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Six Major Reasons to Buy Index Funds Instead of Stocks#

Many people, when they first enter equity investment, basically buy stocks. Some friends have been trading stocks for a long time and are not very clear about what funds are.

In fact, equity funds (stock funds, index funds, mixed funds) are more suitable for ordinary/amateur investors compared to stocks. Fund investments also involve stocks, and the nature of equity is quite similar, but the benefits are greater. Today, let's discuss six major reasons why buying stock funds is better than buying individual stocks.

1. Index Funds Are the Best Choice for Ordinary Investors#

The most commonly used method for index funds is regular investment, which is the simplest and easiest method to operate. However, if you persist in the long term, you can often achieve very good returns and generally won't incur losses. The longer you persist, the lower the probability of loss. If you stick with it for more than five years, you can basically guarantee a 100% profit. Therefore, many novice investors have defeated seasoned stock traders who have been in the market for over a decade by using regular investment in funds.

2. How to Avoid Common Pitfalls in Fund Investment?#

Fund investors often ask these three questions: Should I buy funds with cheap net values? When selecting funds, should I buy those with the best past performance? If I need to use money, should I redeem the profitable funds or the losing ones first? We hope to provide relatively objective advice on these three questions.

3. About Fund Fees#

A significant portion of the expenses incurred by fund investors in China is paid to sales institutions. In addition, custody fees increase the cost of funds. Currently, one-third of public funds in China charge sales service fees, with rates ranging from 0.01% to 1.5% per year. The client service fee is a certain percentage of the management fee income paid to the distribution agency by the fund company. For Chinese public funds, a considerable portion of the expenses incurred by investors ultimately goes to sales institutions.

4. Choosing These Types of Funds Is Fearless of Bull and Bear Markets#

In the investment process, we should not always think about how our assets will perform if a bull market comes. The market value driven by valuation bubbles is something that is hard to come by. What if the market really moves slowly like the U.S. stock market in the future? So, what is "non-bull thinking"?

5. Introducing Three Practical Fund Investment Methods#

Let me introduce three practical fund investment methods. These are summarized based on my investment experience over the years. These methods are certainly not the optimal methods, but they are simple and practical, suitable for China's national conditions, and can definitely make money in the long term without losing too much in the short term.

6. Carefully Select Index Funds#

Index funds and ETFs are simple and transparent investment tools. Fund holdings are transparent, but investing in index funds and ETFs is not that simple. In this article, I want to help everyone select good index products, use publicly available information to see through the true nature of the index, and tell everyone how to choose suitable investment varieties among similar index funds.

7. My View on Fund Selection: Equity Funds#

Equity funds can be divided into actively managed, passively managed, or constrained active management based on management methods. From the market perspective, they are divided into domestic, foreign, and cross-border categories. Ordinary investors should try to choose low-fee ordinary index funds and ETF-linked funds from the perspective of staying away from the market, maintaining a calm investment mindset, keeping investment discipline, and saving time costs, rather than directly placing orders to buy and sell ETFs.

8. My View on Fund Selection: Fixed Income Funds#

There are many investment strategies for equity funds, but fixed income funds are also an important part of our asset allocation and should not be overlooked. My view on fund selection starts with fixed income funds.

9. Looking at Convertible Bond Funds from the Perspective of Value Preservation and Appreciation#

Most bond funds can invest in convertible bonds, but due to different investment strategies, some funds only supplement convertible bonds, while others focus on investing in convertible bonds. Here, I define funds that contain the words "convertible bonds" in their names as convertible bond funds. The three best convertible bond funds have recently changed fund managers. Choosing at this point in time is not easy; we hope the overall investment research capabilities of the fund company can ensure stable fund performance.

Regular Investment and Its Seven Good Friends#

Regular investment is undoubtedly an excellent means for ordinary investors to conduct forced savings for long-term investment. However, while regular investment is good, we always hope to enhance returns. Indeed, there are various optimization methods available for regular investment. Below are several common methods; using these regular investment "good friends" well may make your investment performance even better.

1. Choose Highly Volatile Funds
   The advantage of regular investment compared to equal amount investment is that it buys fewer shares at high prices and more shares at low prices, thus achieving a lower average cost. Therefore, the more volatile the fund, the more suitable it is for regular investment.

2. Choose the Right Investment Date
   Generally speaking, most regular investment practitioners currently adopt a monthly investment method. Which day of the month should the investment be executed? If we analyze the data from 1991 to February 2009, we find that the stock index level is relatively low in the first four days of each month. If investments are made during these days, a relatively lower entry point can be obtained. Of course, with the continuous improvement of various institutions' investment platforms, more and more institutions can now achieve weekly or even daily investments. Therefore, another way to avoid slight differences caused by timing is to shorten the investment interval, such as changing a monthly investment of 4000 yuan to a weekly investment of 1000 yuan, or even changing it to every two or three days, thus getting closer to the average price of the market over a period.

3. Clever Use of Fund Conversion
   Many investors who execute regular investments often choose to keep excess funds in money market funds and redeem them before the investment execution date to ensure sufficient funds for investment. This operation is not only cumbersome but also incurs a time lag between the redemption of money market funds and regular investments, resulting in a loss of one day or more of money market fund returns. In fact, many fund investment platforms not only support regular purchases but also support regular conversion functions. You can set it to convert a certain amount of money market fund into the fund you plan to invest in every month, thus avoiding the hassle of manual operations and achieving same-day transactions, preventing idle funds. Of course, the premise of the above method is that the two funds must belong to the same fund company, and the subscription platform must support the regular conversion function.

4. Value Averaging Investment Method
   The value averaging strategy proposed by American scholar Michael Edleson has been proven by a large number of empirical studies to be a better fund investment strategy than regular investment. Unlike regular investment, which focuses on how much to invest each month, the value averaging strategy focuses on how much our net asset value increases each month. Suppose we plan for the fund market value to increase by 1000 yuan each month. Please note that this refers to the increase in fund market value, not the purchase of 1000 yuan of funds. In the first month, you bought 1000 shares at a net value of 1 yuan, and in the next month, the stock market performed well, and the net value of the fund you bought became 1.2 yuan, meaning your fund market value became 1200 yuan. If you follow the regular investment method, the amount of fund you need to purchase next month is still 1000 yuan, but the value averaging strategy is different. What we require is that by the end of the second month, the fund's market value reaches 2000 yuan. Since we already have 1200 yuan now, we only need to invest 800 yuan to buy 666.67 shares of the fund this month. Suppose the next month the stock market performs even better, and the fund's net value quickly rises to 1.9 yuan, then the market value of the 1666.67 shares held will reach 3166.67 yuan. According to the set requirement, we only need 3000 yuan of fund market value this month, so we should not continue to buy funds but rather redeem 166.67 yuan of funds, which is 87.72 shares, leaving us with 1578.28 shares. Although the above method is good, it requires significantly increasing the investment amount when encountering a major market downturn.

