Even more beginner-friendly
We talked about changes to THEO recently. You can see all the THEO posts so far here.
So what’s new?
Well, the minimum deposit to open an account has been lowered from 100,000 yen to 10,000 yen. That means that opening a THEO account is now easier than ever.
The other development is that they have created a new way of using the service. In the past when you signed up for an account, they asked you some questions about things like risk, inflation, etc. Using your answers they would assign you a risk rating and design a portfolio for you. After making the account, you were then free to change the allocation manually.
However, when they followed up, they found many customers didn’t really understand the questions.
So they made a new mode: “leave it to THEO” (お任せモード). Basically based on your age and assets they will decide the best way to allocate your portfolio and run it automatically. You just have to select the automatic mode.
There is still the option to create your own portfolio manually if you prefer, but I think this new service makes THEO even more beginner-friendly.
I tried it out with my wife’s account. Switching to ‘leave it to THEO’ resulted in the portfolio becoming much more conservative and defensive:
In more detail:
For what it’s worth, I think that’s a reasonable portfolio for someone with my wife’s characteristics. I’m going to leave it on ‘leave it to THEO’ mode and see how it does. Should be interesting, particularly if we see a market correction or crash.
So is THEO for you?
Well, I am a big fan. I love the service, the product, and the interface. It’s perfect for beginners. You put money in, they manage it, you take money out.
However, the fees are high. 1% a year is probably too much for this service. If you are comfortable investing yourself, you can get similar results and only pay 0.2% or so. Over decades, this will make a huge difference.
So I would say if you want someone to take care of things for you and you don’t mind paying for it, THEO is a good choice.
If you have the time and interest to learn how to do it yourself, you can save yourself a lot of money.
Both options are reasonable, and better than the alternatives: not doing anything or letting someone rip you off with unsuitable products.
What do you think? Any THEO fans out there? How are you finding the service? Please post comments and questions in the comments below.
Hey,
I use and also like Theo quite a lot, I am actually also quite happy how their portfolio follows the asset allocation of Ray Dalios all weather portfolio a bit, ~55% bonds, ~15% commodities+gold, rest stocks.
One question that bugged me a bit is, I have read that when you buy mutual funds and they actively buy and sell you’d pay captial gains everytime they sell and you make a profit, so if a fund would be very active you would pay tons of tax.
Now for Theo it says they rebalance monthly,
– I do wonder if the rebalancing is then also taxed accordingly (it may be a bit too frequent for me to balance monthly)
– If the rebalancing imposes fees. I don’t think ETFs charge purchase fee but ETFs charge a small fee similar to an index fund? So you’d pay all those fees everytime they rebalance?
Those fees of holding the ETFs may or may not add up additonally, for example my portfolio holds EWJ which has a fee of 0.48% I assume those fees will be added on top of Theos fee, so the real cost would be 1% + dollar averaged ETF fee + tax?
Do you have any more insight on how these things work?
You also mention if you are more active you could achieve similar performance by yourself for 0.2% or less, any recommendations? I have tried finding ETFs that buy bonds/commodities to balance out a portfolio here in Japan but especially commodities was hard to find anything really. I am not sure if all the ETFs they buy are in the US but I am always unhappy thinking that Rakuten charges 25$!!!! per transaction for the purchase of US stocks. That means on a 1000$ transaction I am already down 50$ (buy and eventually sell). Monex claim they charge between 5$ and 25$ depending on the volume but I have not tried their US service yet.
anyway ramble ramble, I’d be super thrilled to hear your opinion and recommendations.
Hi Henning
Thanks for the comment! The specific portfolio is going to depend on what they give you/you choose (for example, mine is all stocks).
So far my account is not racking up capital gains tax -the buying and selling seems to be offsetting each other to some extent. I think there may be capital gains to pay if I sell eventually.
THEO says the purchases are free.
Great point about the ETF annual fees. I should probably ask them about that (makes them even more expensive and difficult to justify).
Not sure about commodities, but when I looked at fees SBI was much cheaper than Rakuten for buying US-listed stuff… I’m still using Rakuten due to inertia basically and because I tend to batch purchases and buy 600,000 yen’s worth twice a year.
Not sure how much that helps 😉
Hello Henning
If memory serves me correct, this question was posed to Ben sometime last year, and the official reply from THEO was that their annual 1% management fee is on top of each ETF’s individual management fee.
In other words, if THEO buys into EWJ you will be paying 1.48% in total, though I do not have any answers on whether their monthly rebalancing incurs taxes. Let’s wait for their reply on this one.
The cheapest brokerage to purchase US stocks will be either Monex or SBI, given that their fees start from USD$5, and also due to the fact that their currency exchange rates are more competitive than Rakuten’s.
With regards to commodities ETFs, they are rather limited here in Japan due to the insanely high cost of most of them. That said, the lowest cost ETF currently available to us consumers is one which tracks the [S&P GSCIⓇ Energy & Metals Capped Component 35/20 Total Return Index] at 0.3%.
Its stock ticker is 1327.
Hope this helps!
Desmond! Your memory is much better than mine 😀
I had a vague recollection of that but not enough to answer…
Thank you all for the awesome responses, that answers my questions 🙂
Hello 🙂
Signed up to Theo about 6 months ago. I have a couple of questions though!
– When is the 1% fee charged? Is the 1% fee taken into account when you see your total return shown on the page with the graph?
– Finally, when i signed up i selected the tax adjusted account option (? not quite sure that is what it was called) Does this mean there are no taxes to pay when i withdraw?
Hi Nick
I’m not completely sure about the fee, but I think they take it out monthly so your total on the site is your total after the fee.
In principle if your assets are in a tax-reporting account (kakutei kouza 確定口座) they will deduct the taxes on dividends and capital gains automatically and you don’t have to declare them on your tax return.
Re. buying foreign ETFs through Rakuten: they charge $27 per transaction but refund you that at the end of the following month. Doesn’t work with selling.
Hi,
Just started on Theo after reading about it here.
Have set it on “omakase” mode.
Let’s see how it goes.
Good to hear, Manish!
Let us know how you get on 🙂