Investment options...

[RetireJapan]

In my opinion the main benefit of investing in Japan is simplified tax paperwork and being able to use tax-advantaged accounts.

If you already have US account(s), you're already doing the paperwork so a bit less incentive to invest here.

What you plan to do in the future might be a factor -ie do you see yourself staying in Japan permanently or leaving at some point?

[genki]

I don't think I'll be leaving Japan, but it's hard to say.

I guess in that sense, investing the funds in America is probably fine, and I may be living somewhere else by the time I decide to use the funds. And if I'm still in Japan, I don't think it will have made much difference if I invested from Japan or in the American account, I'll be paying the 20% on capital gains either way.

[rasselbiluga]

Its always better to invest in the currency of whatever the source of the money you will be using to invest off of on.
If you're making yen, the investing in Japanese securities make more sense than taking foreign exchange hits both ways just to invest in the US.

I don't fully understand this point. From a currency risk point of view, I believe it doesn't matter whether you invest in a given index fund in Yen, USD or any other currency. In other words, the only currencies that matter are your home currency, and the currency of the underlying assets of the fund (see e.g. here: https://www.bogleheads.org/wiki/Non-US_ ... currencies). Or are you saying that it would be better to invest in Japanese securities (i.e. stocks of Japanese companies) only? Sorry maybe I am just mis-understanding your post.

[Established]

Its always better to invest in the currency of whatever the source of the money you will be using to invest off of on.
If you're making yen, the investing in Japanese securities make more sense than taking foreign exchange hits both ways just to invest in the US.

I don't fully understand this point. From a currency risk point of view, I believe it doesn't matter whether you invest in a given index fund in Yen, USD or any other currency. In other words, the only currencies that matter are your home currency, and the currency of the underlying assets of the fund (see e.g. here: https://www.bogleheads.org/wiki/Non-US_ ... currencies). Or are you saying that it would be better to invest in Japanese securities (i.e. stocks of Japanese companies) only? Sorry maybe I am just mis-understanding your post.

This was my understanding as well. If one`s savings are in Yen, there is no extra risk in yen-denominated equities or fixed income.

However, the risk arises when you need to exchange money to buy an asset.

Example: Asset -> Turkish Government Bond (10% Return)

A. Yen -> Turkish Lira
B. Buy -> Bond
C. Hold Bond
D. Bond Returns Purchase price + 10%
E. Turkish Lira -> Yen

Now if at any time between B and D the value of the Lira drops in comparison to the Yen I can actually lose money, despite receiving a 10% return.

You can of course always hold that currency and wait for rates to stablize. However, in Turkey`s case, you may be waiting a long time...

That is currency risk. This is the same risk you face if you buy U.S ETFs or Treasuries, the risk can move in both directions.

Funds or individuals can hedge to lower this risk, but often lower returns at the same time. This is why simply buying funds in your home currency is often an easier and recommended approach.

[adamu]

Funds or individuals can hedge to lower this risk, but often lower returns at the same time. This is why simply buying funds in your home currency is often an easier and recommended approach.

Not necessarily, it can increase returns too. I remember reading a while back about how hedging is basically making the investment behave more like a domestic one. If the domestic market does well, the investment performs better. The opposite is also true. I can't remember if it was here or elsewhere.

[rasselbiluga]

Its always better to invest in the currency of whatever the source of the money you will be using to invest off of on.
If you're making yen, the investing in Japanese securities make more sense than taking foreign exchange hits both ways just to invest in the US.

I don't fully understand this point. From a currency risk point of view, I believe it doesn't matter whether you invest in a given index fund in Yen, USD or any other currency. In other words, the only currencies that matter are your home currency, and the currency of the underlying assets of the fund (see e.g. here: https://www.bogleheads.org/wiki/Non-US_ ... currencies). Or are you saying that it would be better to invest in Japanese securities (i.e. stocks of Japanese companies) only? Sorry maybe I am just mis-understanding your post.

This was my understanding as well. If one`s savings are in Yen, there is no extra risk in yen-denominated equities or fixed income.

However, the risk arises when you need to exchange money to buy an asset.

Example: Asset -> Turkish Government Bond (10% Return)

A. Yen -> Turkish Lira
B. Buy -> Bond
C. Hold Bond
D. Bond Returns Purchase price + 10%
E. Turkish Lira -> Yen

Now if at any time between B and D the value of the Lira drops in comparison to the Yen I can actually lose money, despite receiving a 10% return.

You can of course always hold that currency and wait for rates to stablize. However, in Turkey`s case, you may be waiting a long time...

