To help readers gain a deeper understanding of the investment philosophy and practical strategies explored in this book, this glossary gathers together the core financial terms, practical tickers, and specific tools that appear throughout. Grasping these underlying concepts will help you build a solid logical moat within the complex capital markets.

Asset and Market Indicators

• The NASDAQ-100 Index / QQQ / 00662 The core underlying asset (the underlying 1× version) recommended by this book. The NASDAQ-100 is an index made up of the 100 largest non-financial companies by market capitalization on the NASDAQ market (spanning hardware and software, telecom, retail, biotech, and more, not just technology stocks); QQQ / QQQM are U.S.-listed ETFs tracking that index; 00662 is a Taiwan-listed ETF tracking that index. All three provide NASDAQ-100 exposure, but their trading market, currency, taxes, fees, inheritance, and pledging conditions differ. It has an “organism” quality, able to automatically weed out the weak and keep the strong, representing the sum total of humanity’s technological progress.

• Two-Times Leveraged Funds (QLD / 00670L) Instruments that seek to deliver twice the “daily” return of the NASDAQ-100 index. They are used to accelerate the slope of asset growth during the accumulation phase; but this does not guarantee that the long-term return will equal twice the index. The long-term result is affected by daily resetting, the path of volatility, fees, exchange rates, and premium/discount, and it comes with higher volatility and leverage-decay risk.

• Cash-Like Targets (BOXX / SGOV / 00865B) The actual targets for the “cash / defensive” position in an allocation. BOXX uses a box-spread option strategy to simulate the return of ultra-short-term interest rates, rolling the income into net asset value, and is designed to reduce the friction of annual distributions (but it is not a tax-free tool and may still produce taxable distributions); SGOV is a U.S. 0-3 month Treasury-bill ETF, usually distributing monthly, and the portion of its income derived from U.S. Treasury interest may enjoy tax advantages in some states (to be confirmed according to your state of residence); 00865B is a Taiwan-listed short-term U.S. Treasury ETF. All three have low volatility and high liquidity, and serve as defensive ammunition and rebalancing chips; but they are all ETFs, not bank deposits or time deposits, and still carry exchange-rate, interest-rate, premium/discount, liquidity, and settlement-timing risks. The current month’s living expenses and emergency must-use funds should still be kept as bank cash.

• Beta A measure of how sensitive an individual asset or the whole portfolio is relative to the broad market (with the benchmark set at 1.0). Beta = 1 means roughly in step with the market; Beta > 1 means amplified volatility, Beta < 1 means relatively defensive; Beta = 0 means the linear sensitivity to the market is close to zero, but it does not mean the asset itself has no volatility at all.

• Leverage Decay In a “choppy, back-and-forth” market, because of the mathematical mechanism of daily resetting (volatility drag), the long-term return of a leveraged fund may fall below a simple multiple of the underlying’s cumulative return. It is not a fixed daily loss, nor is it unfavorable in all markets (in a one-sided uptrend, daily compounding may actually beat a simple 2×); this is also why the book stresses that it must be paired with the discipline of “rebalancing.”

• Effective Number of Constituents (EN) An indicator that measures the true diversification of an index, calculated as the reciprocal of the Herfindahl index (HHI, the sum of the squared weights of the constituents). A higher EN means the weights are more dispersed and the single-stock risk is lower; it is often used to compare the true difference in diversification between a “market-cap-weighted broad index” and a “high-dividend concentrated index.”

Practical Allocation Codes

All investment portfolios in this book follow a three-part ratio of “underlying / leveraged / cash,” which always sums to 10 (100%). Among these, 433 and 442 are the main threads; the rest are mostly for lowering volatility in retirement (802 / 703 / 505), community variants (523 / 514 / 415), or special situations (226 / 424 / 613), and are not recommended for beginners to apply on their own.

Rebalancing and Withdrawal Discipline

Smart Rebalancing Each month’s new investment funds first top up the container with the lowest ratio (cash or the underlying), and then buy the core position; the principle is “only top up the shortfall, never sell,” so that money takes its proper place the moment it enters.

Mechanical Rebalancing On a fixed date each year (such as New Year’s Day), sell high and buy low mechanically according to the target ratios, paying no attention to market levels at all. The advantage is that it is simple and disciplined; the drawback is that in a down year it may also sell cash to buy leverage, giving a long-term survival rate slightly lower than smart rebalancing.

