Portfolio: Geography

Where are you going to rest your hat?


We’re starting a new series today, looking at various aspects to consider when making an investment plan.

I’ve received a lot of questions recently about how to start investing, and it can seem pretty overwhelming at first, so over the next few weeks we’ll go through various aspects of making an investment plan.

Today we’ll be looking at geography.

And basically it boils down to the question: are you planning to retire in Japan?

If so then I recommend you either get permanent residency (you can apply after 10 years living here, or after three years of marriage to a Japanese citizen) or naturalize (five years living here). Not having one of these puts you in a vulnerable position (you could lose your visa and have to leave). There are no downsides to having permanent residency. As soon as you become eligible you should apply. If you naturalize you will need to renounce your current citizenship. This is of course a huge decision.

If you are not planning to retire in Japan it may make sense for you to keep some of your investments abroad -this is because most financial institutions in Japan will ask you to close your accounts if you leave.

There are a few options: Interactive Brokers, banks in Singapore or Hong Kong, or providers in your ‘home’ country if you have access to them.

The exception would be tax-advantaged accounts like iDeCo and (to a lesser extent) NISA. It may make sense for you to use these even if you are planning to leave Japan.

If you are not sure, but plan to be here for a while, a combination of the two (investing in Japan and abroad) may be a good way to hedge your bets.

If you are resident in Japan for tax purposes, you must declare all worldwide income to the tax office.

[EDIT: this following section is partially false. Both instructing dividends to be reinvested and buying accumulation funds do not get you out of paying tax on the dividends. See Stockbeard’s comment below]

​The easiest way to avoid headaches here is to invest in things that do not produce dividends or interest in overseas accounts, and refrain from selling them. Some examples would be shares that don’t pay dividends [FALSE]or mutual funds/ETFs that reinvest dividends.[/FALSE] As they are not producing any income, you neither have to declare them nor pay Japanese tax on them while they grow.

If you have more than 50 million yen’s worth of overseas assets you must declare this to the tax office, regardless of whether you owe tax on it or not. Failure to do so is a crime with both penal and monetary sanctions.

If you have more than 100 million yen’s worth of worldwide assets excluding property when you leave Japan, you may be liable for the exit tax.

The other thing that we need to consider is currencies and exchange rates.

If you are planning to retire in Japan, you don’t really need to think about exchange rates too much (apart from if you plan to take lots of overseas trips). You are presumably earning in yen, you can invest in yen, and in the future you will need yen to spend.

If you are planning to leave Japan, it’s a bit more complex. If you know that you will be moving to Canada next, then you may wish to keep a certain amount of your investments in Canadian dollars. This is to avoid the unpleasant possibility of the yen crashing just before you transfer all your yen to Canada as you move.

Of course the opposite may also happen, i.e. the yen gets really strong just before you move. You can’t predict which will happen, so it is prudent to make sure you have enough dollars to meet your needs, regardless of what happens with the exchange rate.

If you’re not sure where you will end up, a mix of currencies might be a good strategy. For example, I have pounds, dollars, and yen in my portfolio.

Now that we (hopefully) have geography down, we can look at risk next week.

What are your thoughts on geography and investing?

17 Responses

  1. So a robo service like THEO isnt taxable until you withdraw the cash?
    When i cash out, how do they tax it? Is it done automatically or do i have to fill out forms? (sorry i am a newbie)
    Because i eventually plan to go home, I’m unsure whether its worth setting up Theo in Japan or trying to use a robo advisor in my home country (UK) I presume transfer costs of currency would eat into my gains.

  2. Hi Nick
    THEO sends you a tax statement (確定口座) if you have tax due. They also do tax-loss harvesting, which will hopefully reduce or eliminate capital gains taxes.
    Bit of a spoiler, but you might want to check out Nutmeg in the UK. I’ll be doing a review on Feb 10.

    1. Thanks! Looking forward to your review.
      I’m particularly interested in the viability of using nutmeg from Japan for an eventual return to the UK 🙂

  3. The global income declaration only applies after you’ve lived here for five years. Also, non permanent residents can get their pension refunded (subject to taxation) after hey leave. I suppose PRs can do that too in theory, if they give up PR.

    1. Hi adamu
      Good point! I guess I subconsciously assume all RJ readers are lifers 🙂
      The pension refund (lump-sum withdrawal) is pretty poor though. You can only get up to 36 months refunded (maximum of just under 300,000 yen): http://www.nenkin.go.jp/international/english/lumpsum/lumpsum.files/0000019735Jtb6lIblfc.pdf
      If you paid in much more than three years, and there is any chance of you coming back and paying enough to become eligible it might be better to keep it in the system.
      Crappy situation though, eh?

  4. I’d love to see a post on how you have allocated your funds in THEO (or is that already on here?)

  5. Hi Sean
    I might have mentioned it when I first opened the account. Basically I set it to the highest risk/reward setting (100% equities). I’m young enough and have a stable enough lifestyle to be able to roll the dice with my investments 🙂

  6. Nice to see one of the more complicated threads in the forums being given exposure.
    I do not conform to the norm, so what I chose instead was to invest only with asset management firms of overseas origin. In Japan at least, it means most of my assets are with BlackRock.
    What this means, is that in the unlikely event that I relocate overseas, BlackRock is able to exchange whatever is held here in Japan for its local American equivalent, which I can then continue to hold until further decisions are made.
    One small point to nitpick though. Permanent residency can be achieved within 5 years (and soon 1 year) if one is able to secure the Highly Skilled Professional Visa =)

    1. Interesting point about BlackRock.
      Ah, the highly skilled professional. Do you qualify? I don’t, despite my 2 MAs, 14 years experience, JLPT 1, etc. 🙁
      Apparently as of last year a couple of thousand people were ‘certified as eligible’, we’ll see how many actually get PR this way…

      1. Hello Ben
        Yes, I am one of the couple of thousand who were certified.
        Hopefully with the upcoming changes to the system this March, I can drastically speed up the acquisition of a permanent resident visa, and thus get onto the real estate ladder =)

  7. Hey Ben, excellent post as always.
    Just a slight correction, you have the requirements for PR/naturalisation switched. You only become eligible for naturalisation after 5 years, where as you can get PR if you’ve been married for 3 years.

  8. A question/comment: I’m pretty sure that dividends from ETFs trigger a tax event *even* if they are reinvested. At least this is how it works here for me with everything automated in the US: the dividends show up as dividends in my tax forms from schwab, even though they are automatically reinvested. I’d be surprised if Japan treated those differently?

    1. Interesting! I’m not sure, to be honest. Just discovered the reinvestment option here in Japan.
      I’ll have a look online and ask Rakuten how they handle it.
      Thanks for bringing it up 🙂