Mastering the Beta Value

Risk disclosure: The Beta-value allocation suggestions, risk-classification framework, and the like described in this chapter are all instructional explanations of asset allocation. They do not constitute individual investment advice, and readers must make their own judgments according to their own risk tolerance.

In traditional financial theory, risk is usually portrayed as an unpredictable beast, and investors are taught that they must ward off unknown declines through extreme diversification. Yet the wisdom that truly lets wealth grow steadily lies in recognizing and redefining “risk” anew. Risk should not be equated with blind fear; it can instead be quantified, controlled, and ultimately turned into a mathematical tool for a personalized asset-allocation strategy.

Beta Measures Volatility, Not Performance

The Beta value measures volatility, and even more, it is a “survival coefficient.” Many investors assume the higher the Beta the better, yet overlook the downside risk. Suppose you have NT$15 million in principal (including a personal loan). If the portfolio Beta is 1.0, then when an epic 70% crash hits, the assets shrink to NT$4.5 million on paper, and the following year, attempting to refinance or take out an additional loan may well fail to clear the bar, leaving the funding chain facing rupture. But if, through asset engineering, the Beta is held to 0.7, the same crash still preserves NT$7.65 million, and the odds of a successful refinancing or additional loan are markedly higher. This shows that Beta is a mathematical tool for quantifying risk and raising the survival rate within a debt cycle. (This is a stress-test illustration; whether refinancing or an additional loan is feasible in practice still depends on the bank’s credit approval, income, credit conditions, the maintenance ratio, and market conditions.)

We can think of the Beta value as the “spiciness” on a restaurant menu. Everyone’s stomach and taste are different, so the limit each person can bear naturally differs. From Beta 0.8 to 1.2 is like going from mild to extra-spicy seasoning; it all depends on the investor’s psychological makeup. (Video 00475)

Beyond spiciness, we can also understand the Beta value from a more dynamic angle. A high-Beta asset is like a supercar running at full horsepower. Its speed is extreme, letting you reach the finish line of financial freedom in the shortest possible time; but the price is an extremely bumpy ride, and if your heart is not big enough and your seatbelt (cash defense) is not fastened, a single sharp turn can wreck the car and kill the driver. Conversely, a low-Beta portfolio is like a family sedan; the speed is not fast, but the ride is smooth and comfortable, with no psychological burden at all. Tuning an investment portfolio is precisely about finding the balance between speed and comfort.

If, out of greed for potential high returns, you blindly envy others driving supercars and choose an extra-spicy level or a speed beyond your own tolerance, then once the market runs into violent turbulence, you will often panic psychologically and sell out at the bottom, thereby causing a permanent loss of wealth. Therefore, clearly recognizing that Beta represents only volatility, choosing a car that matches your driving skill and psychological makeup, and arriving at the finish line alive, is the first step in calibrating risk.

From this we can distill a core theorem of risk cognition: “An investment risk you can still bear after precise calculation is not a large risk.” We must first distinguish two things that are often conflated — “high volatility in asset prices” and “high risk in an investment strategy” are not the same thing at all. When the NASDAQ index falls 32% in a given year, it looks terrifying, but if the investing household has “no need to sell” at that moment, this decline will not immediately form a realized loss; the shrinkage of net asset value on paper is merely a numerical fluctuation on an electronic ledger, and does not equal a permanent loss of real capital. That said, a paper decline still moves the collateral maintenance level, the available borrowing amount, and psychological tolerance, so the true risk lies not in the volatility itself, but in whether you are forced out of the market when the volatility occurs.

To quantify this logic into a concrete scenario: take an elderly couple who have just retired at age 65. Assume the broad market crashes 30%. Following CLEC’s 2% annual drawdown rate (referring to the annual drawdown rate of the securities-backed loan / Buy, Borrow, Die system, not the traditional selling of stocks to withdraw), combined with labor pension annuities, dividends, and an ample cash cushion, the cash flow they need to draw that year is only about 2.5% of total assets. Even if this 2.5% of cash flow happens to have to be obtained at the crash bottom, the “permanent capital loss” ultimately formed is only about 0.75% of total assets (2.5% × 30%). A terrifying storm of a 30% paper decline does, for a retired household that disciplines itself with a 2% annual drawdown rate plus an ample cash cushion, less than 1% of real damage.