That is currency risk. This is the same risk you face if you buy U.S ETFs or Treasuries, the risk can move in both directions.

Funds or individuals can hedge to lower this risk, but often lower returns at the same time. This is why simply buying funds in your home currency is often an easier and recommended approach.

My understanding is that, in the long term, it doesn't matter in what currency you buy the asset (in other words, the trading currency is not relevant). The only currencies that matter are your home currency and the currency of the asset. In your example, that would be Yen and Turkish Lira. So I agree that there is JPY/Lira currency risk. My point is, it doesn't matter whether you buy the bond in Yen with a Japanese broker, or whether you first exchange Yen to USD, and then buy the Bond in USD with an American broker; the currency risk is the same.
In the same way, if you want to buy an index fund, it doesn't matter whether you buy the fund in Japan with Yen, or in the US with USD. For example, if you are investing in a whole-world fund that contains 50% US stocks, and your home currency is Yen, then you are subject to USD/Yen currency risk regardless of whether you buy that fund in Japan in Yen, in USD with a US broker, or in EUR with a European broker.

[Established]

Funds or individuals can hedge to lower this risk, but often lower returns at the same time. This is why simply buying funds in your home currency is often an easier and recommended approach.

Not necessarily, it can increase returns too. I remember reading a while back about how hedging is basically making the investment behave more like a domestic one. If the domestic market does well, the investment performs better. The opposite is also true. I can't remember if it was here or elsewhere.

That is currency risk. This is the same risk you face if you buy U.S ETFs or Treasuries, the risk can move in both directions.

I was trying to imply that, I suppose I could have worded it better.

"It can be a risk, or a potential benefit".

[Established]

I don't fully understand this point. From a currency risk point of view, I believe it doesn't matter whether you invest in a given index fund in Yen, USD or any other currency. In other words, the only currencies that matter are your home currency, and the currency of the underlying assets of the fund (see e.g. here: https://www.bogleheads.org/wiki/Non-US_ ... currencies). Or are you saying that it would be better to invest in Japanese securities (i.e. stocks of Japanese companies) only? Sorry maybe I am just mis-understanding your post.

This was my understanding as well. If one`s savings are in Yen, there is no extra risk in yen-denominated equities or fixed income.

However, the risk arises when you need to exchange money to buy an asset.

Example: Asset -> Turkish Government Bond (10% Return)

A. Yen -> Turkish Lira
B. Buy -> Bond
C. Hold Bond
D. Bond Returns Purchase price + 10%
E. Turkish Lira -> Yen

Now if at any time between B and D the value of the Lira drops in comparison to the Yen I can actually lose money, despite receiving a 10% return.

You can of course always hold that currency and wait for rates to stablize. However, in Turkey`s case, you may be waiting a long time...

That is currency risk. This is the same risk you face if you buy U.S ETFs or Treasuries, the risk can move in both directions.

Funds or individuals can hedge to lower this risk, but often lower returns at the same time. This is why simply buying funds in your home currency is often an easier and recommended approach.

My understanding is that, in the long term, it doesn't matter in what currency you buy the asset (in other words, the trading currency is not relevant). The only currencies that matter are your home currency and the currency of the asset. In your example, that would be Yen and Turkish Lira. So I agree that there is JPY/Lira currency risk. My point is, it doesn't matter whether you buy the bond in Yen with a Japanese broker, or whether you first exchange Yen to USD, and then buy the Bond in USD with an American broker; the currency risk is the same.
In the same way, if you want to buy an index fund, it doesn't matter whether you buy the fund in Japan with Yen, or in the US with USD. For example, if you are investing in a whole-world fund that contains 50% US stocks, and your home currency is Yen, then you are subject to USD/Yen currency risk regardless of whether you buy that fund in Japan in Yen, in USD with a US broker, or in EUR with a European broker.

Sure, I agree with that!

Certainly there are Japanese investors that prefer holding 50% domestic stock for this reason. Monex and others that use "Modern Portfolio Management " seem to recommend it.

However, I think over the long term you leave to much potential profit on the table to do this from Japan. And hedging will most likely eat into profits too much.

Classic American index investors (Jack Bogle, etc) take zero foreign currency risk and advocate (d) 100% American.

Personally, I do not lose much sleep over it. I actually appreciate the diversity.

[fools_gold]

I was trying to imply that, I suppose I could have worded it better.

"It can be a risk, or a potential benefit".

This is the problem with currency risk. Generally, if you take more risk you should expect better returns. However, currency risk means more risk without any expectation of higher returns. It's uncompensated risk and shouldn't be ignored. https://monevator.com/investing-for-beg ... ated-risk/