5. Asset Allocation + Dynamic Balance
   When we talk about regular investment, we often only refer to a single fund or a type of fund. In fact, asset allocation is also an indispensable concept for long-term investment, so we can completely combine the two. For example, if we decide to build a regular investment portfolio with 50% stock funds and 50% bond funds with a monthly investment of 3000 yuan, then initially, 1500 yuan will go into the bond fund and 1500 yuan into the stock fund each month. However, if after a month, the stock fund drops to 1300 yuan while the bond fund rises to 1600 yuan, then to maintain a 50:50 asset allocation, we need to dynamically balance during the investment process, meaning we will invest 1650 yuan into the stock fund to bring its total market value to 2950 yuan; we will invest 1350 yuan to ensure the bond fund also reaches a market value of 2950 yuan, maintaining the 50:50 ratio. Similarly, if the next month the stock fund rises significantly, causing its proportion of total assets to exceed 50%, we will reduce the investment amount for that month or even reduce some shares to bring its proportion back to the predetermined 50%. The above method, while maintaining a fixed monthly investment, can also achieve a strategy similar to value averaging, undoubtedly better suited to the needs of ordinary investors.

6. Point Strengthening
   Point strengthening refers to increasing or decreasing the share of a certain type of fund at specific moments based on our own judgment, aiming to enhance returns through a certain degree of subjective judgment. Common point strengthening methods can be based on indices or valuations. The former stipulates that if the Shanghai Composite Index or other benchmark indices fall below a certain point, a certain amount of additional funds will be added to accumulate more shares at relatively low points. The latter is based on valuation indicators such as price-to-earnings ratio or price-to-book ratio, where additional funds are added when the ratio falls below a certain multiple, which requires investors to pay attention and operate themselves. Another point strengthening method combines asset allocation + dynamic balance, where instead of adding or reducing the overall fund shares, we adjust the proportions of stock and bond assets. For example, when the price-to-book ratio exceeds 4.5 times, we adjust the ratio of the stock fund and bond fund we hold to 50:50, while also dynamically balancing the investment amounts at 50:50 each month; when the price-to-book ratio falls below 2.5 times, we choose to adjust the ratio of the stock fund and bond fund to 90:10, while also dynamically balancing the investment amounts according to this ratio each month. This way, we can ensure that the fixed monthly investment amount remains unchanged while adjusting the share of stock funds, thus optimizing the regular investment.

7. Closed-End Funds
   Although regular investment has always been advocated for open-end funds, closed-end funds can also be invested in regularly, but this requires us to operate in the secondary market. Compared to open-end funds, closed-end funds can provide us with more safety margins due to their discount rates, and the commission for buying and selling closed-end funds is also lower than the subscription fees for open-end funds, thus achieving lower entry costs. At the same time, we can easily observe the changes in the premium rate of closed-end funds based on the net value announced weekly, and we can dynamically adjust the investment amount based on the premium rate. When the premium rate exceeds 30%, we can invest more in closed-end funds; when the premium rate is too low (for example, below 10%), we can reduce some closed-end funds to further strengthen the regular investment.

Regular investment, however, is different; in a downturn, regular investment will buy while the market falls, which aligns with the mindset of many ordinary people who average down—it's easier for ordinary people to stick with it. However, regular investment differs from the average down strategy of ordinary people. The average down strategy of ordinary people is often impulsive and reckless, with the biggest problem being that they often increase their positions too quickly in the early stages and then run out of ammunition later, unable to lower costs. But regular investment is different because, for ordinary people, it is essentially a market entry strategy that matches their salary income. For example, if you earn 8000 yuan a month and set aside 1000 yuan for regular investment, you won't have to worry about running out of funds, allowing the strategy of averaging down to work more effectively.

In this article, you won't see any technical introductions; it only discusses mindset. Perhaps those looking for hard facts will be disappointed, feeling it's too hollow. But when you invest for a long enough time, you will realize how much impact investment mindset has on results and how important it is to have an investment method that matches your mindset and can be sustained in the long term. So, let me first talk more about the abstract, and then we will discuss the technical aspects.

Regular investment (periodic fixed investment in funds) is a common investment strategy that involves regularly purchasing fund shares with a fixed amount, thus achieving long-term stable investment. This method has its unique advantages but also has certain drawbacks. Below are the benefits and drawbacks of regular investment in funds:

Benefits:#

1. Averaging Investment Costs (Diversifying Risks):

   • Through periodic fixed investment, investors can purchase fund shares at different points in time, unaffected by market fluctuations. When the market is sluggish, regular investment will buy more fund shares, and when the market rises, fewer shares will be purchased. This "buy low, sell high" effect can significantly reduce overall investment costs in the long run.

2. Reducing the Pressure of Market Timing:

   • Regular investment does not require selecting the right time to buy; investors only need to invest regularly, avoiding the difficulty of trying to catch market bottoms or tops, thus reducing psychological burdens.

3. Long-Term Compound Growth:

   • Since regular investment is usually a long-term investment method, funds can grow through compounding over a longer period. The compounding effect can significantly enhance investment returns, especially with long-term regular investments, where returns become more apparent.

4. Suitable for Small Investments:

   • Regular investment typically involves small amounts of money, making it suitable for investors who do not have large sums of capital and wish to diversify investment risks. Investors can invest regularly based on their financial situation, reducing financial pressure.

5. Suitable for Investors Without Time to Manage Investments:

   • For investors who do not have the time or knowledge to manage investments, regular investment is a simple, automated way to help them invest long-term without needing to constantly monitor the market.

Drawbacks:#

1. Inability to Avoid Short-Term Fluctuations:

   • Although regular investment helps to spread risks, it still cannot completely avoid short-term market fluctuations. If the market experiences a significant downturn, regular investors may also face substantial losses, especially if their funds have not recovered in the short term.

2. No Strategy to Avoid Losses:

   • While regular investment can lower overall purchase costs, it cannot predict market trends. If the market remains in a bear phase for an extended period, regular investment may lead to prolonged losses without timely strategy adjustments.

3. Not Suitable for Investors Seeking Quick High Returns:

   • For those seeking short-term high returns, regular investment may not be suitable, as its returns primarily depend on long-term market growth, making it difficult to achieve quick high returns during periods of significant short-term volatility.

4. Potential to Miss Other Investment Opportunities:

   • While regular investment is stable, its fixed investment approach may cause investors to miss other more promising investment opportunities, especially when market changes occur, as regular investment cannot respond flexibly.

