Smart Rebalancing: Advanced Rebalancing When You Use Leveraged Funds

In 30 seconds: An advanced rebalancing rule for investors who deliberately hold a 2× leveraged fund (e.g. QLD / 00670L). Two rules: in an up year, move 30% (or 50%) of the leveraged fund’s yearly gain into a money-market / short-bond fund; in a down year, move 2% of total assets from cash back into the leveraged fund. Its value: you can rebalance without adding new money.¹

⚠️ Read this first: CLEC’s default allocation uses no leveraged funds and no smart rebalancing (see Cash Is Air) — “simple is the correct solution.” This page applies only if you already understand and voluntarily accept leverage risk and hold a leveraged fund.

The two rules

• Up year (this year’s QQQ / 00662 year-end price > year-start): move 30% (more conservative / volatility slowly grows) or 50% (volatility unchanged) of the leveraged fund’s gain into the money-market fund (00865B).
• Down year (year-end < year-start): move 2% of the original total assets (a fixed amount) from the money-market fund into the leveraged fund.

Key detail: the down-year 2% is a fixed amount based on the initial total. If you started with NT$10M, 2% is NT$200k — and it stays NT$200k whether assets later become 5M or 30M.¹

Computing the yearly gain: leveraged fund’s year-end value − year-start value − new money added this year. Record cumulative realized gains so next year you can compute “how much was earned this year.”¹

Example without new money

Start with NT$1M: 400k QQQ / 300k QLD / 300k money market.¹

Year 1 (up) → 45 / 36 / 31. QLD gained 6, 30% = 2 → sell 2 of QLD, buy money market:

450k QQQ | 340k QLD | 330k money market

Year 2 (down) → 40.5 / 28.8 / 34. Down-year amount = original 1M × 2% = 20k → sell 20k money market into QLD:

405k QQQ | 308k QLD | 320k money market

Repeat each year — trim the peak in up years, add to leverage on dips in down years — all without new money.¹

Flexible Rebalancing 2.0: when cash is under 15 years, don’t spend it

00538 introduces Flexible Rebalancing 2.0, a variant of smart rebalancing — the core idea is unchanged; it only switches where the down-year top-up to the leveraged fund comes from, based on whether your cash position covers 15 years. The intent: when cash is under 15 years, in a down year don’t consume cash to top up leverage — use the base fund (QQQ) instead, so that “cash isn’t drawn down over 15 years.”²

Cash position	Up year	Down year (top up one year of expenses to leverage)
Under 15 years	Move a set % of the leveraged position to cash (variable 2)	From the base fund (QQQ) (variable 3) ← cash untouched
Over 15 years	Move a set % of the leveraged position to cash (variable 4)	From cash (variable 5) ← i.e. traditional smart rebalancing

• Precondition for down-year rebalancing: only rebalance in a down year if at the peak you held more than 15 years of cash. E.g. with 18 years of expenses at the peak, you have 3 years of downturns you can rebalance through (18 − 15). If you’ve fallen from the peak with under 15 years of cash, avoid down-year rebalancing — rebalancing when cash is short is risky.²
• Why it’s worth it: backtesting “with flexible rebalancing vs. plain smart rebalancing” comes out winning more than losing, and even when it loses, the minimum maintenance rate is still higher — for anyone using pledged loans, that’s an extra layer of maintenance-rate protection.²
• The cost: more parameters (several “variables” to set yourself), but the core is still smart rebalancing — you just get to choose the top-up method by how much cash you hold. This shares the “don’t draw down the cash flow” safety logic with 十五年現金流 and 現金是空氣.

Relationship to other pages

• The default, unleveraged allocation and retirement withdrawal tiers are in Cash Is Air.
• If you use pledged loans, CLEC recommends plain mechanical rebalancing (reset ratios to the originals each year), not this smart method.

⚠️ A 2× leveraged fund drops far more than the underlying in a crash and suffers volatility decay. This faithfully summarizes CLEC’s advanced strategy for education only — not investment advice; tickers (QLD/00670L/00865B) and tax rules vary by region.

Footnotes

1. CLEC James, “Smart Rebalancing”; see also CLEC feature “Flexible Rebalancing 2.0,” 2025-11-02. Converted source: raw/docs/教學資料/【聰明再平衡法：】 .docx. ↩ ↩² ↩³ ↩⁴ ↩⁵

2. CLEC James, long session / deck 00538 “Flexible Rebalancing 2.0: Cash Undiminished Over 15 Years, a Win-More-Than-Lose Safety Upgrade,” 2025-11-01. Rules and the “cash undiminished over 15 years” intent from the deck raw/docs/簡報資料/00538… (down-year top-up source switches on whether cash covers 15 years; wins more than loses, higher minimum maintenance rate). ↩ ↩² ↩³