Treating “32% volatility” as “32% risk” is the most common arithmetic error retail investors make, and it is also the chief culprit that drives most people to panic-sell at the bottom of a crash and permanently exit the market.

▲ Figure 9-1 A spiciness-comparison chart for investment portfolios

The purpose of the “spiciness-comparison chart” is to map Beta 0.6, 0.8, 1.0, 1.2, and 1.5-and-above onto a perceptible spiciness ladder, so that investors first choose the level of risk they can stomach, rather than first envying someone else’s high returns.

Taking QQQ as the Beta 1.0 Benchmark

In Wall Street’s traditional standard, the S&P 500 index (SPY) is usually set as the overall benchmark of the market, meaning its Beta is regarded as 1.0. But if you want to pursue long-term maximization of capital, you must dare to break this outdated framework and redefine your own “origin.” Since the NASDAQ-100 index represents humanity’s most cutting-edge technology, innovation, and productivity, it should be the core against which all investment portfolios are measured.

We take QQQ as the 1 standard; we do not bother with SPY. We take QQQ as Beta 1, it is that simple. (Video 00467)

Under this definition, the Beta value of 00662 (or QQQ) is set to an absolute 1.0. A 2× leveraged fund such as 00670L (or QLD) has a Beta of 2.0, while cash or 00865B (short-term bonds) has a Beta of 0.0. As long as you grasp these three underlying variables, you can calculate portfolio risk as precisely as adjusting the volume. The formula is simply “the sum of each asset’s weight × its own Beta value.” Note that this is an internal coordinate system CLEC adopts for allocation calculations (taking QQQ / 00662 as the origin), different from Wall Street’s official Beta that uses the S&P 500 as the market benchmark; here, cash and short-term bonds (00865B) merely have an equity Beta close to 0, and they still carry interest-rate, exchange-rate, and premium/discount risk of their own, and are not risk-free.

The Double-Edged Sword of Leveraged ETFs and the Convergence of Consecutive Declines

Do not simply understand a leveraged ETF as borrowing money from the bank to buy stocks. It typically obtains 2× index exposure through derivative instruments such as futures and swap contracts (SWAP), while the funds not used for margin or collateral are allocated to cash or short-term instruments (the actual structure, margin proportion, and costs are subject to each fund’s prospectus and the investment trust’s disclosures). This structure endows it with extremely strong explosive power, but also brings a cruel asymmetry between rises and falls. When an epic bear market of dot-com-bubble scale strikes and a 2× leveraged asset falls as much as 90%, many people assume it only needs to rise 90% to break even, right? The mathematical truth is: that 2× leveraged position itself needs to rise 900% to return to its starting point. This is precisely why going all-in on 2× leverage is strictly forbidden. Without a cash position (00865B) to serve as a rebalancing defense, betting solely on a leveraged ETF is gambling with your life, and once it plunges, there will be no day of turning back.

However, many people fear 2× leverage, assuming that if the broad market falls 20%, then 2× leverage will fall 40% or even fall all the way to zero. This is an intuitive panic that lacks mathematical common sense. In fact, leveraged ETFs adopt a “daily reset” mechanism: they pursue twice the single-day return, and during consecutive declines the principal base used to calculate the loss shrinks day by day, so the cumulative decline does not equal “the decline over the period × 2.” But this is not an umbrella, nor a guarantee against going to zero — in high volatility, prolonged sideways swings, or extreme market conditions, 2× leverage can still incur enormous losses, so it must absolutely be paired with a cash defense line and rebalancing discipline.

