This blog post offers practical advice to help investment beginners find a strategy tailored to their situation.

Investment methods should vary based on individual circumstances

‘Investment’ is based on an individual’s level of assets and their personal risk tolerance. This is because everyone has different levels of assets and therefore different levels of risk they can bear. Additionally, individual risk biases differ, inevitably leading to different investment approaches.
For example, consider friends who have just stepped off the university campus or those who have just entered society and received their first paycheck. They typically have limited assets and little investment experience. Theoretically, their capacity to bear risk is also low. However, being young, they generally face fewer immediate family support burdens and lack the need or means to purchase a home. They don’t have many expenses for their families. They likely earn more than they need for living expenses. If they use this portion of their funds for investment, they can actually handle higher risk. Young people, in particular, tend to have a strong preference for risk. Even if they suffer some losses, even up to 50%, it won’t shatter their daily lives or deal them a major blow. Therefore, these individuals can start with small investments and venture into high-risk stocks.
Even those who are slightly older, more experienced, and have higher incomes aren’t necessarily able to bear higher risks. Rather, this period often involves a sharp increase in living expenses due to marriage, raising children, and purchasing homes or cars. At this stage, salary increases may not keep pace with rising living expenses. Even if they have some savings, they must prepare for unexpected large expenditures. Therefore, salaried workers, white-collar professionals, and gold-collar workers in this age group often lack the capacity to absorb significant losses, resulting in lower risk tolerance.
The next stage is the 40s, when careers reach their peak. This is the age where increased experience brings commensurate compensation. Major assets like homes or cars have typically already been purchased, and some have acquired one or two properties for investment. Income is relatively stable, and some have significantly expanded their assets through ventures like starting a business. This period sees the highest risk tolerance and strongest investment capacity, as assets have grown substantial, there’s little need for new short-term purchases, and consumption-related spending gradually decreases. Therefore, they can increase their allocation to riskier assets to pursue higher returns.
However, as their professional careers enter the latter stages, opportunities for promotion diminish. While wage income remains stable, significant increases become difficult. At this stage, some have achieved financial ‘freedom’, but most begin considering life after retirement. Regardless of previous investment returns, their approach tends to shift towards conservatism. After retirement, with little income beyond pension funds, maintaining a comfortable life requires investments that deliver long-term, stable returns. Significant losses are difficult for seniors to bear. Therefore, ‘safety’ becomes the top priority during this phase, ensuring a healthy and stable retirement.
This illustrates how risk tolerance constantly evolves throughout life’s stages. Therefore, it’s practically impossible to offer one piece of advice that applies equally to everyone. It’s necessary to continuously assess your own current risk tolerance.
Of course, as mentioned earlier, most people’s income comes from wages, so they tend to have limited disposable funds. Even if they earn investment returns, the percentage or amount isn’t typically large enough to cover the entirety of their remaining life. Since their risk tolerance isn’t particularly high either, most prefer stable investments. Considering these points, the target audience for advice can be summarized as follows.

1. Individuals aged 25 to 40 who have a low understanding of investing but lack the time or resources to study through lectures or books
2. Individuals with stable income who want to generate returns with a small amount of spare funds
3. Individuals with a risk tolerance level of ‘medium’ or ‘low’ who can only handle minor losses
4. Individuals with reasonable expectations for investment returns (excluding those seeking explosive asset growth through investment)

There is no such thing as risk-free profit

‘Risk balance’ does not mean completely avoiding risk, nor does it mean ignoring risk for the sake of profit. As mentioned earlier, risk is the source of returns. Without bearing risk, there are no returns. If you desire high returns, high risk is inevitable.
There is no such thing as absolutely risk-free returns. To earn returns, you must bear the corresponding risk. Therefore, ‘risk balance’ is not about pursuing ‘no risk’ or ‘high risk’, but rather a conservative strategy of maintaining overall balance.
Stable returns refer to targeting risk balance. It means utilizing investment strategies within a relatively conservative framework that maintains risk balance, achieving equilibrium between returns and risk, and even realizing high returns. Stability does not mean the absence of fluctuations or bumps; rather, it means realizing stable returns while controlling for the largest possible fluctuations through investment strategies.
Since investment markets are influenced by various environments, achieving returns without any fluctuation is impossible. The 2008 financial crisis impacted major asset prices, causing massive volatility. Notably, most financial assets recorded losses in 2008. Complete absence of fluctuation is unattainable. However, the goal is to maintain stability as much as possible while reducing significant fluctuations and volatility to achieve steady growth in returns.

