Quick questions about a retirement plan for 20y/o

[UnderscoreEX]

Hey everyone. I hope these basic questions aren't too stupid too ask.

General info:
- I'm around 25 y/o,
- No investment/ financial planning experience so I am hoping for a simple, stable plan.
- From New Zealand (so no issues as a US citizen when it comes to investments)
- I've been in Tokyo for 4 years and planning to retire here.
- JLPT N2
- Steady career path (y400,000+ per month at the moment). I can probably save around Y100,000 for monthly investment payments (for now).
- Accounts with JP Post Bank and Rakuten Credit card.
- I have around 2-3 mill yen saved up that i'm ready to do something with from here.

From what I understand from this website and a few others, there are few simple things to start with:
- iDeco
- NISA
- High interest savings accounts (likely an online option) that can get around 2-3%
- Using Rakuten to invest in Index funds/ EFAs for long term 20-30 year investing.
- Purchasing individual stocks over the years, when the situation is right.

With that in mind, I have a few questions that will sound quite stupid:
1) Are Nisa and iDeCo simple to set up and manage? i.e do I have many choice to consider when setting it up?
2) Is Rakuten sufficient for buying the best ETF/index funds for my future, or would I be best to use another company/broker?
3) What is the best high-interest savings account.
4) Are there any recommendations on the general way to implement this plan? What should I start with and what has the most benefit?

I really hope this is OK to ask. I really appreciate the help.

[RetireJapan]

Welcome! You're in great shape if you get started when you are 25. Wish I had started that early

Assuming you have an emergency fund (maybe a million yen in cash somewhere you can get to it easily)

No high interest accounts in Japan, unfortunately.

Rakuten is fine. You can apply to open iDeCo, NISA, and taxable account all at the same time.

Get iDeCo and tsumitate NISA set up, make the maximum payment each month for each, then pat yourself on the back. If you only do that for the next 40 years you should be in a very nice situation indeed.

Investing in the taxable account can come later. There's no need to do everything at once.

[adamu]

I second RetireJapan's advice: iDeCo and Tsumitate NISA maxed out is the best thing you can do, if nothing else.

1) Are Nisa and iDeCo simple to set up and manage? i.e do I have many choice to consider when setting it up?
2) Is Rakuten sufficient for buying the best ETF/index funds for my future, or would I be best to use another company/broker?
3) What is the best high-interest savings account.
4) Are there any recommendations on the general way to implement this plan? What should I start with and what has the most benefit?

Longer version:

1) It's a bit overwhelming at first due to all the rules, but once it's up and running it's pretty smooth.
2) I would probably recommend Monex for iDeCo right now, simply because it provides my favourite fund, but other people have mentioned difficulty opening an account as a foreigner. I don't personally use Tsumitate NISA, so I'm not sure. Rautken, Monex, and SBI are all good choices. Rakuten and SBI tend to push their own version of funds, which is why I slightly prefer Monex, but I don't have personal experience with them.
3) There are none. In modern times, cash savings don't earn interest. So treat them as loss-making (due to inflation) insurance, that give you the confidence to invest the rest. You can get about 0.1% interest (which is high!) in Rakuten Bank if you link your account to Rakuten Securities.
4)

I would probably do:
a) iDeCo takes time to set up, so get that ball rolling
b) Set up Tsumitate NISA to max out every month
c) Keep 1M yen in cash (but you can decide if more or less is better for you) as an emergency/insurance fund.
d) Anything extra after maxing out your iDeCo, Tsumitate NISA and building up the emergency fund, invest in a taxable account. Remember to also use some to enjoy life .

Some useful wiki links:
https://retirewiki.jp/wiki/IDeCo
https://retirewiki.jp/wiki/NISA (But maybe Tsumitate NISA is a good choice if you're just starting - we don't have an article about that yet)
https://retirewiki.jp/wiki/Japanese_global_index_funds

You'll need this info when you apply for a NISA: https://retirewiki.jp/wiki/Securities_account_types

Purchasing individual stocks is not necessary. If you pick a well-diversified fund, you get the market performance. By picking individual stocks you'll either be above or below average, but it's a gamble unless you're pretty confident in your reasoning (and even then, who knows if it'll work out).

edit: rephrase emergency fund stuff, since OP already has it saved.

