Newbie wanting to Invest

[dangocurry]

Hey Everyone!

I'm a person who joined the forum recently and I have been going through the forums and also the website even before joining(for around 2 weeks now). Both the forums and site have been immensely helpful in understanding about personal finance and investment especially in terms of Japan and the options available to do so. Since most of the information available on internet is mostly directed towards US investors, this forum and the site has been really helpful, so thank you very much.

I have been working in Japan after I graduated(been almost 1.5 years now) and thought it's better to think and plan for later in terms of finances. So, for last 3-4 months I have been thinking, reading and researching about the different options I have to do so.

Let me describe my profile a bit so you can all understand my situation!

I am a non-American citizen in my early 20s(23 to be exact) and some of my future plans includes:
-- Getting my JLPT N1 (Dec.2020 gave N3, so fingers crossed, Currently on a 5 yr an Engineer/specialist Visa)
-- MBA degree in FT 1st to 20th ranked university.( Somewhere around age 25-27 starting depending on how promotions, etc. go for the work experience required, Aiming for the top universities but things/priorities might change after 5 years)
-- Starting my own business sometime in future to get out of working culture till you retire( planning to FIRE, RE not so sure but FI definitely )

Goals for long term are/will become overtime -
-- Having a family( quite long, somewhere 27-29, if all things go well)
-- Buying a house somewhere (I'm not a party animal so somewhere quite should be alright but also depends on the work situation then)

As for my current financial situation:
Income: Roughly 6M before taxes(excluding overtime pay)
Liabilities: None (parents are self sufficient and no outstanding loans as education loan)
Monthly Spending: 100-120K (Rent, groceries, eating out, utilities, gym, etc. Basically anything apart from travel)(I rent a 3DK with a fellow colleague who's of the same age, so split rent and utilities in half whatever the costs are)(I usually travel out of Tokyo once in 3-5 months and in my mind set aside 10k every month for it.)
Assets: Dec 2020 - went 60-40 with my dad on a commercial property in my country for about 11.5 million yen(my share was 40). Although the property is not market ready but this year sometime midyear we'll get the possession and the value doubles as soon as we get it(got an early deal so went through) We plan on renting it out but that income stream will be used by my dad, so I don't care/plan about it much. I used to send my earning back to tax-free account whenever the exchange rate was good. I have some more savings there which I plan to buy some gold with and make a Fixed deposit with rest of the savings (for emergency fund, about 6 months ~800k yen). I have some cash savings here in Japan also. Invested/Gambled ? in crypto in japan with 100k ( I know the thought of "you shouldn't put money in crypto if you don't assume that you'll lose it all", maybe over time go towards 300k in crypto but waiting for the correction to happen first, using DCA as strategy)
Risk Tolerance: Moderate~ish - High


I read, researched online and a lot of resources, discussions in this forum and have understood somethings regarding investing and ways to do so.
I have some questions regarding the things I have thought about.
Couple of things I have understood in terms of general investing -
1- Have an emergency fund (DONE)
2- Maximize the pension plan - I do pay the welfare premiums every month(I think I come under the being a company employee category of pension system, I don't know much details about the system but do know that my home country has the agreement with Japan, so in case I leave before, I do plan on paying the premiums for 10 years, if I'm right, to be eligible for pension)
I haven't checked the approximate pension I'll get but I'm not really considering it as a life-saver. Will try to check this later on nenkin-net
3- In time market goes up, don't try to time markets
4- Keep on investing small small sums
etc.


Now, immediate plans are to invest small sums in less volatile markets compared to crypto which points me to stocks, ETFs, mutual funds, etc.
I don't want to trade or make a portfolio for small term. I want to buy and hold for long as long as some need doesn't arrive.

I have 2 options as such - Make a trading account in my home country or make one account with Rakuten, SBI, Monex, etc here. I also know about the NISA account(the 1.2 million limit sits well with my limit of buying 100k worth stocks, etfs in a month, or more if it dips, so it's quite enticing)
Since I'm neither a US citizen nor Japanese citizen and as of now haven't decided where to settle(considering my home country still being a developing country),

I have certain questions regarding investing in the above stated options.



1. How are taxes handled? I’m aware of dividend taxation by US at 20.xx% for Japan. I’m bound to pay capital gains tax in Japan. My question is regarding will I be taxed 3 times(US, JP and my home country). My home country has DTAA with US and I think I read somewhere that Japan also has the same. Considering all the taxes and Fiat conversion fees, does it make sense to invest into other markets from Japan for long term? Since I haven’t decided settling here, in an event of leaving Japan, does using local brokers allow me to transfer my holdings to another broker overseas? Or do I have to liquidate everything and buy again from wherever I go. I know about NISA as tax free option in Japan. (Haven’t yet decided to settle anywhere, home? Japan? Somewhere else, entirely possible)



2. Buying any foreign stock or ETF whether it be through Japan or my home country has 2 conversion fees, taxes and broker commissions. These are evidently more in my home country. For eg.25% dividend taxing in my country. Considering all the fees, does it eventually payout in longer time to pay through all these?



