Yep, that's why a diversified portfolio comes in handy. Anyway, by the time you retire cash should take up a large proportion of your portfolio. Use cash reserves or sell off domestic stocks while the exchange rate isn't favourable.
Asset allocations
Re: Asset allocations
Re: Asset allocations
This is where individual circumstances come into play.
One might need to sell off not only when retiring, but also when/if some shit happens. Some prefer to buy all kinds of insurance or hope for the better, some prefer to diversify portfolio.
Also not everyone will simply have enough assets accumulated to chose between which ones are better to sell at the moment.
So in the end it all comes to investors's risk tolerance, with that difference that unlike bonds the return of currency hedging is not clear. I'm yet to find
a good analytics from Japanese investor's point of view.
Re: Asset allocations
Concerning asset allocation, there is not a lot of discussion on this forum about bonds... (unless i have failed to find it?)
It seems that if you are in your forties, and 20-something years out from retirement, a well-balanced portfolio ought to hold a good proportion of bonds.
My questions are :
1) Are people holding bonds as part of a balanced portfolio but not discussing much as they are generally buy-and-hold and don't merit a lot of discussion?
2) I have heard comments along the lines of "no point in buying bonds at the moment...", does anyone have an opinion/elucidation on this?
3) should bonds be diversified along the lines of 50% US / 50% International?
4) What is the current wisdom on short vs medium vs long-term bonds, and if you were to buy an index fund of bonds, such as BNDX, can you then disregard metrics like term length and let the fund do it's thing?
Thanks for your ideas.
It seems that if you are in your forties, and 20-something years out from retirement, a well-balanced portfolio ought to hold a good proportion of bonds.
My questions are :
1) Are people holding bonds as part of a balanced portfolio but not discussing much as they are generally buy-and-hold and don't merit a lot of discussion?
2) I have heard comments along the lines of "no point in buying bonds at the moment...", does anyone have an opinion/elucidation on this?
3) should bonds be diversified along the lines of 50% US / 50% International?
4) What is the current wisdom on short vs medium vs long-term bonds, and if you were to buy an index fund of bonds, such as BNDX, can you then disregard metrics like term length and let the fund do it's thing?
Thanks for your ideas.
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Re: Asset allocations
Hi robster
The standard advice would be 'your age in bonds' or maybe 'your age minus ten in bonds'. It would be prudent to do something like this, in order to stabilise your portfolio.
Personally, I feel that having bonds is going to reduce my returns over the long term. I am investing for 30+ years, and planning to live off the yield, so I shouldn't care about prices falling. We'll see how I feel during the next crash, however
I don't hold any bonds. My wife has 20% US bonds, 10% J-REIT.
Anyone else?
The standard advice would be 'your age in bonds' or maybe 'your age minus ten in bonds'. It would be prudent to do something like this, in order to stabilise your portfolio.
Personally, I feel that having bonds is going to reduce my returns over the long term. I am investing for 30+ years, and planning to live off the yield, so I shouldn't care about prices falling. We'll see how I feel during the next crash, however
I don't hold any bonds. My wife has 20% US bonds, 10% J-REIT.
Anyone else?
English teacher and writer. RetireJapan founder. Avid reader.
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eMaxis Slim Shady
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fools_gold
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Re: Asset allocations
Hi Robster,
I think bonds aren't very popular because the yields are so low compared to stocks in the current bull market, and the risk of them falling in value when interest rates go up. Currently, I'm 20 years from retirement and have 60% stocks, 30% bonds, and 10% REITS (5% Japanese, 5% foreign). My bonds are split 3:2:1 between developed markets (ex Japan), Japan, and emerging markets. I use Japanese mutual funds for my bonds rather than US ETFs, mainly because of the convenience. I also DCA (YCA?) into them to try and average out any currency fluctuations.
Basically, I have bonds to reduce volatility. However, foreign bonds still carry a fair amount of currency risk. Looking back at how older index funds performed during 2007/8, a developed markets stock fund would have fallen by about 60% in yen value, and a developed markets bond fund by about 25%. Both took 5 years to recover to their 2007 levels. The foreign bonds took such a hit because the yen went from 120 to the dollar to 80 to the dollar. On the other hand, Japanese stocks fell by 50% and took over 7 years to recover. Japanese bonds fell by about 3% and only took a few months to recover.
Most of the information about index investing is written by and for Americans who have benefitted from a historically very strong stock market (with a few blips on the way). I think the situation is very different for investors in Japan because of the low bond yields, currency fluctuations, and an erratic stock market. I'm reckoning that I'll experience more volatility and lower returns than an American investor. Having said that, the 2008 crash combined with the surge in the yen would have been a great buying opportunity at the time. If only I was into investing then...