Build Your Own Asset Portfolio

If you understand and accept the points discussed so far, it’s time to formally design your own ‘asset portfolio’. You must first calculate your risk tolerance. The purpose of creating an asset portfolio is to accurately determine how much capital you have available for investment.
Standard & Poor’s (S&P), a global financial analysis firm headquartered in New York, USA, is one of the three most renowned indices for U.S. stocks. The ‘S&P 500 Index’ is precisely the index this company created in 1957.
Beyond the ‘S&P 500 Index’, they achieved another highly significant accomplishment. A global survey of 100,000 households with consistently growing assets revealed a common pattern: their household wealth had steadily increased over the past 30 years. Based on this finding, S&P conducted an in-depth study of these households’ financial management practices and developed the following asset management framework. This framework is now widely recognized as the most rational approach for structuring a household’s asset portfolio.
The ‘S&P Household Asset Management Roadmap’ categorizes household assets into four accounts. Each of these four accounts serves a distinct purpose, requiring different investment channels. Only by having these four accounts, and further, by allocating them in a fixed and rational ratio, can the long-term, sustainable, and stable growth of household assets be ensured.
The first account is the ‘Living Expense Fund’, an essential spending account for daily necessities. It typically constitutes 10% of household assets and includes 3-6 months’ worth of living expenses.
This account handles short-term household expenditures and daily living costs. All expenditures related to shopping, home loans, travel, etc., are drawn from this account. While this account is essential, it can easily become disproportionately large within the overall portfolio. If spending here increases significantly, it creates the problem of having to reduce the proportion of other accounts.
The second account is the ‘Life Maintenance Fund’ account, typically comprising 20% of household assets. This account is dedicated to covering large, unexpected expenses, such as accidents or serious illnesses. Because it handles sudden, substantial costs, it must be managed as a dedicated account. This ensures it can be used to cover the costs of treating and sustaining life should an unexpected accident or serious illness occur to a family member. Therefore, most people prepare for this through life insurance or health insurance.
This account is essential within the household asset portfolio. Although it may not play a significant role in everyday life, its presence ensures that during critical times, you won’t have to sell your car or house or scramble to borrow money from all sides to cover urgent expenses. Without this account, household assets could face significant risk at any time and may even suffer irreversible losses. That’s why it’s called the ‘life support fund’.
The third account is the investment income account, also known as the ‘money-making money’ account. It typically holds 30% of household assets and is used to grow the value of those assets. The key point is that since these are investments that carry risk, you must consider both potential returns and potential losses. Therefore, maintaining an appropriate proportion is paramount.
The fourth account is a long-term income account that guarantees principal while growing value. It holds 40% of household assets and is used for children’s education or personal retirement. This account is characterized by conservative investment tendencies. It must guarantee principal and resist inflation, so returns aren’t very high, but it offers long-term stability.
This asset roadmap is fundamentally structured based on the lifestyle of the American middle class, so the proportions for each part need to be adjusted to fit our own lives. For example, some young people may have Account 1 at no more than 10%, while others may have it at 30% or even 50%. In that case, the proportions for Accounts 3 and 4 should be reduced accordingly. For younger individuals, the need for Account 2 is likely to be less than 20%.
Therefore, even if the exact ratios aren’t applied, it’s advisable to use these four account structures as a reference when building your asset portfolio.
First, refer to Account 1 and prepare 3 to 6 months’ worth of household expenses in advance. If you’re young and have stable income, prepare for 3 months; if your income is unstable, prepare for 6 months. Adjust the specific ratios according to your personal circumstances.
Account 2 can be appropriately expanded. It can be extended from ‘life-sustaining expenses’ to include short-term necessary expenditures, encompassing not only insurance premiums but also major purchases like cars or homes. These items are included here because they are highly liquid—meaning they can be accessed anytime—and thus unsuitable for use as investment funds.
Finally, the ratios for Accounts 3 and 4 can be adjusted based on your risk tolerance. Since both of these accounts are conservative within the investment category, there’s no need to split them; they can be managed as one. Therefore, the funds remaining after allocating to Accounts 1 and 2 can be used for investment. For example, existing spare funds or amounts set aside monthly for future investments are funds unlikely to be urgently needed in the short term. It’s advisable to plan ahead: determine how long these funds can remain untouched and how much will be needed in the coming years. Funds with clearly defined sources and timeframes like this can be allocated for investment.
Once the investment amount is determined, the next step is to calculate your risk tolerance. Although the investments mentioned here lean conservative, ‘conservative’ itself requires differentiation. The easiest way is to use the risk measurement systems provided by online banks to accurately and realistically assess your risk tolerance.
Each bank’s risk assessment test varies slightly in detail but is generally similar overall. The assessment factors include the investor’s age, income level, and investment experience. Based on the score, the investor’s risk tolerance is categorized into five types: Conservative, Safe, Balanced, Growth, and Aggressive. Conservative, Safe, and Balanced types generally correspond to individuals with lower scores, while Growth and Aggressive types are for those who can actively take on risk.