Offshore vs Onshore Investment

[adamu]

Quoting the article here and including a link to their site is just helping them out, to be honest.

[misterdonut]

hi! first post, coming from this blog post https://www.retirejapan.com/blog/guest- ... vestments/

add me to the group who got tricked into getting an onshore investment

me:
5 years in
have put in 60,000
current value of 80,000

i know that pulling out is the best, but seeing the amount I'd get penalised for, tempted to reach 10 years for a loyalty bonus

also wary of doing anything related to money during corona when everything seems so volatile anyway (i know, i know, please #changemymind)

[beanhead]

i know that pulling out is the best, but seeing the amount I'd get penalised for, tempted to reach 10 years for a loyalty bonus

Is the full period of the commitment 10 years or longer?

Of course, taking the hit will be psychologically tough, so maybe try and take the emotion out of it and just rely on numbers?
There are a few people on here who have cancelled these things, including one or two who have paid penalties, I think.

Only thing I can suggest is to put all the numbers in a spreadsheet and run the simulations.
Compare:
1) keeping what you have now until the end of your commitment (10 years? 15?) and estimate the return based on what you have seen so far
with
2) cancelling, taking the penalty and then re-investing for the same period with a low-cost fund

The challenge is of course no-one knows what future returns will be, so you just have to estimate based on past performance.
Try it with a conservative 4% return, and with a hopefully more realistic 7% or so.

Finally, is there a 3rd option, to reduce the amount you invest to a lower amount? Some of these policies allow it without penalty after an initial period.

[goodandbadjapan]

i know that pulling out is the best, but seeing the amount I'd get penalised for, tempted to reach 10 years for a loyalty bonus

Is the full period of the commitment 10 years or longer?

Of course, taking the hit will be psychologically tough, so maybe try and take the emotion out of it and just rely on numbers?
There are a few people on here who have cancelled these things, including one or two who have paid penalties, I think.

Only thing I can suggest is to put all the numbers in a spreadsheet and run the simulations.
Compare:
1) keeping what you have now until the end of your commitment (10 years? 15?) and estimate the return based on what you have seen so far
with
2) cancelling, taking the penalty and then re-investing for the same period with a low-cost fund

The challenge is of course no-one knows what future returns will be, so you just have to estimate based on past performance.
Try it with a conservative 4% return, and with a hopefully more realistic 7% or so.

Finally, is there a 3rd option, to reduce the amount you invest to a lower amount? Some of these policies allow it without penalty after an initial period.

If you can reduce the amount you invest with no penalty it might be worth doing that and start doing your own investing with the portion you no longer put into the offshore thing. Or, if you can afford it, just carry on with the fund until you won't get big penalties for pulling out and also start investing by yourself.

But as the others said, run the numbers and decide what 'hit' you are prepared to take. To be honest, getting out might mean a slight loss on what it is worth now, but you will have peace of mind that you are now in control. My fear with those time-limited funds are that the market could crash just before you vest. Then what? Not sure if you can leave the funds there until market recovers somewhat or if you have to cash out. If the latter, that's another risk. At least doing it yourself means you can (unless you really need to sell) ride out market dips.

[misterdonut]

thank you @beanhead and @goodandbadjapan

thankfully the SoE has been extended and I will have time to crunch the numbers

facts:
→ the full term of the plan is actually 20 years T-T (ITA Evo 20)
→ early surrender charge is the annual admin charge of the remaining term years, 1.9% for first ten years, and 0.35% the rest of the plan term
→ surrender charge is waived on year 15
→ loyalty bonus of 7.5% at year 10 of total premiums paid from yr 1-10, so that will be 120k * 7.5 = 9000
→ loyalty bonus of 5% at year 15 of total premiums paid from yr 10-15, so that will be 60k * 5 = 3000
→ this surrender charge waiver + loyalty bonus will be gone if i decrease my contributions or i do a partial withdrawal

brain dump:
→ if i choose to remain until year 10,
i will switch the funds i have to iShares MSCI World + iShares S&P 500 ETFs (will overlap with my NISA but will be better)
will still be getting fucked in the ass with the admin charge, but these funds should give me better results
monthly budget wise, the monthly i put in is something that is ok for me for 5 more years
this will give me the 7.5% loyalty bonus worth 9000

→ if i choose to pull out now and reinvest elsewhere,
i will take a hit of (80,000*1.9%)*5 + (80,000*0.35%)*10 = 10400 this is half of my current gains
i actually have no idea where to put them in yet,
i have a 2yr-old non-tsumitate NISA that is maxed out on eMaxisSlim All Country
i do not have an iDeco

→ i also do not plan to stay in Japan until retirement age
new development and probably just frustrations from government
so this point is also currently muddy because of the shitstorm that is corona

[misterdonut]

sorry for double posting, but feeling quite lost at the moment

wrangled with google sheets following the sample given earlier in this thread, but i feel like my brain is trying to make the offshore investment good - because i ended up with better numbers for the STAY scenario

STAY


GO


should I assume I would get better returns from the GO scenario, and not made both of them 6%?