5. Management Fees and Other Costs:

   • Long-term regular investment may face relatively high fund management fees, especially when the purchased fund performs mediocrely, which could affect overall returns. Additionally, some platforms or funds may charge other fees.

Regular investment is suitable for long-term investment, helping investors average costs, diversify risks, and not require excessive attention to market fluctuations. However, it also has certain limitations, especially in long-term market downturns or when short-term high returns are urgently needed. Therefore, investors should assess their risk tolerance and investment goals before deciding whether to adopt this strategy.

Why Fixed Amount Instead of Fixed Quantity#

Let's first talk about another common term for regular investment: "periodic fixed amount."

To be honest, these three "fixed" terms reflect three dimensions of this investment philosophy. "Regular investment" emphasizes the action of investing; "periodic" emphasizes the time frame, requiring continuity; while "fixed amount" refers to the scale, requiring a fixed amount.

Here comes the question: Why fix the amount instead of the fixed quantity that many stock investors are accustomed to, such as buying 100 shares each time?

First, you need to understand that regular investment is essentially derived from "forced savings." Yes, it first requires white-collar workers to set aside a portion of their income for savings; only then should this money not just be deposited in the bank but invested in the securities market.

Since it involves taking a portion from income, it is naturally an amount—if we set aside 20% of our income for forced savings, then an income of 10,000 yuan means a monthly investment of 2,000 yuan, which is simple and clear.

It is important to note that compared to fixed amounts, fixed quantities can be very volatile. For example, if you buy 500 shares of a certain ETF every month, if the price of this fund is 2 yuan, that corresponds to 1,000 yuan; if it rises to 5 yuan during a bull market, it corresponds to 2,500 yuan; and if it crashes to 1 yuan during a bear market, it corresponds to only 500 yuan.

This creates two problems: First, the funds needed to buy 500 shares during a bull market may exceed what you can save as a fixed-income worker that month; second, the more critical issue is that this strategy involves spending more when prices are high and less when prices are low.

"Periodic fixed amount" is an investment strategy that typically involves investing a fixed amount at regular intervals in specific assets, such as funds or stocks. Its benefits and drawbacks are as follows:

Benefits:#

1. Reduce the Impact of Market Volatility: Since the investment amount is fixed, investors will buy more units when the market is low and fewer units when the market is high. This practice helps to average the purchase cost, thereby reducing the impact of short-term market fluctuations.

2. Forced Savings and Discipline: Periodic fixed investment requires investors to regularly deposit a certain amount, which helps cultivate the habit of saving and the discipline of long-term investment.

3. Suitable for Long-Term Investment: This strategy does not rely on market timing, making it suitable for those with long-term investment goals. Regardless of market fluctuations, consistently adhering to periodic fixed investment may yield relatively stable returns over the long term.

4. Reduce Emotional Fluctuations: Investors do not need to operate frequently, avoiding impulsive decisions due to market fluctuations (such as excessive panic or greed), which helps maintain rationality.

5. Suitable for Investors with Limited Funds: For those with limited funds or who do not wish to make a large one-time investment, periodic fixed investment is a very suitable investment method, allowing them to spread risks over time.

Drawbacks:#

1. Cannot Avoid Long-Term Losses: If the invested assets remain in a downward trend for an extended period, periodic fixed investment may not avoid losses. In such cases, although investors may have a lower average purchase cost, the continuous decline in asset prices will still lead to losses.

2. Missed Market Lows: Since periodic fixed investment does not consider the current state of the market, investors may miss opportunities to make a one-time investment at market lows, resulting in suboptimal returns.

3. Not Suitable for Short-Term Goals: The periodic fixed investment strategy is mainly suitable for long-term investments and is not suitable for investors with short-term investment goals. If funds are needed in the short term, the returns from periodic fixed investment may not meet the needs.

4. Opportunity Cost: For those who can better judge market trends and operate flexibly, periodic fixed investment may miss market opportunities. Flexible asset allocation or timing operations may yield higher returns.

5. Cannot Avoid Portfolio Risks: Although periodic fixed investment helps to spread market timing risks, if the chosen assets themselves have high volatility or risks (such as certain industries or individual stocks), significant investment risks may still be faced.

Periodic fixed investment is a strategy suitable for long-term investment that emphasizes stable growth. It helps to diversify market risks and cultivate investment discipline, but in long-term downturns or short-term investment goals, it may lead to significant losses or opportunity costs. Therefore, investors need to assess their risk tolerance and investment goals to decide whether to adopt this strategy.

Regular Investment Is Not Periodic, Is It Feasible?#

Regular investment seems simple, but each detail, when examined, reveals significant insights. Next, we will delve into the terms, focusing on "periodic" and "fixed amount." First, let's discuss the periodic issue.

The most basic approach to periodic fixed investment is to invest a certain amount each month. Here, "monthly" refers to a periodic concept.

When to Execute Monthly Investments

For monthly investments, the question arises: On which day of the month should the investment be executed?

One approach is to follow cash flow. For example, if your salary arrives before 3 PM on the 5th, then choose the 5th for investment—this method ensures forced savings before spending, preventing overspending and leaving no money for investment.

Of course, for those who can control their spending, a more reliable approach is to follow the investment target, trying to enter the market when prices are low. Although, from a long-term perspective, the Shanghai Composite Index does not exhibit strong monthly patterns, it is still possible to find low points, such as the 1st and 17th of each month.

Therefore, if you can control your spending, consider investing on the 1st or 17th; perhaps over time, you will have a greater chance of buying at lower points—whether to choose the 1st or the 17th depends on whether you receive your salary in the first half or the second half of the month.

Is Weekly or Daily Investment Necessary?

While traditionally, regular investment is primarily conducted once a month, some practitioners are not satisfied with this and worry that once a month is too infrequent, fearing they might miss out. For example, if they only invest on T1, T3, and T5, they worry about missing T4's low point. Thus, they hope to change to weekly or even daily investments.

In my view, reducing the interval of regular investments may help avoid missing opportunities, but it also brings the downside of reducing the investment amount each time—originally investing 1,000 yuan monthly would become 250 yuan weekly, limiting the amount available for investment.

So what to do? Instead of weekly or daily investments, I suggest: regular monthly investments + manual investments during significant downturns. Regular monthly investments are essentially a forced savings process. However, what to do during significant market drops, such as a 5% or even 7% drop in a single day since 2016? I would choose to advance next month's investment and make manual investments.