3. I have also read the forum’s recommendation of e-maxis slim series. How does the returns fare in comparison of directly investing in US through Japan? Like investing into something like VTI with all the fiat conversions+commission versus just investing in e-maxis-slim.

4.Considering stocks and ETFs which pay dividend, is it better to re-invest the payout? I think if there’s no need then it’s better to be re-invested but willing to hear different views.

5.How diversification should be handled? Investing purely in US stocks/ US ETFs/Home stocks/Home stocks + mutual funds/mixture of both/diversifying over countries (JP, US and home)?
For long term(5-20 years), I’m willing to go US long but for short term(3-5 years), I’m also considering investing in Japan.

6.Since ETFs provide diversification easily, should I stick to ETFs or also go for individual stocks?

7.In long term, how do returns fare if I invest outside US or I invest in US? Assuming immediate long term being next 5-8 years in Japan.

The options in my country are mutual funds and stocks. Mutual funds returns are 4-8% depending on which you choose. There are a handful of ETFs as they are not really popular in my country.

On another note, I have this thought for the last couple of weeks. 
As I share an apartment of 3DK with fellow colleague which costs us around 130k yen as rent in 23 wards. I was thinking that the rent we are paying is going into nothing apart from the fact that I can live in apartment. So if I were to buy a house of cost max 50 million yen, and if the mortgage payment is somewhere around 100-150k per month, then I can afford it now. Even if my roommate bails on me, I can still manage the mortgage payments. Does it makes sense to buy a house in Tokyo on loan given my age and goals as stated above?

Last but not the least, My parents are advising me to invest conservatively in to FDs or to save and buy some land/home in my country in order to pay for my higher studies which I understand. But considering inflation going up, I think the interest accumulated will be eaten by inflation(at least most of it, 5-6% inflation). I on the other hand think it’s good to invest into market if you make good bets. Am I thinking wrong about this?



While I was writing the post, the site timed out so I lost maybe some part, but these were the questions in essence. In case any more info is needed for answering, let me know.


Thank you in advance!

[Kanto]

Those are a lot of very specific questions.

I think you first need to decide what your own investment strategy is.

I would recommend passive investing with low-cost index funds.

I would recommend having a read through this.

https://www.bogleheads.org/wiki/Boglehe ... _investors

[dangocurry]

Hi Kanto!
I actually read through the boglehead wiki. I like the 3 funds approach.
Also in the wiki, there are those questions about global diversification, etc.
I actually want to just buy and hold for long term, so index funds make sense. But considering age factors + no responsibility (as of now), isn't going 100% index funds little bit less risky?

I'm actually trying to gather perspective and build my strategy before buying anything, so that's why so many specific questions.

Thanks!

[Kanto]

Hi Kanto!
I actually read through the boglehead wiki. I like the 3 funds approach.
Also in the wiki, there are those questions about global diversification, etc.
I actually want to just buy and hold for long term, so index funds make sense. But considering age factors + no responsibility (as of now), isn't going 100% index funds little bit less risky?

I'm actually trying to gather perspective and build my strategy before buying anything, so that's why so many specific questions.

Thanks!

1. Leaving Japan -> https://www.retirejapan.com/blog/leaving-japan/

Brokers can handle and pay for taxes free of charge here. Your home country rules may be different?

2/3. Japanese domiciled finds (specifically Emaxis Slim) are almost always cheaper and more tax-efficient. At worst it is a wash.

4. Reinvesting dividends is more tax-efficient.

5. Diversification is up to you. I prefer the market weighting. MSCI ACWI or FTSE Global All Cap Index. Can you predict what economy will lead in the future?

6. Mutual funds or ETFs over individual stocks. Unless you have some special insider knowledge.

7. Index funds track the same index. There should not be too much variance. Not accounting for taxation and fund fees.

....

Quick notes -

Why are you focused on ETFs? There are many great Mutual fund options in Japan.

Have you looked in Nisa and Tsumitate Nisa?

Have you looked into iDeco?

Do you have a home country pension?

DCA is not a recommended strategy. https://investor.vanguard.com/investing ... t-lump-sum

Sorry if I missed anything.