Flexible Rebalancing — Conservative An advanced community variant (not a main thread); see Appendix 7. Used when the cash-like position has not yet reached 15 times annual expenses: in an up year, still lock in gains by buying 00865B to top up the cash cushion; in a down year, instead sell the underlying (00662) rather than drawing on cash to top up leverage, giving priority to guarding the life-saving cash.

Flexible Rebalancing — Aggressive An advanced community variant (not a main thread); see Appendix 7. Used when the cash-like position has already reached 15 times annual expenses: in an up year, lock in gains by buying the underlying (00662) instead, to keep compounding; in a down year, draw on cash (00865B) to top up leverage.

Dynamic Rebalancing (Beta-Signal Rebalance) An advanced appendix strategy (not a main thread). Triggered by using the portfolio’s Beta value as a signal: when Beta ≥ 1.2, sell leverage to cool down; when Beta ≤ 0.8, buy leverage to add. It is a research product of the 00662 community; see Appendix 6.

The Withdrawal-Rate Ladder (2% / 3% / 4%) The safety engineering of retirement withdrawals, referring to the annual cash-flow drawdown rate of the CLEC system (not the traditional sell-stock withdrawal rate), determined by the multiple of assets relative to annual expenses: 50× annual expenses corresponds to about 2% (nearly perpetual, with assets still growing); 33× corresponds to about 3%; 25× corresponds to about 4% (already the high-pressure ceiling). Below 25×, one should lower expenses, delay retirement, or switch to rescue-type cash-flow tools such as QQQI / JEPQ / JEPI. The lower the withdrawal rate, the higher the probability that assets survive and grow; beyond 4%, there is a sequence-of-returns risk of depleting principal.

The QQQI Strategy A specialized tactic aimed at those who reach retirement with insufficient funds (assets of only 10-15× annual expenses). It uses covered calls (selling calls) to obtain high distributions to cover living costs, while retaining a portion of underlying assets to fight inflation.

Sequence of Returns Risk (SoRR) For one and the same long-term average return, if you shuffle the “order” in which each year’s return occurs, it has no effect on an “accumulation phase with no withdrawals,” but for a “retirement phase with ongoing withdrawals” it is a matter of life and death: if a big drop is met in the first few years of retirement while withdrawals are being made at the same time, losses are realized and positions permanently reduced at the low point simultaneously, and even a later rebound cannot bring them back. This is the core reason CLEC presses the retirement withdrawal rate down to 2%.

Covered Call While holding a stock position, selling a call option on that target to collect a premium, exchanging part of the future upside for cash flow in the present. This is the engine behind high-distribution tools such as QQQI / JEPQ / JEPI; the cost is that in a bull market the upside is capped, and total return usually lags a pure index.

ROC (Return of Capital) The portion of a distribution classified as “returning principal.” It is usually not immediately taxed during the holding period, but it lowers the holding cost (cost basis), which may magnify capital gains on a future sale. In certain years, a fairly high proportion of QQQI’s distribution is ROC; the proportion varies with the fund’s tax classification for that year and is not fixed.

Debt and Leverage Tools

• Buy, Borrow, Die The core wealth framework of the asset-holding class, and also the operating outline of the CLEC system. “Buy” means continuously buying quality indices such as QQQ / 00662 to accumulate core assets; “Borrow” means pledging your holdings or taking a mortgage to borrow low-interest funds to support living and reinvestment, rather than selling stock; “Die” means holding assets until the end of life without selling, avoiding the capital gains tax triggered by selling while alive, and finally using liabilities to offset the estate, keeping compounding running to the very last moment. In specific U.S. taxable accounts and inheritance situations, the step-up in basis may greatly reduce the unrealized capital gains tax before death, but the actual tax still depends on identity, account, asset type, state law, and estate planning, and zero tax is not guaranteed. The core spirit is to “use liabilities to activate assets, and let time’s compounding run without interruption.”

• DBR 22× A supervisory concept by which Taiwan’s financial institutions measure unsecured-debt risk, referring to the idea that the total outstanding balance of unsecured debt (credit cards, cash cards, personal loans) ÷ average monthly income should not exceed 22 times (that is, monthly income × 22 is roughly the ceiling on the total balance of unsecured debt, not “monthly salary ÷ 12 × 22”). It is not a bank’s guaranteed loan quota, nor an encouragement to borrow to the limit; actual lending is still judged by credit score, income stability, existing debt, and the Joint Credit Information Center record.

