Help with Ideco and Nisa - portfolio allocation

[Ichigo]

Hello everyone,

I am sitting here with my Ideco application form and wondering how I should allocate.

I definitely want to go with the ｅＭＡＸＩＳ　Ｓｌｉｍ　全世界株式（オール・カントリー）and
ｅＭＡＸＩＳ　Ｓｌｉｍ　米国株式（Ｓ＆Ｐ５００）since many of you recommend it.

Now my question:
Would it make sense to do 80% All country and 20% S&P500 in Ideco as well in Nisa?
Or should I do 100% All country in Ideco and 100% S&P500 in Nisa or something totally different?

Btw, I am 42. Should I think about bonds as well?

I really appreciate your advice!
Thank you!

[RetireJapan]

The most important thing is that you understand what those funds are, and why you are buying them.

The all-country fund contains all the major global stock markets, roughly in their real-world proportions. As part of that it contains the US stock market. If you look at the prospectus, you can see that 58.3% of it is made up of the US stock market: https://emaxis.jp/pdf/web/viewer.html?f ... pdf#page=2

So buying an extra S&P500 fund alongside the all-country would overweight the US. You might do that if you thought the US was going to continue to outperform the rest of the world. In fact, as it seems to be very richly valued right now (expensive) some people would say that it is more likely to underperform the rest of the world.

We don't know. That is your decision to make, but you need to be aware you are making it

Many people recommend bonds to stabilise a portfolio and reduce volatility. One rule of thumb would be to have 110-your age% in stocks, with the remainder in bonds.

I recommend doing some reading (Millionaire Teacher book, JL Collins Stock Series blog posts, or the Bogleheads forum) in order to think about what kind of portfolio you want going forward.

Anyone else?

[fools_gold]

Who is your iDeco with? The choice of funds available depends on your provider and the emaxis all country isn't carried by many brokers.

[Ichigo]

@retirejapan
Thank you! I have the Millionaire Teacher book here and will read more

@fools_gold
I use Monex, for Nisa and Ideco.

Thank you!

[Butterball]

Agree with what has been said so far, of course.

I would suggest focusing on the basics first. It looks like you already know that low-cost index funds are the best place to start (probably the best place to stay!). If in doubt, I would suggest just starting off with eMaxis all-country for now. You can always add an S&P500 fund later if you decide you want to.

Once you understand the purpose of equities (high growth but high volatility) and bonds (low growth but low volatility) in a portfolio, you can decide on an overall equities/bond mix you want for your overall portfolio. I would suggest you’re best to have at least some bonds.

From there you can decide how to distribute among your various accounts (iDeco/NISA/regular [if you’re able to max out the first two]).

[fools_gold]

If you do get bonds, I'd suggest having at least some of that allocation in Japanese or hedged foreign bonds. The returns on unhedged bonds may seem more attractive, but they are more volatile and more correlated with stocks.

[zeroshiki]

I might just not be seeing it but the domestic bonds available on Rakuten right now has 0.05% return which is LESS than just normal Rakuten bank interest rate. Other than the US bonds that have forex volatility are there any bonds available that you guys would recommend?

[beanhead]

I might just not be seeing it but the domestic bonds available on Rakuten right now has 0.05% return which is LESS than just normal Rakuten bank interest rate. Other than the US bonds that have forex volatility are there any bonds available that you guys would recommend?

This is a developed countries bond fund. Worth considering. Currency risks, as it is not hedged, but it is quite diversified.
https://emaxis.jp/fund/252667.html

For a Japanese bond fund, this one gives higher returns than you quoted. Management fees are higher than average, though.
明治安田DC日本債券オープン

Perhaps you are looking at actual bonds rather than bond funds? Bond fund returns are not guaranteed, but they are more flexible, as they can be sold at any time. Bond funds are under the 投資信託 part of Rakuten, not the bond 債券 part.

[zeroshiki]

I might just not be seeing it but the domestic bonds available on Rakuten right now has 0.05% return which is LESS than just normal Rakuten bank interest rate. Other than the US bonds that have forex volatility are there any bonds available that you guys would recommend?

This is a developed countries bond fund. Worth considering. Currency risks, as it is not hedged, but it is quite diversified.
https://emaxis.jp/fund/252667.html

For a Japanese bond fund, this one gives higher returns than you quoted. Management fees are higher than average, though.
明治安田DC日本債券オープン

Perhaps you are looking at actual bonds rather than bond funds? Bond fund returns are not guaranteed, but they are more flexible, as they can be sold at any time. Bond funds are under the 投資信託 part of Rakuten, not the bond 債券 part.

Yeah I was looking at actual bonds. I didn't realize you were talking about MFs. I do have the emaxis slim 先進国債券 fund in my portfolio for some balance. I have a REIT fund too just in case.

[JapaneseMike]

Just one thing here. The age / bond ratio for your portfolio is something that a lot of folks recommend, but I'd stress that ratio is for your overall portfolio.

Since your question here is about what to put in your iDeCo and NISA, I would honestly say skip bonds entirely.

Bonds are, by their nature, less risky, therefore give (more reliable) but lower returns. NISA and iDeCo are designed to shelter you from taxes over their operational lifespan, so it makes more sense to put 100% of your NISA / iDeCo into equities or other performing assets, and leave your bond allocations outside of your tax advantaged accounts.

To echo Ben's point earlier though, this is your choice, and you should be comfortable that it is you making the decision. 'Someone' could give you quite reasonable advice about how it's 'better' to put it all in equities, and after 4 years and 11 months the EQ market could bottom out and your NISA holdings would drop considerably, leaving you with no advantage from the NISA product at all - buyer beware.