For example, if your regular plan is to invest 2,000 yuan on the 1st of each month, and on the 5th, the A-share market suddenly experiences a 7% drop in a single day, you can activate a manual addition mode—investing an additional 2,000 yuan for every 7% drop (5% can also be considered, depending on your sensitivity to downturns). If the market drops around 20% in a short time, it would mean adding three times of investment—of course, the prerequisite for additional investments is that you have enough spare cash to handle three additional investments, but this shouldn't be a problem for ordinary white-collar workers with cash reserves.

So, if you have made three additional investments in advance, what next? Since this is equivalent to completing your future three months of investments in advance, unless there is a new low that triggers another manual addition, the regular investments for the next three months can be paused, and the funds originally allocated for regular investments can be used to cover the three additional investments.

Should Regular Investments Always Be the Same Amount?#

Next, let's discuss whether it is feasible to have variable amounts in regular investments.

As mentioned earlier, periodic fixed investment is essentially a forced savings process. If you earn 8,000 yuan a month and set aside 1,000 yuan for regular investment, it is a natural process. However, many people are dissatisfied with such a mechanical investment method—so a common workaround is to have periodic variable amounts.

If the amounts are variable, then how to determine the variability? Currently, the popular methods are technical analysis and valuation analysis. Technical analysis involves using moving averages and other technical methods to judge upward or downward trends, then adjusting the investment amounts accordingly. However, while I am a fan of technical timing, I do not recommend this investment method—simply because if technical timing were reliable, you should use it for full offense or defense, deciding whether to be fully invested or not (like my 80/20 rotation model). Trend investing fundamentally contradicts periodic fixed investment.

Yes, what pairs well with periodic fixed investment is valuation analysis—investing less when overvalued and more when undervalued. For example, if you earn 8,000 yuan a month and regularly invest 1,000 yuan, but during a bear market, you can save and find ways to invest 2,000 yuan monthly; during a bull market, you can reduce your investment to 500 yuan or even pause it.

In fact, the idea of valuation analysis is simple; the key is determining when valuations are high or low. This question leads to practical insights. Although the A-share market is not as long-standing as the U.S. market, there is still nearly 20 years of reference data available. Therefore, the general valuation ranges can be estimated.

First, I prefer using the price-to-book ratio (P/B) for valuation, as it is more stable compared to the traditional price-to-earnings ratio (P/E)—Nobel laureate Eugene Fama's three-factor model also uses P/B for valuation assessment.

Let's first look at the Shanghai Composite Index, which generally represents large-cap stocks. Since 1997, the price-to-book ratio of the Shanghai Composite Index has ranged from 1 to 7, with an overall downward trend, currently around 1.5.

While the historical positions can be visually seen from the chart, I prefer percentage values for a more intuitive understanding.

When the price-to-book ratio of the Shanghai Composite Index reaches 50%, it is at 2.76 times, meaning that since 1997, the valuation has been sorted from high to low each month, with 2.76 being the median.

Based on the above table, you can modify your strategy. For example, when the price-to-book ratio of the Shanghai Composite Index exceeds 4.8 times, pause regular investments; when it falls below 1.68 times, double your investments. Of course, if you want to set more tiers, you can increase investments by 50% when it falls below 1.68 times and double your investments only when it falls below 1.38 times.

Of course, the A-share market has a severe 80/20 split. Therefore, simply looking at the valuation distribution of the Shanghai Composite Index is not very useful for small and mid-cap stocks. Hence, I calculated the price-to-book ratio distribution of mid-cap and small-cap indices in the Shenwan scale index since 2000, which is currently at a moderately high level. Based on this chart, you can control the doubling or halving of your regular investments.

Closed-End Funds Are a Good Choice for Regular Investment#

In fact, when it comes to regular investment, closed-end funds are the best partners for long-term investors. Closed-end funds have a unique characteristic: they tend to have high discounts during bear markets and lower discounts during bull markets, which means they can fall more sharply in bear markets, and the effect of increasing positions at a discount is more pronounced.

Think about it: before the big bull market in 2006, there were many closed-end funds trading at a 50% discount. Investors who persisted in regular investments during that time truly benefited during the subsequent bull market.

Although many of the older closed-end funds expired in 2016 and 2017, leaving only their residual heat, they still offer annualized returns of 7% to 10% at a discount. If you want to take advantage of regular investment products, it is still worthwhile to explore these "fund XX" varieties more.

Note: Data source from Jisilu.

The issue of regular investment is not really a problem with regular investment itself, as regular investment is merely a simple market entry strategy rather than a complete trading system.

The Problem with Regular Investment: The Cost Averaging Effect Diminishes Over Time#

This is easy to understand. Suppose you decide to invest 2,000 yuan monthly. In the early stages of regular investment, your monthly investment accounts for a relatively high proportion of the total invested amount. For example, in the second month, the previous 2,000 yuan investment and the new 2,000 yuan investment are 1:1. If the second investment can be made at a relatively low cost, it can quickly lower the average cost.

However, as you transition from a novice investor to an experienced one—like many people I know who have been investing for four or five years—if you calculate based on a monthly investment of 2,000 yuan over five years (60 months), the total investment amount would be 120,000 yuan. If after five years of regular investment, your total market value is still 120,000 yuan, then you might wonder how much impact a single 2,000 yuan investment will have on the total cost at the Shanghai Composite Index of 2,000 points versus 4,000 points.

The following is a trial calculation table showing how different years of regular investment and controlling the average cost at the Shanghai Composite Index of 3,000 points affect the cost reduction effect of a single 2,000 yuan investment. In the first year, if you invest at 2,000 points, you can lower the cost by 112 points; however, in the second year, if you invest at the same point, you can only lower it by 59 points, and by the tenth year, it is less than 13 points. It is evident that the dilution effect of regular investment becomes less sensitive over time.

First, you need to have an asset allocation, part in stocks and part in bonds. For example, at age 30, following the 100 rule (100 minus your age, so at 30, allocate 70% to stocks), set 70% of your stock allocation for stock funds and the remaining 30% for fixed income or bond funds. Of course, if you are more aggressive, you can use the 110 rule (110 minus your age, so at 30, allocate 80% to stocks), allocating 80% to stocks and 20% to bonds.

With such an asset allocation, the greatest benefit of regular investment is that you always have a certain proportion of funds available for stock market increases, rather than decreasing over time.

What to do? You need to do a dynamic balance to restore the stock fund ratio back to 70%. A simple calculation shows that the amount needed to increase the stock fund investment is 86×70%-56=4.2 (ten thousand yuan)—where does this 4.2 million come from? If it is through advanced regular investment, we must prepay the funds for the next 8.4 regular investments—note that this is only when you encounter a 20% drop. What if we face a super bear market from 6,000 points to 1,600 points in 2008? Clearly, relying on regular investment funds is insufficient.

