Spoiler alert: still very happy with it š
THEO first popped onto my radar early this year. I wrote about it here, talked about opening an account here, and followed up here, here, here, and here.
I’m still a big fan of the service. It is by far the best of the five robo-advisors I looked into. THEO’s fees are too high, they won’t (can’t?) take US citizens, but other than those two points I have no complaints or suggestions for THEO.
So why do I like it so much?
First, and perhaps most important, the service. Their sign-up process is incredibly easy, every time I contact them I get a helpful, friendly, and professional reply in short order, the website is simple and clear, and they provide all the services you could hope for:
- building a diversified portfolio of low cost ETFs
- rebalancing
- tax-loss harvesting
- kakutei kouza (tax-reporting account)
- transferring money in and out for free
- no charges other than the annual fee
There have been several upgrades/improvements over the year, the biggest of which was the option of seeing your investments in yen (the initial default) and dollars (the actual currency they are held in).
This is really significant as the strong yen earlier this year has made returns in yen look terrible for most of the year, something that flipped this month as the dollar soared against the yen.
So how is it looking so far?
Well, I opened the account in March and funded it with 105,000 yen. Since then I have added 20,000 yen twice a month and a one-off deposit of 200,000 yen in September.
In yen terms it now looks like this:
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And in dollar terms like this:
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They have also been doing tax-loss harvesting on the account so that it is currently showing a loss for the year, which can be used to write off future profits:
Now, I think just looking at the numbers in this post (18% return!) would be a mistake. It is clearly a one-off due to the favourable exchange rate right now. A month ago this post would have looked very different.
However, THEO could be a great fit for a lot of people. Once you set up the account (which is fairly painless) you really don’t have to do anything apart from remember to transfer some money across every so often.
I transfer money twice a month (on payday and the day I pay my credit card bills) and check my balance once a month (to update my net worth spreadsheet) and that is all I have to do. In fact, checking the balance would be optional for non personal finance geeks š
I’ll continue to use the service and report back here if things change.
Anyone else using THEO? Did I miss anything or get something wrong?
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You mentioned that it’s not available for Americans. Even with permanent residency here in Japan?
Sadly, it’s an IRS thing. Basically the US government’s reporting requirements (and penalties) are so burdensome that many financial providers just aren’t willing to take the risk of dealing with US citizens.
None of the robo-advisors in Japan, as far as I know, are willing to take on US citizens.
I think the best options for US citizens are:
1. invest in the US using existing accounts
2. open an account with Interactive Brokers
3. buy US shares/ETFs through a Japanese broker
4. have a Japanese partner invest in their name
Nice! You mention that all your investments with them are actually held in dollars: doors this mean that all or most of your ETFs are US-based?
I think they use US ETFs exclusively, mainly for the low cost. All assets are held by THEO in dollars.
But wouldn’t a large part of the underlying assets (that make up the ETF fund) not necessarily be in US equity etc, and as such not under influence by USD/JPY fx ?
(Although EUR/JPY has been equally volatile I guess so same point applies maybe)
Not sure I have a good answer to this. Most of the underlying assets are US-listed, but a substantial minority aren’t.
I spent the whole year buying cheap dollars with strong yen, only for that to flip this month and produce an 18.75% gain (in yen).
So anyone using THEO has to be ready for these apparent currency swings.
That’s why they made this new dollar view screen š
It sounds very interesting, but you say that all assets are held by THEO directly, rather than by THEO as agent/custodian on your behalf. Not wanting to piss on the parade – and this is pure speculation as I’m not familiar with the details – but on the face of it that sounds to me like you have only contractual rights against THEO itself, and potentially no proprietary rights in the underlying securities themselves. If so, and THEO gets in to trouble, you could potentially rank alongside all of THEO’s other unsecured creditors in any bankruptcy proceedings which means you would likely only get back pennies on the dollar.
I’d be really interested to hear from anyone who has done the thinking on this with respect to THEO (and any other local robo-advisers).
Great point. Will now look into this š
I love THEO’s customer service guys. Detailed response to question in under 30 minutes š
Quick summary: cash is held separately in a special bank account. The ETFs are also held in a separate account from company assets. Customer assets are guaranteed up to 10m yen (by the government? Not sure).
Full response in Japanese below.
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(Replying at this level as can’t reply directly to the follow-up below)
Ah nice – yeah that’s very efficient. Although to be fair it’s the kind of question to which they probably already have a pre-baked response.
I read the linked JSDA leaflet and it seems pretty legit to me in principal, assuming they’re doing what they say they’re doing š And assuming that Japanese bankruptcy law operates in the way they represent it does. JSDA is a private association and interested party, after all.
My two cents is that – as with any small or new “broker” – it pays to remain a little bit cynical and spread the love around when it comes to who gets to hold on to your hard earned cash. I’d be keen to consider (depending on the amount of funds you’re committing) THEO in conjunction with a local NISA, maybe a second robo-manager and an IB account. Three or four cooks are better than one when it comes to bankruptcy risk. If you’re really holding a huge amount of funds at any one institution you could do worse than spending a few grand to get a legal opinion from a local Japanese law firm on the claims made by customer service and in the linked documents.