[dangocurry]

Hi Kanto!
I actually read through the boglehead wiki. I like the 3 funds approach.
Also in the wiki, there are those questions about global diversification, etc.
I actually want to just buy and hold for long term, so index funds make sense. But considering age factors + no responsibility (as of now), isn't going 100% index funds little bit less risky?

I'm actually trying to gather perspective and build my strategy before buying anything, so that's why so many specific questions.

Thanks!

1. Leaving Japan -> https://www.retirejapan.com/blog/leaving-japan/

Brokers can handle and pay for taxes free of charge here. Your home country rules may be different?

2/3. Japanese domiciled finds (specifically Emaxis Slim) are almost always cheaper and more tax-efficient. At worst it is a wash.

4. Reinvesting dividends is more tax-efficient.

5. Diversification is up to you. I prefer the market weighting. MSCI ACWI or FTSE Global All Cap Index. Can you predict what economy will lead in the future?

6. Mutual funds or ETFs over individual stocks. Unless you have some special insider knowledge.

7. Index funds track the same index. There should not be too much variance. Not accounting for taxation and fund fees.

....

Quick notes -

Why are you focused on ETFs? There are many great Mutual fund options in Japan.

Have you looked in Nisa and Tsumitate Nisa?

Have you looked into iDeco?

Do you have a home country pension?

DCA is not a recommended strategy. https://investor.vanguard.com/investing ... t-lump-sum

Sorry if I missed anything.

Good morning!

Thank you for your replies.

1. The reason I'm little focused on ETFs is that they provide easy diversification and good market distribution. Also, the fact that I may/may not live in Japan for long time is one factor. I can play it safe by mixing something like VTI, VOO, etc and also focused on growth such as ARKK, ICLN, etc.

2. Yes, I have looked into NISA and Tsumitate NISA. Currently since no definite timeline to stay in Japan(if work situation and progression goes well, I live longer), in both of these NISA suits my need. That's why the I'm thinking about the costs of owning something based outside Japan through NISA or owning something based in Japan or Owning something outside Japan outside of NISA(like through IB).

3. Yes, Looked into Ideco but it doesn't play well with my long term goals.

4. Traditionally private sector employees in my home country didn't get any pension. They would get the provident fund+gains amount which was deducted from their salary every month until retirement. Now the Supreme court has changed the rule which makes them entitled for pension provided they put major amount into some new scheme from their provident fund. As I'm not an employee in my home country, I don't have an option to opt-in the scheme.

5. Thanks for the link. So this might sound lame, but even in NISA, you want to buy at once, rather than buying at regular intervals? I agree that it makes more sense to buy at once if I'm doing it outside NISA, but if doing inside NISA, does buying once v/s buying in intervals make difference.
The reason I'm asking this is based on my current savings, income that 1.2 million limit sits very well to the limit I might invest in a year.

Thank you!

[Moneymatters]

If you don’t have long term plans in Japan you might want to drop the property purchase idea. Initial costs, potential depreciation, etc.

Also, you’ll be limited how much of net salary you can allocate to mortgage payments.
Without a hefty deposit/second income, I think 50mil on your salary might be out of reach.

For NISA investing monthly or lump sum (if you have the cash) is a personal preference. But as any gains in the NISA account will be tax free it makes sense to max NISA first if you have the cash on hand.

[dangocurry]

If you don’t have long term plans in Japan you might want to drop the property purchase idea. Initial costs, potential depreciation, etc.

Also, you’ll be limited how much of net salary you can allocate to mortgage payments.
Without a hefty deposit/second income, I think 50mil on your salary might be out of reach.

For NISA investing monthly or lump sum (if you have the cash) is a personal preference. But as any gains in the NISA account will be tax free it makes sense to max NISA first if you have the cash on hand.

Yes, I also read about the property depreciation in Japan as compared to appreciation in other countries. So, that's also one thing in my mind. So it doesn't really make sense to invest in property as an investment.

I agree that any gains on NISA makes it tax free. But do you think investing in foreign entities through NISA makes sense for gains, if you're able to make gains?

Also given that the current market is sitting up and feels like a bubble, should I still go through and invest or sit out for things to lose steam and enter bear market?

Thanks!

[Moneymatters]

If you don’t have long term plans in Japan you might want to drop the property purchase idea. Initial costs, potential depreciation, etc.

Also, you’ll be limited how much of net salary you can allocate to mortgage payments.
Without a hefty deposit/second income, I think 50mil on your salary might be out of reach.

For NISA investing monthly or lump sum (if you have the cash) is a personal preference. But as any gains in the NISA account will be tax free it makes sense to max NISA first if you have the cash on hand.

Yes, I also read about the property depreciation in Japan as compared to appreciation in other countries. So, that's also one thing in my mind. So it doesn't really make sense to invest in property as an investment.