Fortunately, through dynamic balance, we can obtain funds by reducing some pure bond funds. The existence of bond positions gives us backup funds to buy stocks, so we don't have to worry about regular investments becoming blunt over time.

Dynamic asset allocation is an investment strategy aimed at dynamically adjusting the asset allocation in an investment portfolio based on changes in market conditions and economic environments. Unlike traditional static asset allocation, dynamic balance emphasizes flexibility in responding to market fluctuations and risks, timely adjusting the investment portfolio to achieve risk control and maximize returns.

Basic Concepts of Dynamic Balance#

Dynamic balance mainly focuses on the following aspects:

1. Adjustment of Asset Allocation: Adjusting the proportions of asset categories such as stocks, bonds, and cash based on market trends and economic data changes.
2. Risk Management: By reducing the proportion of high-risk assets and increasing the proportion of low-risk assets, dynamic balance helps protect the investment portfolio from severe market fluctuations.
3. Market Timing: Dynamic balance does not mean simply holding a particular asset long-term, but rather making flexible buy and sell decisions based on market changes to seize market opportunities.

Implementation of Dynamic Balance#

Fund managers typically achieve dynamic balance through the following methods:

• Combining Technical and Fundamental Analysis: By analyzing market trends, macroeconomic data, and company financial conditions, they determine which assets are worth increasing or decreasing.
• Market Sentiment and Cyclical Factors: Adjusting the investment portfolio dynamically based on market sentiment, economic cycles, and interest rate changes to reduce risks during market downturns.
• Quantitative Models: Some funds use quantitative models to predict and adjust asset allocation based on historical data and market indicators.

Advantages and Disadvantages of Dynamic Balance#

Advantages:

• Responding to Market Volatility: Can reduce the negative impact of severe market fluctuations.
• Increased Flexibility: Funds can quickly adjust asset allocation based on market changes, seizing favorable market opportunities.
• Risk Control: By flexibly adjusting risk exposure, it helps reduce risks, especially during periods of economic uncertainty.

Disadvantages:

• Higher Costs: Frequent adjustments in asset allocation may increase transaction costs.
• Requires Professional Judgment: Dynamic balance requires fund managers to have strong market judgment and analytical skills; otherwise, it may lead to poor decisions.
• Potential to Miss Long-Term Opportunities: Frequent adjustments may miss potential returns from long-term holdings, especially in steadily growing markets.

Dynamic balance is an active strategy for portfolio management, suitable for investors seeking higher returns in dynamic market environments and who can bear certain adjustment risks.

Closed-end funds, while often not heavily weighted, typically offer an annualized return of 5% to 10% due to their discount rates. As a substitute for reducing risks, they are a viable option.

Closed-end funds are a special type of investment fund, and their main differences from open-end funds are:

1. Fixed Shares: Closed-end funds issue a fixed number of shares at establishment, and these shares do not increase or decrease after the fund is established. Investors must buy or sell shares through the securities market (similar to stocks).
2. No Immediate Subscription or Redemption: Unlike open-end funds, closed-end fund investors cannot immediately subscribe for new shares or redeem shares directly from the fund company. If investors want to exit, they must sell their shares to other investors in the market.
3. Trading Method: Shares of closed-end funds can be traded on stock exchanges, with prices determined by market supply and demand. Therefore, the market price of closed-end funds may be higher or lower than their net asset value (NAV). This price volatility is similar to that of stocks.

In summary, closed-end funds are like a "closed investment pool," where investors buy and sell fund shares through the securities exchange rather than directly through the fund company.

A-Share and H-Share Rotation#

The two approaches mentioned above are relatively niche. The most common strategy is the rotation between A-share blue chips and H-shares. If you are investing in large-cap indices like the CSI 300 Index or the SSE 50 Index, you can switch to H-share index funds when the Hang Seng AH Premium Index is high, and switch back to A-shares when the Hang Seng AH Premium Index drops to 90.

Although H-shares have been relatively dull compared to A-shares in recent years, this dullness can actually be a sign of stability.

Regular Investment Partners: Ant Juba + Index Funds#

For a novice in finance, how to start the journey of fund regular investment? My suggestion is: Open your phone, download Ant Juba, and use your Alipay account to start your investment journey with Tianhong Index Fund.

Ant Juba, many readers may be familiar with it. It is a sister app of Alipay, belonging to Ant Financial, sharing the Alipay account but focusing on investment and financial management. In mid-2015, Ant Juba took the lead in launching a significant discount for fund subscriptions, igniting a price war in the fund sales industry—naturally, the ultimate beneficiaries are investors like us.

When using Ant Juba for fund regular investment, what to invest in? Familiar readers will know that I generally recommend equal investment tracking the CSI 300 Index and the CSI 500 Index. The CSI 300 Index tracks large blue chips, closely aligning with the direction of the Chinese economy, with lower volatility; the CSI 500 Index represents small and mid-cap stocks, often embodying the new economy, full of vitality but also more volatile. Buying both diversifies risk.

There are many products tracking these two indices, such as Tianhong CSI 300 and Tianhong CSI 500.

If You Don't Trade Stocks, You Should Have a Securities Account#

If you are considering whether to open a securities account or participate in stock investment, the following points may help you:

1. Risk Assessment: Trading stocks is a high-risk investment activity, and the stock market is highly volatile, so you need to consider your risk tolerance.

2. Investment Goals: Clarify your investment goals, such as long-term wealth accumulation or short-term trading profits. Different goals may determine your investment strategy.

3. Knowledge and Preparation: Trading stocks requires certain knowledge and skills; understanding market trends, company financial reports, and industry developments is key to success.

4. Financial Planning: As one of the investment tools, stock trading should have a suitable position in your overall financial planning, avoiding reliance on a single investment method.

If you have more questions about how to trade stocks or how to choose a securities account, I can help provide relevant information or advice.

Function Two: Low-Cost Purchase of Index Funds#

Busy white-collar workers often do not have time to study stocks, so they choose fund regular investments, entrusting their funds to professional managers. This approach is good, but it does not mean that a securities account is useless. In fact, a securities account can help you conduct fund regular investments at a lower cost.

In the securities market, there is an investment object called ETF, which is essentially a fund that specifically invests in indices. If you previously chose to purchase open-end index funds through banks or third-party channels, such as the CSI 300 Index Fund or the ChiNext Index Fund, then purchasing the same ETF through a securities account is a more cost-effective approach.

In 2014, purchasing open-end index funds through banks and other channels generally incurred a subscription fee of 0.6%, meaning that buying 50,000 yuan would require a payment of 300 yuan in subscription fees. But if you switch to purchasing ETFs through a securities account, the handling fee is generally between 0.03% and 0.08%. If calculated at 0.03%, buying 50,000 yuan would only require a payment of 15 yuan in handling fees, a difference of 285 yuan.