[beanhead]

sorry for double posting, but feeling quite lost at the moment

wrangled with google sheets following the sample given earlier in this thread, but i feel like my brain is trying to make the offshore investment good - because i ended up with better numbers for the STAY scenario

should I assume I would get better returns from the GO scenario, and not made both of them 6%?

The calculation is certainly not a simple one.

So, the bonus units they give you are just what they have already charged you (over charged you?) in fees. So they keep your money for 10 years, then give some of it back as a 'bonus'. That's how that works, I believe.

In terms of returns, until now you have earned market return minus 1.9% per year in fees (I think). So yes, from now, it seems sensible to assume that when comparing the two options, the simple index fund option (eMaxis Slim or Vanguard or whatever) will do better than your ITA investment by that 1.9% per year. You could double-check this by running your $1,000 per month for the last 5 years through a returns calculator to see what it would have been. If the difference is significant enough, then you can assume that it will also be large from now. If it is not so large, then sticking it out is also an option...

[fools_gold]

The surrender fees are structured so that they get their pound of flesh whether or not you continue with the plan. The biggest reason that your stay scenario comes out ahead is that the surrender fees are taken out as one big chunk. This means that if you quit you have less capital invested going forward, which will dent your returns.

I don't know much about these plans, but it's worth looking through the contract to see if there are any other costs you've overlooked. For example, what about the "initial units"? Usually the units you buy at the start of the plan are used to pay commission and aren't invested.

Also, how are you funding this plan? Are they taking a cut on exchange rates, etc.

[Hedgehog]

Hello. This is my first post here. I’ve been aware of the site for some years, and have found some very interesting information, but for a long time I did not really take my investments seriously enough to get involved in the forum. I have now decided to do something about that.

For a long time I was a bit of a lazy investor, and signed up to one of these offshore plans with Generali, which I stuck out for the full 10-year period. I was aware it wasn’t the best deal in town, but in those days I was the sort of person who would have simply spent the money if I hadn’t been saving/investing it somehow, so was pleased with even the comparatively limited returns I got when it matured in the mid-2010s.

What then happened is that I invested in one of these offshore insurance wrappers (ITA Portfolio). Again, I was aware of the commission and costs, but was still quite ignorant of my options and was also in the position of not knowing whether I would be retiring in Japan, or back in the UK or elsewhere in Europe. (Without getting into the politics of the decision, Brexit and its consequences have now led me to think that Japan is a more likely place in which to retire, though I still own property in the UK, and have not yet made a final decision on this.)

I’m fortunate enough to still have at least 15 years before retirement, and, despite the commission and costs, have done quite well – touch wood - on the ITA Portfolio investment. But during the past two or three years, I have become aware that I could have been doing better. Also, as the investment’s total increased, I started to think of how I would go about cashing it in, and the tax difficulties I might face. (Questions on this I’ll save for later.)

This year marks the beginning of the sixth year of my involvement with the ITA Portfolio, which means that the surrender charges of my initial investments (but not subsequent top-ups) have fallen to 0%.

It is my intention to now extricate myself from the situation, and build up my NISA/iDECO accounts as well as opening something with an international brokerage – though for me it would be important to have access to European/British ETFs (but that’s a separate issue).

My questions to the wise minds on the forum is what are the pitfalls I should be aware of as I look to extricate myself, and what to be aware of when I repatriate the proceeds, either to the UK or to Japan?

If some of these issues are better addressed on other threads in the forum, please let me know. Thank you.

[beanhead]

It is my intention to now extricate myself from the situation, and build up my NISA/iDECO accounts as well as opening something with an international brokerage – though for me it would be important to have access to European/British ETFs (but that’s a separate issue).

My questions to the wise minds on the forum is what are the pitfalls I should be aware of as I look to extricate myself, and what to be aware of when I repatriate the proceeds, either to the UK or to Japan?

If some of these issues are better addressed on other threads in the forum, please let me know. Thank you.

Welcome! I will try and answer as best as I can.

Not sure about any specific perils when you withdraw the money as I have no experience with ITA. I took money from an overseas plan without any issues.

For Japan, when you bring money in, you will be liable for taxes on the gains you have made if the gain is more than 500,000. Splitting the amount into 2 different years could maximize that 500,000 per year.
https://www.nta.go.jp/taxes/shiraberu/t ... u/1490.htm

Second thing is that if the amount is large, your bank here will want to know what it is. You may have to prove to them that is your money, so some kind of proof of the regular payments you have been making is good to prepare. This is all to do with money-laundering laws, as you may know, and all banks will ask the same sort of questions (probably in the UK too).

Sending to the UK: not sure, no experience there.

As you probably know, access to FTSE or other European ETFs is difficult from Japanese brokers, so best to get an account at IB or similar if that is what you want to invest in.

iDeCo is great as it gives you a tax rebate. The funds available are not exotic, but then is exotic required for pension planning?
However these overseas plans are sold, the only real tax benefit they offer is that you are not taxed on gains while you are investing. But with a Japanese brokerage, if you buy and hold and do not receive dividends, you can get the same advantage, as only selling / receiving dividends are taxable events.

The only other comment I have is to beware of the temptation to spend the money or trade with it! Before is was probably not touchable, but now it will be in an account which allows you to buy and sell. Resist that temptation