Just a little spring-cleaning
iDeCo accounts are pretty low-maintenance. Once you open the account and decide where you want your contributions to go, you don’t really have to do anything else until you reach the age of 60 and want to get your money (you also have the option of leaving it in the account to grow tax-free for a further ten years).
I opened my account a couple of years ago and haven’t changed anything since, so perhaps it is time to take a look and see if there is anything we can do to make it more effective.
This is my current setup with Rakuten:
Three funds: one developed world equities, one emerging markets equities, and one Japanese equities (a 50/30/20 split). The allocation is overweight Japan and emerging markets. The reason for that is that the rest of my portfolio is underweight those classes.
I find the best place to check expense ratios for funds is the government comparison site. Just click on the provider name to bring up a list of funds.
My three funds have the following expense ratios: 0.216%, 0.594%, and 0.1728%.
Within an iDeCo account, you can rebalance and reallocate your investments (this is called ‘switching’). You can also transfer your account to another provider, but this takes a few months, and you lose your contribution for that time. Last year I changed my wife’s iDeCo account from Iwate Bank to SBI. When we opened it, Iwate Bank was a good option but it is no longer competitive.
Let’s see if I have any options to improve my portfolio.
There is only one emerging markets equity passive fund, and I already have the cheapest Japanese equity fund, so no potential changes there. For the developed world equities I could change to the Vanguard fund (essentially VT in a Rakuten wrapper) which is only 0.1296%. This fund includes emerging markets and Japan, so changing the entire account to this might make sense. The problem with VT is that it has some US tax issues and includes two layers of fees (although it is much cheaper than the alternatives in the Rakuten iDeCo, so this is a bit of a moot point).
How about other providers?
SBI actually has two iDeCo plans (the original one and the ‘select‘ one). The select one is newer and seems a bit better. In the select plan they have the following expense ratios: developed world equity 0.108%, emerging market equities 0.20412%, and Japanese equities 0.17172%.
Monex has the following ratios: developed world equity 0.11772%, emerging 0.20412%, and Japanese 0.1674%.
So is it worth changing?
It appears that SBI and Monex have slightly cheaper offerings than Rakuten at the moment. This might be worth considering if you are going to open a new account, but I am not sure they are better enough to be worth changing providers.
Moving my entire portfolio into the wrapped VT Rakuten Vanguard fund might be an option, and would be relatively easy to do through switching.
My wife has the ‘original’ SBI iDeCo account, so I just sent them a quick email to ask about changing to the ‘select’ version. I will post in the comments if they get back to me.
What do you think? Should I change to the Vanguard fund (cheaper option) or keep my current, more expensive funds?
I think there is better tax efficiency when a tax-advantaged retirement account like iDeCo only contains securities from that country (Japan in this case). For regular taxed accounts there is better recognition of the taxes paid to foreign governments for dividends from the fund either as a deduction or even tax credit. For instance, for my US IRA I have no recourse for foreign taxes paid for an international fund while the same fund in a taxable account gives me the opportunity to take a foreign tax credit when filing in the US. The Japanese tax office also considers those foreign taxes paid in addition to the US taxes when figuring the tax due. That’s one reason why I keep only Japanese equities in my NISA.
You just reminded me to look into mine. I only opened it in December 2017 (well, I applied several months here that, but you know how it is) and I haven’t checked it in well over half a year. I set it up before buying your guide so I really should check properly.
Quick stupid question when you rebalance/reallocate does it sell the ones you already have realizing the losses or will it just start funding the new ones?
You can actually do both: there is an option to change your monthly investments going forward (ie you spend your monthly payment on new funds), and there is an option to sell your current holdings and move the money into different ones.