If you are thrilled about earning over 10 yuan in interest daily from Yu'ebao, how can you miss the opportunity to use ETFs to reduce the cost of purchasing funds?

Function Three: Low-Cost Purchase of Gold#

In 2013, the frenzy of "Chinese moms" buying gold showcased the love for gold among Chinese investors. As a speculative object, gold fluctuates, making it a good trading target. For a long time, people have been accustomed to buying physical gold from jewelry stores or paper gold from banks. In fact, gold ETFs listed on stock exchanges are a lower-cost investment option.

Currently, banks do not charge commissions for paper gold transactions, but there is generally a trading spread of around 0.3%. This means that if you buy 1 unit of paper gold from the bank and then sell it, you will incur a loss of 0.3% if the price remains unchanged, which translates to a trading cost of 150 yuan for a 50,000 yuan investment.

In contrast, the trading cost of gold ETFs, with a trading commission of 0.03% and a trading spread of around 0.04%, results in a total loss of only 0.1%, which is only one-third of that of paper gold. Thus, for a 50,000 yuan investment, you can save 100 yuan in trading costs.

Function Four: Bond Investment for Fixed Income#

If you are unwilling to experience significant fluctuations in the stock market, then in the securities market, you have another good choice—bonds. Since bonds have fixed repayment and interest payment dates, as long as the bond-issuing company does not default, even if the bond price declines after purchase, it is a long-term investment that only loses time, not money.

Currently, there are dozens of actively traded bonds available in the Shanghai and Shenzhen stock exchanges, some of which carry high risks but also offer attractive returns. Of course, high-yield bonds are only suitable for investors with a high risk tolerance or strong financial analysis skills. For conservative investors, they can choose bonds with solid shareholder backgrounds, though the yield will be lower.

How to Make Money in a Turbulent Stock Market#

You need to find certainty in uncertainty, fully grasp price differences among different trading varieties, and strive to make money in a turbulent stock market.

To make money, consider migrating from ETFs to segmented funds. I once suggested friends holding ChiNext ETFs and CSI 500 ETFs could switch to corresponding segmented funds.

Why? It's simple: ETFs are at a premium, while segmented funds are at a discount.

Considering that many people do not even know whether ETFs are at a premium, let me briefly explain:

If you use the Tongdaxin market software on your computer (most brokers provide this, but it may not be called this, please consult your account manager), then input the ETF code, and you will see a chart like the one below. The blue box in the lower right corner shows the premium rate, which is displayed in real-time; negative values indicate discounts. Of course, in the intraday chart, the blue line is the price line, while the gray line is the real-time net value line. The difference between the two lines indicates the real-time premium level. Theoretically, the closer the two lines are, the better, meaning the smaller the premium, and you do not have to pay extra premium costs—of course, if the blue line is below the gray line, that’s even better, indicating a discount.

Buying ETFs at high premiums is irrational because arbitrage behavior will ultimately destroy such high premiums. In fact, you will notice that once the ChiNext weakens, the premium will immediately narrow, even approaching the net value. This means that if you bought at a high premium, when it returns to parity, your loss will exceed the index's decline. Therefore, I completely do not understand why some people are willing to pay a 6% premium to buy ChiNext ETFs at 2:30 PM; this behavior is no better than buying high-premium segmented B shares, and it can only be said that the tears shed when the fund premium shrinks are due to the impulsive high-premium purchases.

When encountering high premiums for ETFs, your first reaction should be to see if there are cheaper similar products and switch to them. The segmented funds I mentioned are a good choice.

Perhaps the fear of segmented B shares being forced to convert has scared many people, or perhaps many profit-taking investors have cashed out, resulting in many segmented funds being at a discount, meaning the combined price of A and B shares is lower than the net value.

Take the ChiNext segmented fund as an example; the estimated chart from Jisilu shows that the combined premium for the ChiNext is -3.24%—the ChiNext ETF is at a premium of over 3%, while the ChiNext segmented fund is at a discount of 3%, which is a good opportunity.

So at this time, your rational choice should be to sell the ChiNext ETF and buy an equivalent amount of ChiNext segmented A and B shares.

For example, if you hold 50,000 shares of the ChiNext ETF, based on a near-end price of 2.657 yuan, the market value is 132,850 yuan. At this time, you check Jisilu for the estimated net value of the ChiNext, which is approximately 0.7472 yuan, meaning 132,850 ÷ 0.7472 = 177,800 shares. Considering that A and B shares are in a 5:5 ratio, you need to buy 88,900 shares of both A and B.

Of course, buying is not enough; you also need to merge them into the ChiNext segmented mother fund. Once it becomes the mother fund, it will be valued at net value, and you can redeem it the next day, meaning you can buy something worth 1 yuan for 0.97 yuan and redeem it for 1 yuan.

This operation can be simply understood as maintaining your position in the ChiNext while selling at a 3% premium in one market and buying back at a 3% discount in another market, pocketing the 6% price difference, akin to picking up a 100 yuan bill that no one else is claiming—easy and pleasant. The reason for such a good opportunity is that there are too many "leeks" in the market; many people only know about ETFs and segmented B shares without understanding the complete use of segmented funds, so they prefer to chase high premiums in ETFs rather than buy the cheaper A and B shares.

Of course, there are three small details to note:

1. Currently, the position of the ChiNext segmented fund is about 80%, so theoretically, it will slightly underperform the ChiNext ETF during an uptrend, roughly 1% behind for every 5% increase in the ChiNext index—however, considering that you have already gained a 6% price difference, this is clearly not a big issue.
2. Compared to the trading commission of 0.03% or 0.02% for ETFs, buying segmented A + B shares generally requires merging to redeem the mother fund shares, and the redemption fee is usually 0.5%, which will eat into a small portion of the profits.
3. If you remain optimistic about the ChiNext's performance, you can choose to engage in discount cycle arbitrage. You can buy the merged ChiNext mother fund on Tuesday and redeem it on Wednesday. If the market price of the segmented A and B shares still has a considerable discount before the Wednesday close, you can redeem on Wednesday while buying back the same amount of A and B shares, thus creating a cycle—currently, reliable brokers allow for redemption on Wednesday, with funds arriving on Thursday evening, and available for use on Friday, making it roughly a two-day cycle.

Finding Certainty in Uncertainty

Long-time readers know that I am extremely fond of discount arbitrage, far more than the more dramatic premium arbitrage.

Why? The reason is simple: In a financial market filled with uncertainty, discount arbitrage is one of the few areas with certainty.

