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NOTE

Personal Finance

English translation of the original VNote “Personal Finance”, preserving its structure with only necessary small corrections.

InvestingCreated Updated 6 min readhistorical

This is a historical learning note and may contain outdated or incomplete understanding.

1. Asset Allocation

1.1. Standard & Poor’s Household Asset Quadrant

1.1.1. “Life Money”

For short-term consumption

10% (an example ratio from the original model, not a universally applicable standard).

1.1.2. “Protection Money”

For insurance protection

20% (an example ratio from the original model, not a universally applicable standard).

1.1.3. “Money-Making Money”

Focused on obtaining high returns

30% (an example ratio from the original model, not a universally applicable standard).

1.1.4. “Capital-Preservation Money”

Focused on safety, stability, and the long term

40% (an example ratio from the original model, not a universally applicable standard).

1.2. Qieman Advisory

Divide funds into four portions according to investment horizon and invest them in matching advisory strategies to achieve scientific asset allocation.

1.2.1. Liquid Money

Available at any time

Mainly money-market funds.

1.2.2. Stable Money

Half a year

Mainly bond funds.

1.2.3. Long-Term Money

3 years

Mainly equity funds.

1.2.4. Insurance

1 year / lifetime

Mainly health insurance and accident insurance.

2. How to Analyze Wealth-Management Products

Choose among different wealth-management products by combining liquidity, risk, and return. In a product prospectus, this is reflected in:

  1. Investment scope
  2. Risk: risk rating + maximum drawdown
  3. Return: performance benchmark + fees + historical returns
  4. Liquidity: subscription + redemption

Main comparisons:

  1. Market interest rates:
  2. Risk-free rate (generally short-term, such as one-year government bonds, is used as the risk-free return rate)

3. My Asset Allocation

3.1. Cash

  • Used for daily expenses and money that may be needed at any time, such as rent, food, transportation, and so on.
  • Ratio: 10% of annual income.
  • Liquidity: available at any time.
  • Return: 2-3%.

3.1.1. Money-Market Funds

Examples: Yu’e Bao in Alipay or Lingqiantong in WeChat.

3.1.2. Bank Cash-Management Wealth Products

  • A type of open-ended current wealth-management product issued by banks. T+0 means that if it is purchased before 15:00 on the same day, interest begins to accrue that day.
  • Subscription threshold: the minimum purchase amount is generally RMB 10,000, higher than money-market funds but lower than traditional bank wealth-management products.
  • Redemption rules: redemptions are supported at any time. Different banks have different rules for daily redemption limits. Generally, there is no limit during working hours, while the redemption limit outside working hours is RMB 50,000.
  • Risk: neither principal nor interest is guaranteed. Investment risk is higher than that of ordinary money-market funds. Most banks classify T+0 wealth-management products as medium-low risk or medium risk.
  • Return: expected annualized returns are mostly between 2% and 4%. Returns are highest when purchased at month-end, quarter-end, or year-end. Shanghai Interbank Offered Rate can be used as a reference; a rise indicates tighter funding, so interest rates may be higher.
  • Liquidity: T+0.

Example: China Merchants Bank’s CMB Wealth Management Zhaoying Chaozhaojin Diversified Active Cash-Management Wealth Plan

3.1.2.1. Latest Change

T+0 fast redemption: RMB 10,000. T+1 non-fast redemption: RMB 50,000.

3.2. Short Term

  • Prepared for expenditures within a certain period. Safety comes first, liquidity second, and the return should be slightly higher than “liquid-money management.”
  • Ratio: 50% of annual income.
  • Liquidity: 3 months to 3 years.
    • Within 3 months: brokerage wealth management.
    • 3 months to half a year: money-market funds.
  • Return: depends on the specific product and market and is not guaranteed at a fixed rate.

3.2.1. Brokerage Wealth Management

  • A wealth-management service in which a brokerage accepts an investor’s mandate and invests the investor’s funds in financial products such as stocks and bonds.
  • Risk: neither principal nor interest is guaranteed, and the investment risk is higher than that of ordinary money-market funds.
  • Return: 3%-6%.
  • Liquidity: as short as one week and as long as one year.

3.2.2. Bank Wealth Management

Note that bank wealth-management products are not covered by the RMB 500,000 deposit-insurance compensation limit.

Is “Do Not Deposit More Than RMB 500,000 in One Bank” True? - China Economic Net

Explainer: If You Buy Bank Deposits on JD or WeBank Apps and Lose Money, Will the State Compensate You? Some Will! - Zhihu

For the legitimacy of wealth-management products, refer to China Wealth Management.