Building a Personalized Portfolio Based on Tolerance

Through this method of quantifying risk, an investor can build a personalized code according to risk tolerance:

• Those still employed with a stable salary can adopt a higher Beta (around 1.2) to pursue explosive growth
• Most people take Beta 1.0 as the golden benchmark
• Those with a relatively high drawdown rate lower it further to Beta 0.7 to thicken the defense line
• An ultra-conservative retirement allocation is pressed down to Beta 0.5

Investing is not about fighting the market, but about using the ratio of cash and leverage to fine-tune a speed at which you can sleep soundly.

(The Beta values in the table above are approximate values in the CLEC allocation model, not the historical Beta shown on each ETF’s official financial website.)

The Fallacy of the Traditional Benchmark and the Choice of Targets

Many people place blind faith in the traditional “60:40 stock-bond allocation,” believing bonds are a hedging seesaw. But the data show that long-dated US Treasuries TLT, over the 22 years since inception, delivered a price return of only about 10%, and when a simultaneous stock-and-bond selloff hits, they provide no protection at all. Comparing the “super portfolio” with the “classic portfolio”: 80% QQQ + 20% QLD can roll out about NT$52 million over 30 years (the leveraged portion is estimated from historical backtesting, not the 12% forward-looking baseline), whereas the 60:40 stock-bond portfolio rolls out only about NT$5 million. A full gap of roughly 10× is the price of dodging volatility only to be met with long-term poverty. The true risk is not that net value shrinks temporarily, but that the rate of asset appreciation falls far behind inflation.

▲ Figure 9-2 The 30-year endgame of the super portfolio vs the classic stock-bond portfolio, the price of dodging volatility only to be met with long-term poverty

The cruelest empirical evidence on TLT comes from the real price trajectory of the past 6 years: TLT (the US 20-year Treasury ETF) fell from a high of about US$164 in 2020, all the way down to about US$85 in early 2026 — a 50% halving in just 6 short years (TLT historical price, Yahoo Finance). During this period it distributed a dividend of about 4% a year, but relative to the 50% loss of principal, those few percentage points of dividends simply could not fill the loss. Calculated in real terms: if an investor bought TLT at the 2020 high expecting a hedge, then by 2026 the annualized return would be about -5% — far from “hedging,” it instead means a real net loss of 5% every year.

Traditional stock-bond allocation often views long-dated US Treasuries (such as TLT) as a hedging tool when the stock market falls, but the real rising-interest-rate cycle has already turned it into a “silent principal-grinding machine.” For retirees who allocate according to “stock-bond balance,” these 6 years amount to watching helplessly as the position that was supposed to protect principal instead devours principal — a double blow. The CLEC system’s iron rule that strictly stipulates “the cash defense line may only use short-term US Treasuries (BOXX / SGOV / 00865B) and absolutely excludes long-dated bonds” is built precisely on the historical lesson of cases like TLT that “claim to hedge but are in reality highly volatile.”

In other words, Beta manages “whether you get thrown off the car,” while the choice of targets decides “whether you are riding the high-speed rail or the slow train.” Neither can be missing: with only volatility control and no growth engine, you will slowly be swallowed by inflation; with only a growth engine and no volatility management, you may be driven out of the market by emotion during a major decline.

To sum up, redefining risk is a necessary path toward financial freedom. Investors should no longer blindly follow the diversification and conservatism theory of traditional finance, but must instead take the NASDAQ-100 as the core benchmark and, through scientific calculation of the Beta value, strike a perfect balance between market volatility and cash flow. Investing is not a contest of who sprints the fastest, but of who can have the last laugh.

Why invest only in a NASDAQ-100 index fund rather than individual stocks? Because this set of rules is simple, holds up over the long term, and does not require re-judging every year. This stock is good today, that one is better tomorrow — that is called speculation. An index fund tracks the overall growth of human civilization and technology; as long as you buy and hold, the logic always holds. Once you internalize this first principle, all the financial news and market forecasts out there are merely noise. Only by seeing through the inefficiency trap of the traditional broad-market benchmark can you build a fortress of wealth that truly spans generations.