Yes, premium arbitrage does not guarantee that a premium can be realized when subscribing; even with a reputable broker, you must wait until the next day to know whether you can sell on the third day. However, discount arbitrage is different; when you buy at a discount, you have already locked in the discount space, and you only need to merge and redeem the next day to realize the discount.

Although for those who "naked arbitrage," you must bear the daily fluctuations of net value, which often feels thin. But for someone like me, who originally planned to hold the corresponding assets, it is nearly risk-free excess income.

Moreover, because the discount arbitrage is certain, it significantly changes the risk-reward ratio of an investment.

The risk-reward ratio is a shorthand for the risk-reward ratio.

Suppose there is an investment with two possibilities: one is a 10% gain, and the other is a 10% loss, then the risk-reward ratio is 10%:10%, which is 1. For such an investment, you must rely on your win rate to make a profit; for example, if the probability of making money is 60% and the probability of losing is 40%, then your mathematical expectation for each profit is: 10% × 60% + (-10%) × 40% = 2%.

If you have the opportunity to buy this asset at a 3% discount like segmented funds, it becomes entirely different—without considering the redemption costs, the original 10% profit becomes 13%, while the original 10% loss becomes a 7% loss, thus the risk-reward ratio becomes 13%:7%, which is 1.85. The increase in the risk-reward ratio is beneficial for profits; even if you only have a 50% accuracy rate, your mathematical expectation for each profit must reach 3%, higher than the 2% expectation from a 60% win rate with a risk-reward ratio of 1—more importantly, even with a 40% win rate, meaning more losses than wins, you can still be profitable.

Finding Arbitrage Opportunities from Funds#

How to find funds with arbitrage opportunities? There are actually two ways: 1. Start from stocks; 2. Start from funds.

Starting from stocks means that once a stock is suspended, especially when it is about to resume trading, look for funds that heavily invest in that stock. In this world, stocks that are suspended for a long time often have multiple limit-ups upon resuming trading, and you can’t catch the stock, but holding these funds is fine.

Of course, today we are not starting from stocks but rather using another method: starting from the large subscription limit announcements of funds.

For many arbitrageurs who specifically use fund subscriptions to indirectly obtain suspended stocks, fund companies are well aware of this. Because of this, fund companies generally restrict large subscriptions for funds with potential limit-up stocks.

Not all restricted funds are suitable.

However, it is important to note that not all funds that suspend large subscriptions do so to prevent arbitrage from suspended stocks; many are new funds.

For example, Guotou Ruijin New Opportunities Mixed Fund suspends large subscriptions, only accepting subscriptions below 10,000 yuan daily; this type of fund is what we call a new fund. These funds suspend large subscriptions mainly to avoid diluting the benefits of new subscription funds after winning stocks.

C Shares Are More Suitable Than A Shares#

Some readers may ask what the difference is between A shares and C shares? This is also an important question when making arbitrage-type subscriptions for open-end funds.

Currently, some fund companies divide shares into A and C types. A shares generally charge a 1.5% subscription fee (direct sales generally have a 40% discount, which is 0.6%); C shares do not charge a subscription fee but charge a 0.5% service fee annually— which of these is more cost-effective is actually a simple math problem. Of course, we generally look at the stocks that are limit-up and resume trading, and the holding period will not be too long, so the C shares without subscription fees will be more cost-effective.

Of course, different companies have slightly different A and C fee structures, so everyone should carefully check before buying.

Not all funds have A and C distinctions; this is just an added bonus.

Where to Find Subscription Restrictions?#

Finally, I believe many readers are concerned about where to find information on funds that suspend large subscriptions.

For those with professional financial terminals, checking such terminals undoubtedly saves time and effort, but another alternative channel is to look at the fund announcement section of financial websites. For example, I check the fund announcement section of Tian Tian Fund Network.

• http://fund.eastmoney.com/gonggao/jijinxiaoshou.html

By selecting the major categories of fund sales, you can see many related announcements, many of which are suspending large subscriptions. I suggest you take a look during trading hours and pay attention to those funds with suspended stocks and limit-up stocks today, as it is relatively safer to enter.

Finally, I want to say: Although professional investors use subscriptions for arbitrage, considering the 0.6% subscription fee and the 0.5% redemption fee within a month, even if the net value rises, there is still a risk of loss—so it is more suitable as a means of enhancing returns in a rising market.

My View on Fund Selection: Equity Funds#

My view on fund selection: equity funds. #BuyFundStrategy# According to my habit, I must mention the opposite. There are many investment strategies for equity funds, but fixed income funds are also an important part of our asset allocation and should not be overlooked. My view on fund selection starts with fixed income funds.

01 | Stock Funds#

For ordinary investors, using funds to allocate stock assets should choose index funds rather than actively managed funds.

If you must choose actively managed funds, you must have the following understanding:

1. You must understand the investment philosophy and style of the fund manager and trust the character of the fund manager.

2. You have basic securities analysis skills and recognize most of the top ten holdings of the fund manager. In other words, if you were to invest actively, you would be willing to hold the top ten stocks chosen by the fund manager.

3. You can attribute the fund's performance to its achievements. You can explain the good past performance and the poor performance of the fund in stages, and you can clearly recognize whether the fund manager's performance is due to luck or skill.

In my mind, an excellent fund manager should adhere to fundamental investment, dare to invest against the trend, and the core holdings in the investment portfolio should be held for a period to discover value, with a relatively low turnover rate in the fund's investments.

Value discovery requires a certain investment duration, and funds with longer holding periods usually have lower turnover rates.

When writing quarterly fund reports, they should clearly explain their investment philosophy and strategy, and provide some investor education, allowing the regular reports to serve as a communication tool with investors. In investment, they should practice what they preach.

Considering that star fund managers managing open-end funds can easily lead to a vicious expansion of fund scale, resulting in mean reversion phenomena, therefore, when investing in active funds, do not forget closed-end funds.

Compared to open-end funds, closed-end funds are not disturbed by investor subscriptions and redemptions, allowing fund managers to invest according to their intentions.

02 | Index Funds#

For ordinary investors, whether actively investing or dollar-cost averaging, it is recommended to choose off-market index funds, including ordinary index funds and ETF-linked funds.

For homogeneous broad-based indices, if investing in ETFs, prioritize those with lower management fees and custody fees, while ensuring liquidity meets your capital needs. If investing off-market, choose the ETF-linked funds with the lowest subscription management fees and custody fees.

With homogeneous broad-based indices, if the fund manager has a good track record, it is worth considering.

03 | Index Enhanced Funds#

For broad-based indices like the CSI 300 Index and the CSI 500 Index, they are market capitalization-weighted indices, and passive index funds hold all constituent stocks in a fully replicated manner.

