is not someone who matches the price, but a person who breathes long with an unshakable philosophy and intends to become the owner of the enterprise.

• Because enterprises are making blood-sweating efforts to survive and earn money somehow under the capitalist system, there is no need for an individual to rack their brains analyzing US interest rates or inflation. That complex response is an area for corporate executives to take care of on their own. The most important thing is the proportion of assets placed into stocks and ETFs within my total wealth (Asset Allocation).

9. Breaking Social Prejudices and Independent Financial Education

Limitations of Labor Income and the Transition into a Capitalist

• When the productivity of machines becomes maximized, a 5-day work week will change into a 3-day work week. Because companies will lay off people and maximize profits, the return rate of companies becomes extremely good. ⇒ Therefore, my money must absolutely be placed inside the enterprise (capital). The past stubbornness of wanting to get a job at a large corporation by studying well does not work. One must multiply funds on one's own to start a business or function as a capitalist.

Jewish-Style Education of 'Loneliness' and 'Differentiation'

• The fundamental cause of Korea's lowest birth rate in the world and its number one suicide rate is that there is no future, people are not happy, and they do not have money.

• Jews do not compete in the narrow gate where everyone else crowds; they teach 'differentiation', which is going to a blue ocean where no one else is to challenge and take first place. To become rich, one needs the courage to step away from the majority and become lonely.

• One must break the prejudice of confusing starting a business with merely opening a neighborhood commercial business (coffee shop, karaoke, etc.) and thinking it will unconditionally fail. We must recognize children's curiosity and their desire to earn money, and buy them stocks instead of private education fees from an early age to build financial literacy, thereby preventing the helplessness they will face after graduating from university.

10. Concrete Retirement Asset Planning Indicators (The 4% Rule)

Valuation-Based Asset Allocation

• There is no correct answer to the investment proportion by country (US vs. Korea), and it belongs to the realm of individual inclination. The claim that "Since the US market cap is large, one must invest 100% only in the US" is a prejudice. Historically, truly explosive returns came from small-cap stocks. The thought that one must buy only large-sized things is absurd.

• One must thoroughly examine whether the price is cheap relative to value (Valuation). Korean stocks are significantly cheaper on a valuation basis compared to US stocks, and companies that are like pearls in the mud with a PBR under 1 are scattered everywhere.

• Sturdy companies that earn money well and maintain an ROE of 20% will face a forced revaluation (Value-up) in the future due to the revision of the Commercial Act and the emergence of activist funds. Because large institutions cannot buy these small and medium-sized stocks due to the limitations of their scale, individual investors are rather on a much more advantageous high ground.

Guarding Against the 3 Major Financial High Passes and Asset Withdrawal Criteria

• Koreans squander their assets in three major banes: ① a luxurious wedding, ② an unreasonable housing purchase, and ③ private education and support for children's weddings. Now, there is no need to buy a house, and these three expenses must be entirely saved to be invested unconditionally into capital.

• Worrying about how to spend money even before earning it and asking "Where does the enjoyment of life go?" is the ignorant reaction of those who have not received financial education. If you do not have money in old age, you become a miserable slave.

💡 An Essential Indicator for Retirement Fund Preparation: The 4% Rule (Four Percent Rule)

• Concept: A standard where, when income is completely cut off, the growth speed of assets and the withdrawal speed achieve a balance so that one can live without money worries for a lifetime.

• Formula: Minimum Retirement Assets = 1 Year of Living Expenses × 25

• Example: If my living expenses for 1 year are 100 million won, I must gather at least 2.5 billion won in stock/ETF assets before retiring.

Final Conclusion

• Suffering and investing when you can earn money physically while young to bet on time is the standard master plan of life. The impatience that one must unconditionally travel in one's 20s and 30s is a mistaken way of thinking. The National Pension must also break away from excessively safety-oriented investing and expand its investment targets into stocks and startup capital to maximize return rates.

• The reason why US boards of directors look at shareholders' countenances and cannot carelessly side with major shareholders is because of the litigation risks from shareholders and the monitoring power of retirement pension funds. Korea must also complete this responsibility structure through the revision of the Commercial Act.

• On a day when the market plunges like a blizzard, close the market ticker window. A systematic investor who buys steadily cannot be beaten by the market under any circumstances. Holding onto principles to embody the 'habit of becoming rich' is the unique solution.

Article source
폭락 오든말든 '이것' 사세요 [존리 대표]