What goes where
Where should you put your savings and investments? Let’s look at some options.
This is our sixth portfolio post. You can see the previous ones here: geography, risk, asset allocation, taxes, and time.
Hopefully everyone is down with the basics of personal finance: spend less than you earn, save and invest the difference, do this for as long as possible.
I will also assume that everyone is okay with using banks and other financial tools of modernity. If you are happy to keep your money in your wallet or under the bed you can probably skip this post 🙂
You need a current account to receive your salary, etc. and pay bills. I’ve been using Shinsei Bank for a long time and am very happy with them. You get a couple of free furikomi a month (which I use to send money to my THEO account), current accounts in other currencies, no ATM fees, and they refund ATM fees incurred abroad.
You should also have a separate account for your emergency fund. This should be liquid and have minimal volatility, so probably in cash. I use Shinsei’s savings account (it’s called Power Yokin). I presume most banks will have something like this. Hopefully you have at least a couple of months’ worth of cash in here.
Anyone planning to stay in Japan should consider maxing out their iDeCo account. The tax savings alone make this the best long-term investing option (except for US citizens, sorry*). There are links to comparison sites of providers and fees on the iDeCo page.
Next, or alternatively, invest in NISA accounts. The best place for this will depend on what you are looking for in terms of service, fees, and investment options, but the big online brokers tend to provide the most value. You can open a NISA account for each family member, and buy stocks, ETFs, or mutual funds*. Best of all, you can sell the investments at any time and get access to the money, so these are good for people planning to leave Japan as well.
A robo-advisor account (I strongly recommend THEO out of all of the ones I have tried) is a really easy way to invest small amounts regularly. As you only pay an annual fee and not commissions on each payment, it can be better to invest small amounts here rather than through a broker. They also take care of everything for you, so it’s a good option for people who don’t want to learn about investing.
Any other accounts? It may be a good idea to have a couple of the above, with different companies, in order to reduce the (fairly small) bankruptcy or hacking risk. You might choose to open accounts in different countries to reduce political risk or because you don’t know where you are going to end up living.
(*US citizens should avoid foreign-domiciled mutual funds as they are treated extremely unfavorably by the IRS)
What do you do with your savings and investments? Any good tips? Let us know in the comments 🙂
I’ve read up a bunch on U.S. tax laws. For Americans with not much money, the badness is real but can be managed, according to my (limited) understanding.
If the U.S. citizen’s total foreign investment holdings are less than $25,000 USD, there is only one extra tax form that needs to be filled out each year. Do some math in a spreadsheet, fill out the form and send it along with the 1040. The paperwork is quite confusing to read, but if you dig deep, read carefully, and have a good setup, the accounting calculations are straightforward. When the value is greater than $25,000 USD, there could be tons of relatively simple but fairly annoying paperwork, depending on investment timing and details.
The foreign investment earnings are taxable, but the standard deduction can be used. For Americans who are covered by the Foreign Earned Income Exemption and don’t have any other U.S.-based income, this is around $6,000 USD tax-free.
Whether it’s worth setting everything up knowing that things are simple only when you don’t have much cash is an open question. Well, one option is to try things out for a year or two and see how it goes. In that case, the NISA is a reasonable option (over the iDeCo), because you can take the money out if taxes get hellish.
Thanks Douglas! I know nothing about US taxes apart from the fact that I don’t approve of a lot of them 🙂
It’s good to have some advice from someone experienced.
Of course it’s all so confusing, I wouldn’t recommend Americans deal with it unless they really want to and have a great deal of confidence in their understanding of the relevant portions of U.S. tax code. Ho ho ho. 🙂
The short story is that for some U.S. citizens, with the right setup, the paperwork is minimal and no extra taxes will be owed.
Hi, first of all thank you for this site – it’s very useful!
I’m a US citizen living in Japan and am wondering about THEO or other robo-advisors in Japan…tax-wise, anyone know if it’s a bad idea for US citizens to bother with them? I have a Betterment account in the States but don’t feel like moving yen back to dollars at the moment due to the exchange rate, so have been looking at investment options in Japan.
Thanks!
Hi Justin
Unfortunately, thats an easy one to answer: none of them.wilk take US citizens (don’t want to deal with US govt.).
I’d probably stick with Betterment anyway for the lower fees 🙂
Ahh, I didn’t know that! I assume that’s true for both THEO & 8 Securities? I can’t find anything about it either website, but I guess it’s not something they really need to advertise.
Can’t say I blame them, not wanting to deal with the US government. Blah.
Anyway…thanks for saving me trying to sign up for an account, appreciate it.
Just in case, I assume you are considering staying in Japan for a long time. If it’s only a few years, you have to send the money home sometime anyway, so why not do it now. 🙂
Yes, I’m planning to stay here for quite a long time, and if/when I leave, the US isn’t where I expect I’d go. But, it’s a good point you make! 🙂
Hi Ben,
Do you use Nisa though Shinsei?
I have a Nisa account though Shinsei Bank. Shinsei bank is awesome, but not sure about their NISA. I can’t find an appropriate fund though Shinsei’s NISA
I know exactly what fund I want, I want a super low cost, passively managed, index fund of global stocks. Possibly hedged.
Maybe this one? Nomura global index fund. ‘Funds-i’
http://sp.shinseibank.com/powerflex/trust/lineup/fi_usstock_h.html
Is that the closest to what I want?
Do you use a Shinsei NISA or another company?
Hi Matt
Sorry, I only use Shinsei for banking so not familiar with their offerings.
My investments are mainly with Rakuten Securities, including NISA, iDeCo, and regular tax-reporting broker accounts.
Rakuten and SBI seem to be popular with investors.
That fund is moderately cheap at 0.5% annual charges (best in class tend to be 0.2% or so).
It’s a US dividend equities fund that yields around 2.5% and is hedged (possibly the reason it’s more expensive).
Shinsei does not have a great lineup, to be honest. You might want to look at some other brokers for your investing needs.