• Home Equity for Stocks (Yi Fang Yang Gu) Using an owner-occupied or investment property to arrange a “wealth-management mortgage (a Taiwan revolving/home-equity mortgage, drawing additional credit),” cashing out the appreciated or paid-off home equity and investing it in core index ETFs such as 00662. Compared with securities pledging, a mortgage has no daily maintenance-ratio margin call, a longer term, and a lower interest rate; but it still carries the pressure of monthly payments, interest-rate repricing, unemployment cash-flow risk, falling home prices, and collateral risk, and must not be regarded as risk-free leverage.

• Reverse Mortgage for Retirement (Yi Fang Yang Lao) A bank’s reverse mortgage. An older person applies to a state-owned bank (Taiwan Cooperative Bank, Land Bank, First Bank, Hua Nan) using their owner-occupied home, receiving living funds monthly, and after their death the bank disposes of the property to settle the loan. Because the mathematical structure is unfavorable to the elderly, the CLEC system recommends giving priority to “home equity for stocks” rather than a reverse mortgage for retirement.

• Refinancing (Zhuan Dai) Paying off an existing loan and then transferring it to another bank with better rates to sign a new contract from the start. The main purpose is to “lower the monthly payment and extend the term.” Practical steps: first call your original lending bank to request the best rate; if they do not accept, then formally proceed with the refinancing.

• Additional Draw (Zeng Dai) After part of the principal has been repaid during the loan term, having (the original bank or a new bank) re-underwrite up to the original amount, “re-borrowing” the principal that has already been repaid. The main purpose is to “activate ammunition and increase investment cash.” If additional-draw funds are used for investment, they should only be put into core indices, and consumption use is strictly forbidden; but the precondition is that the mortgage’s monthly payment can be borne by salary or stable cash flow, and that it does not break the emergency reserve or the short-term-bond defensive line.

• Securities Pledging (PAL / SBL) Securities-Based Lending. Using quality holdings as collateral to borrow liquid cash. The core spirit is “borrow money and never repay the principal,” using liabilities to activate assets and avoid the capital gains tax generated by selling stock.

• Maintenance Ratio and Forced Liquidation (Margin & Liquidation) The ratio of the collateral’s market value to the loan amount (collateral market value ÷ loan amount). Taking Taiwan securities pledging as an example, a common ladder is: 167% (the safe line for renewal), 140% (broker warning, restricting new borrowing), 130% (the margin-call line, at which a call is issued, requiring a top-up within T+2, and the collateral must be restored above 166% to be lifted); if it falls below 130% without being made up, the collateral is disposed of (forced liquidation). Note that “securities pledging / securities finance lending” and “margin financing and short selling in credit trading” are different systems with different rules; the actual terms are governed by each institution’s contract. This book’s safety standard is not to hug the margin-call line, but to keep the pledge ratio within 20%, giving an initial maintenance ratio of about 500%, far from the forced-liquidation zone.

• Wealth-Management Mortgage (HELOC) Home Equity Line of Credit. Converting a paid-off, or the remaining balance of, a property into a credit line that can be borrowed and repaid at any time. Apart from securities pledging, it is the most stable tool for obtaining long-term, extremely-low-interest funds.

• LTV (Loan-to-Value) The ratio of the loan amount to the market value of the collateral (stock or property). The higher the LTV, the more you can borrow, but the lower the maintenance ratio and the smaller the buffer against declines; this book’s main thread for pledge borrowing takes 20% as the core safe line (corresponding to an initial maintenance ratio of about 500%), while 20%-30% is advanced high-risk territory requiring more short-term bonds and stricter monitoring, and is not a standard for the general reader.

• The Stablecoin GENIUS Act A U.S. payment-stablecoin regulatory act passed in 2025, requiring compliant stablecoins to be 100% backed by liquid assets such as U.S. dollars or short-term U.S. Treasuries, with regular disclosure. A compliant stablecoin can serve as one of the liquidity tools for the digital dollar, but it still carries issuer, custody, on-chain technology, redemption, and regulatory risk, and should not replace bank cash, short-term bonds, or a formal emergency reserve.