I agree that any gains on NISA makes it tax free. But do you think investing in foreign entities through NISA makes sense for gains, if you're able to make gains?

Also given that the current market is sitting up and feels like a bubble, should I still go through and invest or sit out for things to lose steam and enter bear market?

Thanks!

Others on here (frankly everyone) is better placed than me to answer your first question. In planning to stay in japan so I personally invest in yen denominated funds in NISA but they are heavily weighted towards US companies.

And I can’t believe you just asked me if you should time the market.

The long term trend is upwards. So if you won’t need to withdraw for several years you should start investing now. If you have a pile of cash on the side pick a timeline to invest that which suits you. This is so you won’t panic if it takes a tumble days after your first purchase.

I was doing this last year and I still have some cash as I ease myself self into the market. Investing to a fixed schedule I’m comfortable with but ready to invest more if there is a market correction.
I invest now knowing there will be another market correction but as investing longer term I don’t care. As I’m 100% sure I don’t know when that market correction might happen or how big it will be.
I’m # blessed to have the cash so I maxed the families NISA accounts first week of Jan knowing the market might be flat or even correct but in case it grows I wanted the full 12 months of gains to be tax free.

It’s your money and you need to be ok with the outcome so maybe you want to read and research a bit more to understand your risk profile, fomo and such things.

[dangocurry]

Others on here (frankly everyone) is better placed than me to answer your first question. In planning to stay in japan so I personally invest in yen denominated funds in NISA but they are heavily weighted towards US companies.

And I can’t believe you just asked me if you should time the market.

The long term trend is upwards. So if you won’t need to withdraw for several years you should start investing now. If you have a pile of cash on the side pick a timeline to invest that which suits you. This is so you won’t panic if it takes a tumble days after your first purchase.

I was doing this last year and I still have some cash as I ease myself self into the market. Investing to a fixed schedule I’m comfortable with but ready to invest more if there is a market correction.
I invest now knowing there will be another market correction but as investing longer term I don’t care. As I’m 100% sure I don’t know when that market correction might happen or how big it will be.
I’m # blessed to have the cash so I maxed the families NISA accounts first week of Jan knowing the market might be flat or even correct but in case it grows I wanted the full 12 months of gains to be tax free.

It’s your money and you need to be ok with the outcome so maybe you want to read and research a bit more to understand your risk profile, fomo and such things.

Although I really like Japan at the current moment I can't effectively decide if I want to stay in japan for longer period(10 years and above).

And yes, I asked you if I should time the market. Maybe it's just my inner fear when I asked you about timing the market.

I like your suggestion of easing into market. Even though I have some cash sitting, I would like to invest in parts for the first few months/year.
What are good yen denominated funds in NISA which are weighted towards US? Maybe I'm repeating and rambling but how do you feel about investing in US entities through Japan? Like directly buying ETFs, stocks, etc.

Since you're planning to stay in japan for long period, what time do you decide if it's now correct to have a home here? or decided if you already have one?
The reason I'm asking is even in my home country, if I live in a good city having good facilities, to own an apartment(individual homes are way too expensive), I would pay something similar to owning a home in Tokyo, somewhere around 30-50 million yen depending on area. But the overall organisation and living quality is obviously more in Tokyo than the city which I choose. Even if I decide to have a home back, I would take a loan for most part. So, maybe not now and some years down the line, it's important for me to understand how to decide when's a good time to own a home and when to stop renting?

Thank you for your insight!

[beanhead]

And yes, I asked you if I should time the market. Maybe it's just my inner fear when I asked you about timing the market.

What are good yen denominated funds in NISA which are weighted towards US? Maybe I'm repeating and rambling but how do you feel about investing in US entities through Japan? Like directly buying ETFs, stocks, etc.

So, maybe not now and some years down the line, it's important for me to understand how to decide when's a good time to own a home and when to stop renting?

Thank you for your insight!

Timing the market: good luck with that...
If you are worried about losing money by buying at the peak, spread the payments out over a few weeks or months. If you do this over a longer period, for example a year (dollar cost averaging), you also risk losing out if prices of funds rise during that period. Getting as much money invested as early as possible in diversifies funds is the general mantra here.

Yen funds:
eMaxis Slim All-Country, S&P500 or developed economies (is that what it is called in English?) are all low-cost funds which win awards.
https://emaxis.jp/lp/slim/pr1/index.html
There are other similar ones, for example some which wrap up Vanguard funds.

Buying a home in Japan: if you feel better owning a home, do it. Just don't consider it an investment, as you would in some other countries. I bought a place, but by the time the loan is paid off, the value will only be the land that it sits on. That's real estate in Japan, unfortunately...