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Today’s small article talks about household asset allocation – the S&P Quadrant Chart.
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The Standard&Poor’s Quadrant Chart of Family Assets, commonly known as the “Standard&Poor’s Chart”, is the distribution chart of family assets allocation, which is analyzed and summarized by Standard&Poor’s after investigating the allocation of family assets with steady growth of 100000 assets around the world. This chart is the most reasonable way to allocate the proportion of family assets and carry out family finance for the steady growth of family wealth in the world.
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Founded in 1860 by Mr. Henry Varnum Poor, Standard&Poor’s is a financial analysis institution formed by the merger of Standard&Poor’s Publishing Company and Standard Statistics Company in 1941. S&P’s strength lies in creating independent benchmarks. Through the credit rating of Standard&Poor’s, they truly reflected the solvency and willingness of the government, companies and other institutions with objective analysis and unique insights, and therefore received extensive attention from global investors. S&P has played a pivotal role in the capital market.
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In order to achieve the goal of steady growth of family assets, prevent various accidents from causing huge impact on family assets and damaging the quality of family life. In the quadrant diagram of S&P’s household asset allocation, according to the use and investment mode of household assets, household assets are allocated in four different directions in a certain proportion to meet the needs of a normal family for different types of assets.
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The first account, 10% of the money to be spent
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This account guarantees the family’s short-term expenditure. Daily life, food, clothing, housing and transportation should be paid from this account.
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You must have this account, but our most common problem is that the proportion is too high. In many cases, it is precisely because this account spends too much, and there is less or no money allocated to other accounts.
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The second account, life saving money, accounts for 20%
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This account is used to protect the family’s sudden large expenditure. It must be earmarked for specific purposes. Specifically, it is used to ensure that family members have enough money to protect their lives in case of accidents and serious diseases. This account is mainly used for accident insurance, serious disease insurance, medical insurance and other security insurance, because only insurance can be used to exchange 100 yuan for 100000 yuan. Usually, it does not occupy too much money, and there is a lot of money when it is used.
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This account usually does not play a role, but at the critical moment, only it can guarantee that you will not sell cars and houses, cash in stocks at a low price and borrow money everywhere for urgent needs. If you don’t have this account, your family assets will be at risk at any time, so it’s called life saving money.
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The third account, the money that generates money, accounts for 30%
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This is the investment income account, that is, the money that generates money. It generally accounts for 30% of household assets, creating high returns for households and creating high returns with risky investments.
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This account often makes money for your family in the way you are best at through your wisdom, including the stocks, futures, funds, real estate, enterprises, etc. you invest in. You must have this account, and I believe that your wisdom will also yield high returns. The key to this account is a reasonable proportion, which means that you should be able to make a profit and also be able to make a loss. No matter what the profit or loss is, it should not have a fatal impact on the family, so that you can make a leisurely choice.
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The biggest problem with this account is its bias. Many families buy stocks in the first year, accounting for 30% of the total. As a result, they make a lot of money. In the second year, they use 90% of the money to buy stocks, which goes against the law. If they encounter the black swan [2], it will have a significant impact on family assets.
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（[2] The black swan event is a small probability event that is difficult to predict, but will cause a chain reaction and bring huge negative effects when it happens suddenly. It exists in nature, economy, politics and other fields. Although it is an accidental event, it will lead to systematic risks and serious consequences if it is not handled properly. The black swan exists in all fields, no matter in the financial market, business, economy or personal life, it cannot escape its control.)
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The fourth account, capital guaranteed appreciation, accounts for 40%
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This account is a long-term income account, that is, the money for capital preservation and appreciation. It generally accounts for 40% of household assets. The pension, children’s education fund, and money left for children, which are used to protect family members, must be used and prepared in advance.
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This account is capital guaranteed and appreciation money. It must ensure that the principal cannot have any loss and can resist the erosion of inflation. Therefore, the income is not necessarily high, but it must be stable in the long run.
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The most important attribute of this account is specificity:
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First, you can’t take it out and use it at will. Pensions are said to be saved, but some families often use the money in this account to buy cars and decorate;
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Second, a fixed amount of money will enter this account every year or every month, so that a little makes a lot, otherwise it will be spent at will;
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Third, it should be protected by law, isolated from the assets of the enterprise, and not used to pay off debts.
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We often see how many people are prosperous when they are young, but poor when they are old, because they have not managed this account well.
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The S&P family asset quadrant chart is a guide to the configuration of family disposable assets. Its purpose is to ensure the steady growth of family assets and the stable continuation of family life. The key point of this configuration is the balanced configuration of family disposable assets.
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In this way, we have not only liquid cash to meet the needs of short-term life, but also reserves to meet the long-term development of families and family members, and also reserves to pass on the economic losses caused by unexpected risks. From the perspective of family finance, it is a family wealth risk management system with both offensive and defensive capabilities.
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Of course, different families will face different situations, and different family members will have different needs in different life stages. Therefore, the proportion of each part of this quadrant is only a reference, and we can adjust it according to actual needs.
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In fact, many families, especially the generation of our parents, know the importance of saving. Many families will economize on their daily expenses to force themselves to save money for emergencies. However, many people failed to enjoy the social dividend in the process of substantial wealth growth in the reform and opening up countries, partly because they did not reasonably distribute their own assets. We not only require stability (savings and security insurance), but also find ways to make money, at least let the capital guaranteed appreciation money in the fourth quadrant come true, rather than simply putting money in demand (large fixed deposits are less flexible and growth than financial insurance in the long run). So we need to keep learning and expand our understanding. What S&P Chart brings us is more a way of thinking about scientific capital planning. How can we give consideration to risk resistance and growth protection? We can think from a higher perspective and find an investment and financing model that suits our own situation.