• The Kelly Criterion / Half Kelly A money-management formula originating in the casino, which computes the “most cost-effective betting (leverage) ratio” given a known return and volatility: L* = (expected return - borrowing cost) ÷ volatility squared. In practice one usually takes half of it (Half Kelly) to greatly reduce volatility while only slightly sacrificing return; this is precisely the mathematical basis on which this book locks personal-loan leverage at about 1.33×. The optimal value is extremely sensitive to the parameters, so the conservative Half Kelly is adopted.

• Lifecycle Investing A risk-management framework proposed by Yale scholars Ayres and Nalebuff: when young, financial capital is small and human capital is large, so leverage is used to “time-diversify” stock exposure across the entire investing career, and then leverage is gradually reduced with age. CLEC takes its core of “use human-capital leverage when young, reduce leverage with age,” but uses only personal loans / mortgages with no forced liquidation, locks the ratio at Half Kelly, and pairs it with salary-based repayment and a cash defensive line.

• Paying Debt with Dividends (Yi Xi Yang Zhai) Using a low-monthly-payment tool (such as a wealth-management mortgage) to allocate a portion of high-distribution assets such as QQQI, letting the distributions offset most of the monthly-payment interest and reduce cash-flow pressure. Hold the line strictly: the fundamental guarantee for repayment is always a stable salary; the distribution is only a pressure reliever and cannot become the sole source of repayment; and one must have more than fifteen years of sustainable cash flow for this to be suitable.

• Category One / Category Four (Mortgage Joint-Credit Classification) Category One is the “acquisition-type mortgage,” subject to the central bank’s credit controls and the “full-capacity” limit of Article 72-2 of the Banking Act; Category Four is the “working-capital (wealth-management) mortgage,” which must be arranged after buying outright with all cash or clearing a Category One mortgage, is not counted toward the 72-2 capacity, and disburses quickly. The use of the funds should follow the credit contract and the regulations of the competent authority, and funds must not be laundered through to evade the review of their use.

• DTI (Debt-to-Income) The ratio of each month’s various debt payments to monthly income; banks commonly take 60% as the ceiling for underwriting, and use whichever is lower between it and the DBR as the governing standard. It complements the DBR (which looks at the multiple of total unsecured-debt balance): secured debts such as mortgages are not counted in the DBR, but the monthly payment still affects the DTI.

Cross-Border Taxes and Tools

• NRA (Non-Resident Alien) Non-Resident Alien, a non-resident foreigner under U.S. tax law — usually referring to a non-U.S. citizen who has not passed the Green Card Test or the Substantial Presence Test (whether one is an NRA should be judged by the U.S. tax-law tests, not simply by whether one lives abroad). Directly holding U.S. stocks means facing a 30% dividend withholding tax (which may be reduced under a tax treaty, but since there is no U.S.-Taiwan treaty it remains 30%), as well as the high estate tax and the Probate trap on U.S.-situated assets exceeding US$60,000.

• The Traditional IRA Poison Pill Refers to the tax pressure on U.S. pre-tax retirement accounts during high-asset inheritance: the portion above the exemption may owe estate tax, and when the heir withdraws it must also be included in personal income and taxed, often seen as a source of “double taxation”; but in practice there are buffering mechanisms such as the IRD deduction, which need to be confirmed by a CPA / EA, so it is not entirely without remedy.

• RMD (Required Minimum Distribution) Required Minimum Distribution. After the holder of a U.S. pre-tax retirement account (Traditional IRA / 401K) reaches the statutory age (under SECURE 2.0: age 73 for those born 1951-1959, age 75 for those born from 1960 on), the amount that must be compulsorily withdrawn each year and included in income for tax; it is the “tax bomb” of retirement.

• Step-up in Basis U.S. tax law provides that when an asset holder dies, the cost basis of the asset acquired by the heir is “reset” to the market price at the time of inheritance, and the previously accumulated unrealized capital gains are wiped out in one stroke. This is the key mechanism behind the tax-free endgame of “Buy, Borrow, Die.”

• FBAR (Report of Foreign Bank and Financial Accounts) Foreign Bank Account Report (FinCEN Form 114). A U.S. tax person whose foreign financial accounts have an aggregate balance exceeding US$10,000 at any point during the year must report to the U.S. Treasury; the penalties for failure to report are extremely severe.

• FATCA (Foreign Account Tax Compliance Act) Foreign Account Tax Compliance Act. It requires foreign financial institutions to report to the U.S. IRS the account information of U.S. tax persons; U.S. persons must report foreign financial assets that reach the threshold on Form 8938.