[zeroshiki]

Since you already have Rakuten Card, say a prayer to the middlename gods and set up your Tsumitate NISA using Rakuten Card for the sweet sweet points.

Note that Rakuten Card has a max of 50k a month on Rakuten Securities but Tsumitate Nisa (if you're starting in January) should only be 33,333 a month because of the 400k limit so setup 2 tsumitates, one with Tsumitate Nisa for 33,333 yen a month then another one for 16,667 yen on a designated account. This gets you to 50k a month (which is a good number!) and then the max 500 points.

[UnderscoreEX]

Thank you all for the quick and detailed help. This has really got me motivated to start making moves.
With the advice so far, I have done a bit more research and I hope the questions below make sense.

I second RetireJapan's advice: iDeCo and Tsumitate NISA maxed out is the best thing you can do, if nothing else.

2) I would probably recommend Monex for iDeCo right now, simply because it provides my favourite fund, but other people have mentioned difficulty opening an account as a foreigner. I don't personally use Tsumitate NISA, so I'm not sure. Rautken, Monex, and SBI are all good choices. Rakuten and SBI tend to push their own version of funds, which is why I slightly prefer Monex, but I don't have personal experience with them.

Is there much consensus on the best fund to choose if you were starting out? If there is a clear winner out of Rakuten, Monex, and SBI, then I would like to change banks now. If there isn't much difference between the choices, perhaps Rakuten is the best, as the post above noted that I can get up Rakuten Points through these payments.

3) There are none. In modern times, cash savings don't earn interest. So treat them as loss-making (due to inflation) insurance, that give you the confidence to invest the rest. You can get about 0.1% interest (which is high!) in Rakuten Bank if you link your account to Rakuten Securities.

OK Rakuten bank sounds like a good choice. I assume I have a bank account with them, as I have the credit card (as of last week )

d) Anything extra after maxing out your iDeCo, Tsumitate NISA and building up the emergency fund, invest in a taxable account. Remember to also use some to enjoy life .

I will get these sorted as soon as possible. As I understand it, Tsumitate Nisa includes different investments, like stocks, ETFs, funds etc. Are these ones that I choose myself initially or are these decided by whomever manages Nisa? I understand that this probably sounds like a stupid question but I am a little unsure how it all works.
Do I just put money into Nisa and let it work automatically or am I managing my own individual investments within my account?
If so, Would you have any recommendations on the best choices within.

Also, is there a rough estimate on the return of Nisa each year? I have googled around and saw the number 3%, which sounds incredibly low (barely above inflation). Maybe I am missing something.

Purchasing individual stocks is not necessary. If you pick a well-diversified fund, you get the market performance. By picking individual stocks you'll either be above or below average, but it's a gamble unless you're pretty confident in your reasoning (and even then, who knows if it'll work out).

Yes, that was my worry too.
If I can barely handle this level of investment, I should stay away from picking individual stocks.




Thanks again for everyone's help. I really appreciate this.

[adamu]

As I understand it, Tsumitate Nisa includes different investments, like stocks, ETFs, funds etc. Are these ones that I choose myself initially or are these decided by whomever manages Nisa? I understand that this probably sounds like a stupid question but I am a little unsure how it all works.
Do I just put money into Nisa and let it work automatically or am I managing my own individual investments within my account?
If so, Would you have any recommendations on the best choices within.

For both iDeCo and Tsumitate NISA, you can only invest in Japanese funds, not stocks and ETFs.

You have to choose from a selection of available funds. Any of the funds listed on the Japanese global funds link above are a good choice (options vary per broker). They represent almost all of the publicly listed companies in the world. Just picking one of those will be enough. Later, you might want to add bonds or tweak things as you learn, but keeping things simple doesn't hurt! Personally I like eMaxis Slim All Country (available in iDeCo at Monex, but not SBI or Rakuten) for the reasons explained in the article. Quoting the relevant sentence here:

It is important to consider that US ETFs, and the Rakuten and SBI global funds, pay 10% US dividend tax on all foreign stocks. Japanese domiciled funds such as eMaxis Slim All Country / Tawara no-load only need to pay US taxes on the US portion of the dividend, not the entire dividend.