By the way, BNDX is hedged to the dollar. For an investor based in Japan, an unhedged fund like IGOV might be better.
I think bonds aren't very popular because the yields are so low compared to stocks in the current bull market, and the risk of them falling in value when interest rates go up. Currently, I'm 20 years from retirement and have 60% stocks, 30% bonds, and 10% REITS (5% Japanese, 5% foreign). My bonds are split 3:2:1 between developed markets (ex Japan), Japan, and emerging markets. I use Japanese mutual funds for my bonds rather than US ETFs, mainly because of the convenience. I also DCA (YCA?) into them to try and average out any currency fluctuations.
Basically, I have bonds to reduce volatility. However, foreign bonds still carry a fair amount of currency risk. Looking back at how older index funds performed during 2007/8, a developed markets stock fund would have fallen by about 60% in yen value, and a developed markets bond fund by about 25%. Both took 5 years to recover to their 2007 levels. The foreign bonds took such a hit because the yen went from 120 to the dollar to 80 to the dollar. On the other hand, Japanese stocks fell by 50% and took over 7 years to recover. Japanese bonds fell by about 3% and only took a few months to recover.
Most of the information about index investing is written by and for Americans who have benefitted from a historically very strong stock market (with a few blips on the way). I think the situation is very different for investors in Japan because of the low bond yields, currency fluctuations, and an erratic stock market. I'm reckoning that I'll experience more volatility and lower returns than an American investor. Having said that, the 2008 crash combined with the surge in the yen would have been a great buying opportunity at the time. If only I was into investing then...
By the way, BNDX is hedged to the dollar. For an investor based in Japan, an unhedged fund like IGOV might be better.
Re: Asset allocations
Hi FG,
Thanks for the very informative answer.
That helps with my decision about allocation.
R.
Thanks for the very informative answer.
That helps with my decision about allocation.
R.
Re: Asset allocations
After further research, via a bit of information overload & some confusion, I decided my best next step is to put together a potential portfolio list and ask for some comments/advice from the generous inmates of this forum.
As background, I am an EU citizen, but permanent resident (and fully tax-resident) in Japan, with a goal to retire, in Japan, in 20 years time.
I would prefer a buy-and-hold strategy, which doesn't tax much of my time (imagining having asset allocation ratio that I stick to, re-balancing once per year), and is doable with my limited knowledge of investing. I have paid off my mortgage and have no debts, and currently have no investments.
I have a sizable cash lump-sum to invest, and will also make regular monthly/quarterly payments. (will also keep in reserve plenty of yen cash for emergency funds).
Plan to max out NISA for myself and my wife, still undecided between regular NISA and Tsumitate, with the surplus going into normal taxable account, barring any better ideas.
Looking at: 70% stocks / 30% Bonds
STOCK:
1550 ＭＸＳ外株（ＭＳＣＩコクサイ）(1550) 株価 (40%)
1547 上場米国株式Ｓ＆Ｐ５００(1547) 株価 (15%)
1348 ＭＡＸＩＳ トピックス上場投信(1348) 株価 (15%)
BONDS:
Domestic bonds (15%) -- need help/suggestions for this. Ideas please?
Foreign bonds (15%) --- Vanguard BND, or 上場インデックスファンド外債(1677) 株価.
This would give me geographical diversification of 30 Japan / 70 International.
One point - 1550 is 65% US stocks / 35% other (ex-Japan). I could do fine with just this, and not really need to add 1547 which is 100% US. However, the expense ratio on 1547 is much lower (0.06% for 1547 (S&P500) versus 0.15% for 1550 (MSCIｺｸｻｲ）so i would like to take advantage of that. At the same time, if there was a good index fund which is global, ex-US, with a low enough expense ratio, i might take that instead of 1550 and increase the share of 1547, so that in effect i could be paying 0.06% for all the US stocks, instead of only some of them at 0.06 and the majority at 0.15.
All suggestions/opinions are much appreciated, thank you.
As background, I am an EU citizen, but permanent resident (and fully tax-resident) in Japan, with a goal to retire, in Japan, in 20 years time.
I would prefer a buy-and-hold strategy, which doesn't tax much of my time (imagining having asset allocation ratio that I stick to, re-balancing once per year), and is doable with my limited knowledge of investing. I have paid off my mortgage and have no debts, and currently have no investments.