• UCITS ETF A fund that meets EU standards, listed in places such as Ireland. For many non-U.S. tax residents, it is one of the tools for reducing the friction of U.S. estate tax and dividend withholding tax from directly holding U.S. ETFs; but if a U.S. citizen, green-card holder, or U.S. tax resident holds a non-U.S. fund, they may face complex tax problems such as PFIC, and cannot simply apply it.

• Sub-brokerage The mechanism for buying U.S. stocks through a local Taiwanese brokerage. The drawbacks are higher internal charges, the inability to pledge in real time, and the difficulty of achieving automated management of global assets.

• TOD (Transfer on Death) Transfer on Death. A death-transfer tool available in some U.S. states and for some financial accounts, which may let certain assets transfer directly to a designated beneficiary after death, reducing the time and cost of Probate; but the applicable assets, state law, account rules, and beneficiary designation all need to be confirmed one by one, and it does not “completely bypass” everything for all assets.

• QI and 1042-S A QI (Qualified Intermediary) is a financial institution that has signed a qualified-intermediary agreement with the IRS, and can help non-U.S. investors handle the withholding and reporting of U.S.-source income. Form 1042-S is a tax document for U.S.-source income and withheld tax, not an automatic tax-saving certificate; whether a refund or a lower tax burden is possible must be judged by personal identity, the nature of the income, tax treaties, and the fund’s classification for the year.

• The Asset Concentration Principle The highest strategy for inheritance. It stresses that assets should be concentrated in a domestic or controlled pledging system, and should not be scattered across borders for the sake of a tiny spread, so as to reduce administrative risk and legal deadlocks.

• The Alternative Minimum Tax / Overseas Income (the NT$1 million / NT$7.5 million thresholds) Taiwan’s “Income Basic Tax Act”: a filing household whose full-year overseas income reaches NT$1 million or more must include the whole amount in the basic income; a basic income below NT$7.5 million usually incurs no basic tax, and the portion above it is calculated at 20%. The key point: this threshold targets “overseas income” (such as selling overseas stocks or offshore funds through an overseas brokerage or sub-brokerage); the capital gain on trading a Taiwan-listed ETF (such as 00662) is Taiwan-stock securities-transaction income (the securities-transaction income tax is suspended), does not count as overseas income, and is not subject to this threshold.

• PFIC (Passive Foreign Investment Company) A U.S. tax-law anti-avoidance rule for “passive foreign investment companies.” A U.S. tax person (citizen / green-card holder / tax resident) who holds a non-U.S.-registered fund (including Taiwan ETFs and Irish UCITS) may fall into PFIC status, with complex reporting (Form 8621) and unfavorable taxation. This is why UCITS is a tool for reducing tax for “non-U.S. tax residents,” yet a tax landmine for U.S. holders.

• Tax-Loss Harvesting / the Wash Sale Rule Tax-loss harvesting: actively selling a position with a paper loss to realize a capital loss, offsetting other realized capital gains and reducing the net tax burden for the year (often used to switch a single company’s RSU / ESPP into QQQ). But you must avoid the U.S. Wash Sale rule: within 30 days before or after selling at a loss, you may not buy back the same or a substantially identical security, or the loss is deferred or disallowed; when the year’s capital loss exceeds gains, the offset against ordinary income is usually capped at US$3,000 per year, with the balance carried forward.

AI Empowerment and Philosophy

• First Principles A physicist’s way of thinking. It refuses secondhand information and expert bias, returning to the raw data for independent calculation and verification.

• Cycle Thinking CLEC’s advanced risk-control tactic. On the foundation of “never sell no matter what,” it combines the macro flow of finance with industry cycles, actively lowering the portfolio’s Beta value during extreme bearish cycles.

• Inflation Tax The invisible plundering of savers by the fiat-money printing system. Only by holding quality assets (the organism-like index) can one resist the risk of the fiat currency depreciating by more than 2% each year.

• Hamster Rice A philosophical metaphor for the capitalist system (not a formal economic term): in this metaphor, a sense of urgency and the pressure of unemployment keep the laborer docile; as long as a person exists they need food (rice), so the person is like a hamster trapped in a wheel, running endlessly, selling time to sustain survival. What it seeks to remind us is this: without productive assets, a person is easily bound by salary and living costs, and the path to breaking out is to build a passive-asset cash flow that does not depend on physical labor.