[zeroshiki]

OK Rakuten bank sounds like a good choice. I assume I have a bank account with them, as I have the credit card (as of last week )

Rakuten Bank is completely separate from Card or Securities (but you can link them for very good synergy. Check the "Rakuten Ecosystem" thread.

As for the fund, do you already have the Rakuten Securities account? If yes, I wouldn't bother creating a Monex or SBI account since the offerings are mostly the same except that Rakuten IDECO doesn't have eMaxis Slim All Country. I personally don't find that as that much of a deal breaker (enough to go through the pain of changing providers) since you can just go get Rakuten All World or emaxis Slim S&P 500.

[Established]

OK Rakuten bank sounds like a good choice. I assume I have a bank account with them, as I have the credit card (as of last week )

Rakuten Bank is completely separate from Card or Securities (but you can link them for very good synergy. Check the "Rakuten Ecosystem" thread.

As for the fund, do you already have the Rakuten Securities account? If yes, I wouldn't bother creating a Monex or SBI account since the offerings are mostly the same except that Rakuten IDECO doesn't have eMaxis Slim All Country. I personally don't find that as that much of a deal breaker (enough to go through the pain of changing providers) since you can just go get Rakuten All World or emaxis Slim S&P 500.

It is not a bad idea to have 2 accounts eventually.

Japanese investment accounts are only insured up to 1000万. You will probably exceed that in a decade with iDeco, Tsumitate and Taxable.

It does not hurt to spread this over 2-3 accounts. Many Japanese people do this with bank accounts for the same reason.

The risk is of course low. HOWEVER banks have failed in Japan (mainly smaller local ones).

[UnderscoreEX]

Thanks again for all the responses. Its been a huge help in structuring my plan moving forward.

For both iDeCo and Tsumitate NISA, you can only invest in Japanese funds, not stocks and ETFs.

On this point, I have two quick questions.
1) As I have heard there is an option to extend from the 5y Nisa to Tsumitate Nisa, would you advise to start with 5 year and switch to 20 afterwards? (I saw some threads about maximizing your Nisa investments doing this however I am not sure if it was only an option for me starting out)

2) Do you think that i am missing out by being limited to Japanese funds? Stocks and ETFs were the main recommendations everywhere I have searched before this.

You have to choose from a selection of available funds. Any of the funds listed on the Japanese global funds link above are a good choice (options vary per broker). They represent almost all of the publicly listed companies in the world. Just picking one of those will be enough. Later, you might want to add bonds or tweak things as you learn, but keeping things simple doesn't hurt! Personally I like eMaxis Slim All Country (available in iDeCo at Monex, but not SBI or Rakuten) for the reasons explained in the article. Quoting the relevant sentence here:

I might look into this option too and perhaps start a new account.
Would anyone have a recommendation for the best options with Rakuten for Nisa and iDeCo?
In my travels so far I have heard of
- Rakuten US Stock index fund, which is good for passive investment with low purchasing fees
- VTI (vanguard) which was not recommended for passively investing, because of its high transfer fee.

It is important to consider that US ETFs, and the Rakuten and SBI global funds, pay 10% US dividend tax on all foreign stocks. Japanese domiciled funds such as eMaxis Slim All Country / Tawara no-load only need to pay US taxes on the US portion of the dividend, not the entire dividend.

Would this still apply to me? as ETFs and Stocks aren't an option with Rakuten?
Maybe I am confusing US funds with Japanese funds of US stocks (the terminology is still getting hard to grasp)


Thanks again for the quick replies.

[beanhead]

It is not a bad idea to have 2 accounts eventually.

Japanese investment accounts are only insured up to 1000万. You will probably exceed that in a decade with iDeco, Tsumitate and Taxable.

It does not hurt to spread this over 2-3 accounts. Many Japanese people do this with bank accounts for the same reason.

The risk is of course low. HOWEVER banks have failed in Japan (mainly smaller local ones).

Thanks for that. I didn't know that. I was aware of the bank 10M limit on insurance, but not that there is a similar limit for brokers as well.