Investment scope: commercial-bank wealth-management products may invest in government bonds, local-government bonds, central-bank bills, government-agency bonds, financial bonds, bank deposits, large-denomination certificates of deposit, negotiable certificates of deposit, corporate credit bonds, asset-backed securities issued in the interbank market and stock-exchange market, publicly offered securities investment funds, other debt assets, equity assets, and other assets recognized by the banking regulatory authority under the State Council.

Order of the China Banking and Insurance Regulatory Commission (No. 6 of 2018) - Measures for the Supervision and Administration of Commercial Bank Wealth-Management Business - State Council Gazette No. 35 of 2018 - Chinese Government Website

Bank Wealth Management vs Bond Funds

From the perspective of investment thresholds, most bank wealth-management products start at RMB 10,000, so the threshold is relatively high. Bond funds generally start at RMB 1 or RMB 10. For investment amounts below RMB 10,000, bond funds are naturally more suitable; for amounts above RMB 10,000, choose according to the individual’s actual situation.

  1. From the perspective of liquidity

    1. Bank wealth-management products often have fixed redemption dates. Some specify a certain day of each week for redemption, while others have fixed maturities ranging from 30 to 180 days.
    2. For bond funds, pay attention to how the fund operates. For example, periodically open funds have a fixed holding period, while normal open-ended bond funds support redemption at any time, with the money arriving in the bank account in 2-3 trading days.
    3. Conclusion: if liquidity requirements are high, bond funds are more suitable. Of course, as introduced earlier in the course, bond funds are generally best held for more than 30 days to avoid redemption fees.

  2. From the perspective of asset allocation

    1. Bank wealth-management products do not all invest 100% in fixed-income assets. The actual investment scope depends on the specific product type and contract and should be checked in the product prospectus.
    2. Among bond funds, pure bond funds do not participate in stock-market investment, while secondary bond funds may allocate no more than 20% to equity assets.
    3. Conclusion: if risk preference is low and you do not want stock-market exposure, compare fixed-income-oriented bank wealth-management products with pure bond funds. If you also want equity exposure such as stocks, check the investment scope of the specific bank wealth-management product and compare it with products such as secondary bond funds.

Bond Funds vs Bank Wealth Management: Which Is the Preferred Low-Risk Investment? - Eastmoney Fund

Your Essential Need: Investment Opportunities in Bond Funds and Bank Wealth Management - Xueqiu

Investment scope: bank wealth management is broader.

Bank wealth management: the investment scope is relatively broad, including but not limited to stocks, various bonds, deposits, money-market funds, bond funds, pledged and outright repurchases, and so on.

Bond funds: funds that are required to invest more than 80% in bonds. The remainder may also be invested in asset-backed securities, bond repurchases, bank deposits, negotiable certificates of deposit, cash, government-bond futures, and credit derivatives.

Therefore, one advantage of bank wealth management is that the investment scope is broader and it can invest in non-standard products (not exceeding 10%).

Fees:

Bank wealth management may appear to have a “0 management fee,” but it actually charges performance compensation.

Bond funds, or most publicly offered funds, have fixed fee rates.

Reports

Funds have periodic reports. Bank wealth-management products also have information-disclosure requirements; the specific disclosure frequency and content depend on the product and regulatory requirements.

3.2.3. Large-Denomination Bank Certificates of Deposit

The Waiting Time to Reserve WeBank’s Large-Denomination Certificate of Deposit+ Has Reached Eight Months - Zhihu

3.2.4. Bonds

3.2.5. Bond Funds

3.3. Long Term

  • Money left for the future. An investment horizon of more than 3 years can avoid the effects of short-term fluctuations and enjoy the benefits of long-term growth.
  • Ratio: 30% of annual income.
  • Liquidity: more than 3 years.
  • Return: long-term equity returns fluctuate substantially and are not guaranteed to reach a fixed level.

3.3.1. Stocks

3.3.2. Equity Funds

3.3.3. Commodities

3.4. Insurance

  • Insurance protection provides a safety net for your life against an uncertain future.
  • Ratio: 10% of annual income.
  • Provides pure protection insurance among four categories: critical illness, medical, accident, and term life.

3.4.1. Social Security

  • Social Security.md (original VNote internal link, not yet migrated)

3.4.2. Commercial Insurance

  • Commercial Insurance.md (original VNote internal link, not yet migrated)

4. Investment Strategy

5. References

Discussion

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