The investment logic of index-enhanced funds is that fund managers have the ability to optimize the index to achieve excess returns compared to the original index.

The enhancement methods of index-enhanced funds include:

1. Excluding poor-quality companies and increasing the weight of excellent companies. For example, in 2016, most CSI 300 index-enhanced funds did not allocate to LeTV; for instance, currently, they exclude Kangmei Pharmaceutical and Kangde Xin. For example, CSI 300 enhancement funds allocate more to China Merchants and exclude newly listed small banks included in the index.

2. Increasing the weight of industries with excess returns and reducing or excluding industries without excess returns. For example, since 2016, moderately overweight consumer stocks and financial stocks while reducing steel, non-ferrous metals, and media stocks.

3. Allocating some discounted stock index futures, which is essentially a low-risk arbitrage.

4. Actively investing with strict position limits. For example, the CSI 500 enhancement fund can allocate a small amount of CSI 300 index constituent stocks.

If investors trust the above four index enhancement methods and recognize the fund manager's ability for index enhancement or quantitative investment, they can use index-enhanced funds to replace passive index funds.

04 | Smart Beta Funds#

Smart beta emphasizes factor exposure. Currently, common factors in public smart beta funds in China include dividends, fundamentals, low volatility, value, etc. When choosing smart beta, do not be attracted by past high returns; instead, thoroughly investigate the reasons behind past high returns and whether they are sustainable in the future.

Choosing smart beta is based on your recognition of the effectiveness of strategy factors, rather than an obsession with the historical performance of the index.

05 | QDII Funds#

For overseas investment markets, the effectiveness is much higher than A-shares. When investing in equity QDII funds, it is advisable to choose index funds and be cautious about actively managed funds.

Aside from the factors of higher effectiveness in overseas investment markets, the management fees and custody fees of actively managed QDII equity funds often reach 2.15%. If the investment form is also FOF, the cost will be even higher.

Many investment market expectations have an annualized return of around 10%. The high management costs of actively managed QDII funds often eat into considerable investment returns, making it common for them to underperform conventional QDII index funds.

Non-Hong Kong QDII index funds generally have management fees and custody fees of around 1% ± 0.2%. Although this is nearly double the cost of domestic index funds, it still has an advantage over the actively managed QDII funds with fees as high as 2.15%.

06 | Summary of Equity Fund Selection#

Ordinary investors should primarily choose low-fee index funds for equity fund selection.

Unless you have sufficient trust in the investment philosophy, strategy, and character of the fund manager, and you understand securities analysis and are willing to invest in the top ten stocks chosen by the fund manager, it is advisable to avoid actively managed funds.

If the fund manager you trust also manages closed-end funds at a discount, consider investing in closed-end funds with discounts.

If you trust index enhancement strategies, you can hold around three index-enhanced funds to stabilize the index enhancement effect.

When investing in smart beta, focus on strategy factors rather than historical performance. Thoroughly investigate the index's compilation rules and choose indices with more scientifically reasonable rules.

For overseas equity investments, do not choose actively managed funds; instead, select low-fee index QDII funds with low tracking errors.

Ordinary investors should try to choose low-fee ordinary index funds and ETF-linked funds from the perspective of staying away from the market, maintaining a calm investment mindset, keeping investment discipline, and saving time costs, rather than directly placing orders to buy and sell ETFs.

My View on Fund Selection: Fixed Income Funds#

My view on fund selection: fixed income funds. #BuyFundStrategy# Since this is a strategy, it should condense the essence. I have read many posts from predecessors and teachers; there are many investment strategies for equity funds, but fixed income funds are also an important part of our asset allocation and should not be overlooked. My view on fund selection starts with fixed income funds.

01 | Money Market Funds#

When ensuring T+0 cash withdrawal and quick arrival, choose low three-fee money market funds.

For example, low three-fee money market funds like E Fund Cash Management B (000621), Southern Daily Interest Money Market B (003474), and Southern Yield Treasure Money Market B (202308) have management fees + custody fees + sales service fees of 0.2% or 0.21% per year.

Compared to the old money market fund with a three-fee rate of 0.68%, the low three-fee money market funds can theoretically achieve an excess return of 0.47% annually.

02 | Pure Bond Funds#

Use the 10-year treasury yield as a reference. When the 10-year treasury yield approaches 4%, allocate to long bonds (usually with a duration of 7-10 years). When the 10-year treasury yield approaches 3%, allocate to short bond funds, or give up pure bond funds and allocate to money market funds.

03 | Short Bond Funds#

If you do not mind the small fluctuations of short and ultra-short bond funds and can hold for a while to avoid redemption fees, then short and ultra-short bond funds can be seen as a Pro version of money market funds.

04 | Regular Bond Funds#

Regular bond funds are those that cannot actively invest in stocks but can invest a certain proportion of convertible bonds (including exchangeable bonds).

05 | Secondary Bond Funds#

Secondary bond funds can invest no more than 20% in stocks at most, and their risk-return characteristics are very similar to an 80:20 stock-bond mix.

06 | Convertible Bond Funds#

Compared to secondary bond funds, convertible bond funds require fixed income assets to be no less than 80%, which means they have a hard requirement for convertible bond positions.

07 | Dollar Bond Funds#

Dollar bond funds are also a type of pure bond fund. These funds should avoid high management fees and those that invest in FOF.

10. Looking at Convertible Bond Funds from the Perspective of Value Preservation and Appreciation#

Most bond funds can invest in convertible bonds, but due to different investment strategies, some funds only supplement convertible bonds, while others focus on investing in convertible bonds. Here, I define funds that contain the words "convertible bonds" in their names as convertible bond funds. Currently, there are 51 in the entire market.

Compared to individual convertible bonds, the advantages of convertible bond funds are:

1. The pricing mechanism of convertible bonds is relatively complex, making it difficult for general investors to grasp.
2. When the price of convertible bonds is high, the downside space is also significant, and the risks are not necessarily small.
3. Convertible bond funds can use leverage to increase returns, while individual investors generally do not have leverage channels.
4. Compared to individual investors, fund companies have stronger research capabilities.

Conclusion#

The best three convertible bond funds have recently changed fund managers. Choosing at this point in time is not easy; we hope the overall investment research capabilities of the fund company can ensure stable fund performance, and we need to keep tracking and observing.

If you want to buy convertible bond funds, consider Longxin Convertible Bonds first, followed by Xingquan and Penghua Convertible Bonds.

Risk Warning: The stocks mentioned in this article are for reference only and do not constitute investment advice. Risks incurred from buying based on this information are borne by the investor.