Wonder if anyone can help explain "運用利回り" to me.

[Chris]

Hi All,

Due to not starting investing until in Japan and having a low level of Japanese I kind of consider myself in the "running before I can walk" category.

I am learning the ropes and terminology quite well but due to the language barrier I still struggle to do that in-depth reading required to fully understand it.

I am trying to learn and understand all the aspects of the iDeCo (I use Rakuten-sec) and wondering if anyone could help clarify "運用利回り" (investment yield) for me for me?

Am I correct in understanding that this is the annual return on investment (kind of like a dividend)? If so when are those annual returns paid/applied to the account?

If my assumption of "運用利回り" is correct then as of today it's 29.82% which considering I've only been contributing into iDeCo for 5 months just seems too good to be true.

Thanks

[fools_gold]

My ideco is with Rakuten and this was very confusing for me too. Rakuten gives you the annualised rate of return. The reason it is so high at the moment is because you've only been using your account for a short time. For example, if you had been using ideco for 6 months and in that your investments had grown by 10%, then Rakuten would report an annualised return of 20%. Funds in ideco accounts don't pay out dividends, so these returns just represent the growth of your investments.

My wife uses SBI for her ideco and they report total gains rather than annualised. I prefer it that way.

[Chris]

Thank you for taking the time to explain that.

So just to clarify, it means my investment contribution has currently grown by the investment yield % based on fund performance. The investment yield % will likely drop over time as my investment contribution increases each month?

[fools_gold]

I think they take into account the monthly contributions when they calculate the annualised return. I've had my ideco for nearly four years now and when I plug my data into a compound interest calculator like this one I get a figure that corresponds to my overall balance.

I'm not sure how they go about calculating the annualised returns when you've been investing for less than a year. In my previous post I said that because you've only been using your ideco for 5 months that your annualised returns would have been extrapolated from your returns so far. However, it might actually be the case that they are just quoting your gains so far. You can verify whether this by calculating the percentage for yourself. 「評価損益」 are your gains and 「投資累計額」 is your cumulative investment so far.

Anyway, this site explains annualised returns far better than I can.

[Chris]

Thanks. I will give the links a read.

Regarding the compounding interest calculator, I have used them before for scenario planning (from savings accounts in the UK). Just want to make sure I am punching in the correct figures with my iDeCo.

Just in case you're able to figure it out based on a snapshot of my account, my figures at the time of writing are:

時価評価額 = 96,393 円 (currently waiting on the 5th month (February 2021) contribution of 23,000 JPY to be added to the account)

投資累計額 = 88,619 円

評価損益 = +7,774 円

運用利回り= 36.58 ％

My selected funds are:

1) 楽天・全米株式インデックス・ファンド（楽天・バンガード・ファンド（全米株式）)
- 構成比 = 70%
- 保有数量 = 42,271 口
- 取得金額 = 62,035 円
- 基準価額 = 16,017 円
- 評価額 = 67,705 円
- 評価損益 = +5,670 円 (9.1%)

2) 楽天・全世界株式インデックス・ファンド（楽天・バンガード・ファンド（全世界株式））
- 構成比 = 30%
- 保有数量 = 20,548 口
- 取得金額 = 26,584 円
- 基準価額 = 13,994 円
- 評価額 = 28,754 円
- 評価損益 = +2,170 円 (8.1%)

Based on all those figures I am struggle to figure out where the (now 36.58%) 運用利回りis represented on the account.

[fools_gold]

It looks like they've annualised your gains so far.

Your gains so far are 7,774 yen on a 88,619 yen investment. That means a total yield of around 8.8%.

Working out the annualised return is more complicated. Let's imagine the annualised return is a%.

Your first monthly installment has been in your ideco for 4 months, the 2nd for 3 months, the third for 2 months, and the fourth for 1 month.

So the returns on your first month's contribution will be 23,000 x a% x 4/12 (i.e, it's been earning interest at an annual rate of a% for 4 months)
The second month: 23,000 x a% x 3/12
Third: 23,000 x a% x 2/12
Fourth: 23,000 x a% x 1/12
So, your total gains will be 23,000 x a% x (4+3+2+1)/12 = 7,774
Therefore the annualized return a = (12 x 7,774) / (10 x 23,000) = 40.6 %

This calculation doesn't take into account compounding, fees on your ideco, and exactly how long the money has been in your ideco. However, it looks to be a similar ballpark figure to that which Rakuten is quoting.

We've had a good run recently, which is why your annualised returns are so high. Over the past 30 years US and global stocks have returned about 7% on average in yen terms.

[TBS]

fools_gold is right. The "運用利回り" is an estimate of the annualized rate of growth of your portfolio.

Note however once you reach a full year's of iDeco contributions, the "運用利回り" won't equal the actual percentage growth of your cumulative investment (i.e. 評価損益/投資累計額, also known as the 評価損益率). This is because you are contributing monthly, so the contributions made after the first month have not actually had a full year of investment time to grow (only 11, 10, 9... months, respectively).

Think of 運用利回り as like the annual growth trajectory. It is a bit of an obscure metric, see below image from JIS-T website as to how it is calculated. And it is only an estimate.

[fools_gold]

Thanks for that!

[Chris]

Thanks so much guys!

Cheers for the formulas. I agree, they are pretty complex. Still quite a bit confusing and a lot to process, but I shall do some test runs and hope that it clicks.

[RetireJapan]

You could just ignore it too (not being facetious). It's not very important in the greater scheme of things