Cheers
Just by way of follow up to the comment I posted a couple of minutes ago, Google Translate delivered the following surprisingly effective machine translation of the service rep’s response to RetireJapan – thought it might be useful to paste the whole thing here:
“Even if we are going to bankruptcy, we will protect assets held by customers.
Customer assets are protected by a dual system. “Separation management” and “investor protection fund”.
First, about “separation management”.
Firstly, at our company, cash is always deposited in the trust account of the bank so that the same amount as cash received from customers based on laws and ordinances.
Even if our company collapses temporarily, we will not use the trust property deposited in the trust account for repayment of debt, etc. and it can not be done by law.
Secondly, securities are managed separately from our assets by a custodian in the United States.
With these mechanisms, in the case of cash, in the case of securities, we have managed a mechanism to manage customer assets separately from our assets by a mechanism called “separation management” for each.
In addition, if you can not completely return the customer’s assets due to an accident or the like (or if it takes a significant number of days to return)
The “Investor Protection Fund” will respond. Under this system, customers’ assets will be compensated up to 10 million yen.
Separation management is very important as a management system at securities companies,
It is a part that is strictly checked in financial inspection and audit.
ā¼ (Reference) About securities management of securities companies such as Japan Securities Dealers Association
http://www.jsda.or.jp/sonaeru/bunbetsu/
In other words, by protecting the customer’s assets by the mechanism of separation management,
This mechanism is functioning properly In other words, by separating and managing mechanisms to protect customers’ assets,
We will also check from outside eyes whether this mechanism is functioning properly.
Specifically, we periodically receive inspections by the Financial Services Agency and audits of the Japan Securities Dealers Association,
It is supposed to be checked annually by an auditing corporation or a certified public accountant,
Therefore, it can be said that not only one company but the whole industry is structuring a mechanism to protect customer assets.
With such a multiple mechanism, your assets are being protected.
I think that you can rest assured.”
Great translation there! That is the new ‘machine learning’ version of Google Translate they just rolled out -speeding its way to putting me out of a job š
Good point about spreading across different brokers too.
We currently have too much with Rakuten perhaps. My wife has about 80% in Rakuten and 20% with Iwate Bank’s iDeCo.
I have about 8% with THEO and the rest in Rakuten.
Perhaps I should open that SBI account after all -it would provide diversification and research for the blog…
If memory serves me right, the Ā„10M cap is essentially the same legislature that guarantees depositors who place their savings into a bank account.
What is really uncomfortable about this fact, applied to Japanese robo advisors is this:
If a retail investor is effectively limited to holding only Ā„10M with any robo advisor, the cumulative costs of transacting across multiple brokers/advisors could potentially drag down total returns over the years.
There might also be another slight drag as well, given that assets are not able to compound as a whole.
Hi Desmond
I’m not so sure about that. After all, if all robos provide a similar service, and all charge the same 1% fee, then it shouldn’t matter how many lots of 10m yen you have, surely?
If all goes amazingly well, it’s still going to take me 5-10 years to reach that kind of money, so I will think about how to handle it then š
Hello
Can you invest in MF via theo if you dont have PR?
How much are net returns have you gained by using theo?
Hi radioactive
I don’t think you need PR to sign up for THEO (but please let me know if that turns out to be the case)
Returns from THEO in yen are going to depend on the performance of your chosen portfolio and the dollar-yen exchange rate. I’m not sure it is useful to give you a number here, as it is kind of meaningless. The value of THEO is a hands-off diversified portfolio.
Having said that, my account is up 11.63% in yen, and 9.24% in dollars this morning.
Hello
Thanks for your reply.
Just curious,Is 11% return for high risk profile?
Yes, my portfolio is set to the ‘highest risk’ (which I don’t believe is an accurate description, by the way -it’s more volatile but possibly safer over the long term š
Hello
Thanks for your response.However,I think that even at high risk profile 11% returns are too low.In emerging markets one can get returns as good as 40% at high risk portfolio.
By the way,how is their holding requirement?Can you exit anytime?
Hi Manish
If I could get 40% from an investment, I7d start selling things to put more money into it (like my clothes, or minor family members).
Still, I wouldn’t class a diversified portfolio of global equities as ‘risky’ especially over 30+ years.
You can get your money out almost instantly -the bank transfer takes a day or two.
Hi again,
Thanks for your comment.
I asked you as I was evaluating if it was better to invest in Japan or my home country.Just for information,have a look.Markets in emerging countries might probably win for me.
http://www.moneycontrol.com/mf/find_a_fund/findtopfund.php#result
I am not very sure if foreigners can buy funds in India.
Cheers
Manish,
I’m from India as well and I’ve been thinking along the same lines. However, a friend reminded me that INR will depreciate over time, negating the high returns. Maybe a better approach is to split the portfolio between Japan and India.
Let me know if it makes sense. I haven’t begun investing yet (I’m 33), but I have some cash held in term (1 year for now) deposits at nearly 7% interest rate. So, I’m by no means knowledgeable.