AI Backtesting Overturned My Investing Intuition: A 20-Year Simulation Reveals Low-Ratio Financing

On Sun, Jun 14, 2026 at 10:22 PM wrote:

Hello teacher,

Recently I used the QQQ historical data you previously shared and tried using Codex to run some simulations. I found this method very convenient: you only need to tell it your financial strategy and initial conditions, and it can quickly calculate how assets would change over the next 20 years under different historical time windows.

I think this method is also suitable to recommend to other classmates. It can help everyone understand the long-term effects and risks of different strategies more intuitively.

Based on my own situation, I ran several groups of calculations and would like to discuss with you whether my understanding is correct and whether there are risk factors I have not considered.

My initial assumptions are roughly as follows:

• Emergency cash cushion: 250,000
• Nasdaq investment: 400,000
• Annual income: 400,000
• Annual spending: 120,000
• Fixed annual investment: annual income minus annual spending

I mainly compared two strategies:

1. Strategy one: regularly invest remaining cash, use an 80/20 Nasdaq allocation, and rebalance periodically.

2. Strategy two: based on strategy one, add 10% pledged financing, with forced liquidation below 1.4. Because mainland China does not have a fully corresponding pledge method, this simulation approximates the financing method shared by Eason in 00506.

I also calculated a third situation: no pledging in the first seven years, then starting pledging in the following thirteen years.

Based on the current calculations, I have the following observations:

First, under my parameters, after adding 10% pledging, no forced liquidation was triggered in any historical 20-year rolling window. In the median case, the final assets after 20 years were about 4 million higher than the no-financing strategy. From the cash-flow perspective, after adding financing, the cash balance at every point in time was also higher than in the no-financing strategy, so the cash flow looked healthier.

Second, the third plan, with no pledging for the first seven years and pledging for the next thirteen years, had results lower than the first two plans. This made me feel that investment strategy cannot be judged by intuition. It still needs to be verified through data.

Third, whether or not pledging is used, the number of years needed for total invested assets to stably exceed the result of not investing and only using fixed deposits is actually similar. In the worst historical window, if investing started in 2000, it took about 10 years to stably exceed the non-investing situation. In the median case, it took about 5 years to stably exceed not investing.

In other words, in the worst historical window, the first 10 years may all be relatively painful. In this situation, although pledging did not trigger forced liquidation, could it bring greater psychological pressure?

Fourth, all these calculations are based on stable wages and no sudden large expenses or unemployment. I am not sure that if pledging is added, and in the future there is a salary cut, layoff, or major expense, whether cash flow being interrupted would affect repayment ability or even indirectly raise the risk of forced liquidation.

Based on these results, I would like to ask you a few questions:

1. Have you heard feedback from mainland China classmates about the financing method shared by Eason in 00506? In the mainland environment, is this method a relatively acceptable substitute? Are there any risks that require special attention?

2. From my simulation results, after adding pledging, cash flow seems safer, and the median 20-year return also improves by 4 million. But I understand that the problem may be reduced risk resistance. For example, if salary cuts, layoffs, and a major market decline combine with cash-flow problems, risks may be amplified. I would like to hear how you view the long-term feasibility of this low-ratio financing.

3. Regarding spending, I would also like to ask whether you have a relatively fixed formula. For example, you previously mentioned that with 1 million in assets and an 80/20 allocation, spending should preferably not exceed 2%. But I feel this ratio may be relatively hard to achieve domestically. How should one balance current spending and future returns?

4. From the simulation results, on average it takes about 6 to 7 years before investment returns stably exceed simple deposits. Can this be understood as meaning that in the first 6 to 7 years, one should focus more on increasing the savings rate and accumulating principal, and only later, after the asset base is more stable, appropriately increase spending?

I attached two Excel files in the email, and both have already been placed in our P-cloud teaching-materials folder.

The first Excel compares final returns under different financial strategies across different 20-year rolling windows.

The second Excel shows year-by-year capital changes under different strategies in the worst-case and median-case scenarios.

I would like to ask you to help review whether my current understanding is reasonable and what risks or assumptions may not have been considered sufficiently.

Thank you, teacher.

James's Reply

I am very glad you shared your simulation results, but please remember that simulations are only simulations. I still strongly recommend that all investors regularly review their assets.

Usually, you need to stress test your plan by assuming that the stock market may continue falling for ten years and decline 80% from the peak. Even if that happens, you must make sure your portfolio remains safe.

Regarding your spending and how to spend money: you need to consider whether your total investments can meet your retirement needs at the age you have set. As long as your portfolio achieves your retirement goal according to plan, your remaining assets or income can be used to improve your quality of life.

Best regards, CLEC Investment and Wealth Management Channel

Disclaimer

All email content, video content, and replies are for reference only. I am not a professional investment advisor, nor am I a professional tax specialist. All information is only a sharing of personal experience. Please invest cautiously. You are responsible for your own investments, decisions, and actions.

Written by James.