I have a sizable cash lump-sum to invest, and will also make regular monthly/quarterly payments. (will also keep in reserve plenty of yen cash for emergency funds).
Plan to max out NISA for myself and my wife, still undecided between regular NISA and Tsumitate, with the surplus going into normal taxable account, barring any better ideas.
Looking at: 70% stocks / 30% Bonds
STOCK:
1550 ＭＸＳ外株（ＭＳＣＩコクサイ）(1550) 株価 (40%)
1547 上場米国株式Ｓ＆Ｐ５００(1547) 株価 (15%)
1348 ＭＡＸＩＳ トピックス上場投信(1348) 株価 (15%)
BONDS:
Domestic bonds (15%) -- need help/suggestions for this. Ideas please?
Foreign bonds (15%) --- Vanguard BND, or 上場インデックスファンド外債(1677) 株価.
This would give me geographical diversification of 30 Japan / 70 International.
One point - 1550 is 65% US stocks / 35% other (ex-Japan). I could do fine with just this, and not really need to add 1547 which is 100% US. However, the expense ratio on 1547 is much lower (0.06% for 1547 (S&P500) versus 0.15% for 1550 (MSCIｺｸｻｲ）so i would like to take advantage of that. At the same time, if there was a good index fund which is global, ex-US, with a low enough expense ratio, i might take that instead of 1550 and increase the share of 1547, so that in effect i could be paying 0.06% for all the US stocks, instead of only some of them at 0.06 and the majority at 0.15.
All suggestions/opinions are much appreciated, thank you.
Re: Asset allocations
Looks pretty good, you've seen my allocation in the nisa thread (although I didn't put in percentages). When it comes to expense ratios, anything under 0.2% I'm fine with. Trying to min max everything seems like to much effort, for what is likely to be little gain. Also if you're happy with that much US allocation, that's fine. For me 1550 was enough, after that I also have 1348.
As for domestic bonds, I buy Japanese Government Bonds (10000yen 10 year bonds), but that's just me. Also JGBs can not be held in a nisa account (not that it matters cause the gains on them are tiny ... but that's not why you buy them).
As for domestic bonds, I buy Japanese Government Bonds (10000yen 10 year bonds), but that's just me. Also JGBs can not be held in a nisa account (not that it matters cause the gains on them are tiny ... but that's not why you buy them).
Re: Asset allocations
Hi Tony
Thanks for your opinion.
A slight tweaking of the above allocation, and I'm now looking at this:
STOCK: (70%)
1550 ＭＸＳ外株（ＭＳＣＩコクサイ）(1550) 株価 (55%) .... this would keep US stocks at 35% of overall investment / 65% of stock allocation.
1348 ＭＡＸＩＳ トピックス上場投信(1348) 株価 (15%)
BONDS: (30%)
Foreign bonds (30%) --- Vanguard BND. This would bring my overall exposure to US to 65%.
One reason to choose BND is that part of my income is paid in US$ so there is no conversion loss or spread when buying US$ ETF. The currency risk (in my mind, at least) is the same whether i convert it to Yen immediately when paid to me, or after several years of investing.
It would also make my investments 70% in yen-based, and 30% in US$-based, which seems like a healthy diversification of currency.
I also like the simplicity of owning only 3 investments.
Would you agree with this, or am i looking at things in the wrong way?
Thanks again;.
Thanks for your opinion.
A slight tweaking of the above allocation, and I'm now looking at this:
STOCK: (70%)
1550 ＭＸＳ外株（ＭＳＣＩコクサイ）(1550) 株価 (55%) .... this would keep US stocks at 35% of overall investment / 65% of stock allocation.
1348 ＭＡＸＩＳ トピックス上場投信(1348) 株価 (15%)
BONDS: (30%)
Foreign bonds (30%) --- Vanguard BND. This would bring my overall exposure to US to 65%.
One reason to choose BND is that part of my income is paid in US$ so there is no conversion loss or spread when buying US$ ETF. The currency risk (in my mind, at least) is the same whether i convert it to Yen immediately when paid to me, or after several years of investing.
It would also make my investments 70% in yen-based, and 30% in US$-based, which seems like a healthy diversification of currency.
I also like the simplicity of owning only 3 investments.
Would you agree with this, or am i looking at things in the wrong way?
Thanks again;.
Re: Asset allocations
Yeah man, looks good to me. I'm a fan of keeping it as simple as possible, but I wouldn't put too much weight on what I have to say here, I'm pretty new at this too, so just do your research and buy what you're happy with.