Portfolio balancing

[JapaneseMike]

So I have been looking at my portfolio makeup recently and i thnk it's time for a rebalance.

Currently i've 31% / 69% bonds/stock so i'm probably a little light on bonds forbmy age.

Within bond portfolio i've got
たわらノーロード先進国債券あり 30%　<in NISA>
IGLT 44%
VGOV 26%

Within stock portfolio i've got
VHYL 57%
VUSA 28%
VX5E 7%
VYM 8%

So, i waa worried my allocation to bonds was low a few months ago and promptly put half my annual NISA allowance in bonds which mat have been a weak move as unlikely to reap full tax benefits of NISA.

I'm also thinking i'm too heavily in vhyl and vusa. Vusa is performing well so i'm wondering if now is a good time to switch out. ( or just don't buy more of it)

Many of these pay decent dividends but i'd rather have auto-reinvest funds so i can spend less time watching dividends and making reinvestment decisions.

So oraclea of RJ, any advice or recommendations?

[jcc]

It would help if you accompanied the stock names with useful summaries, especially if you're using UK versions of well known funds that few would recognize. Checking this stuff is a courtesy people do so it would be nice if you provided the necessary information :/

Anyway, I looked them up quickly(correct if wrong)
たわらノーロード先進国債券あり - developed nations with currency hedge - 30%
IGLT - UK gov bonds - 44%
VGOV - Also UK gov bonds? - 26%

VHYL - World high yield - 57%
VUSA - S&P 500 -28%
VX5A - European 50 - 7%
VYM - S&P 500 High yield - 8%

Do you have enough in bonds? That's a question that only you can really answer but a common piece of advice is to increase bond allocation by age. If you're close to retirement You may want to go 50/50 or even further, while if you're still near the start of your career you're probably overallocated into bonds.

In general I'm confused as to why you have pretty much everything in UK domiciled funds? It looks like a tax mess to me. By having your US funds in LSE ETFs you're getting taxed in the US, in the UK and in Japan(well not in japan if it's in nisa). If you just bought the US versions of the ETF's or Japanese funds you'd cut out the UK as a middle-man. Or are we talking about investments outside of your nisa account back home?

A huge portion of your bonds are in the UK which is probably ok if you intend to retire there, but otherwise is a significant currency risk.

The high yield etfs in general will result in more international taxation(most countries only take a cut on dividends not on growth), so personally I've never bothered leaning heavily on dividends.

Honestly, it looks like a haphazard selection to me. Perhaps there's some logic in it based on your background and future plans, but without you sharing that, it's hard to say much more.

[JapaneseMike]

Hey jcc, thank-you for your detailed reply, particularly since you had to go and look up the different items

Sincere apologies for not including more details on the individual items, I guess I assumed the more experienced invrstors (eg everyone except me) would be familiar with them, i didn't realise they were uk specific versions) - thanks for helping fill gaps in my knowledge.

So you're right on it looking haphazard. I lived in the uk and was originally planning on having a heavy UK / GBP facing portfolio as GBP should remain strong over the years and I have family back there. My plans are shifting as Brexit looms ever closer, so i'd say each subsequent fund was an attempt to add diversity ( ex UK ) but since I had some incorrect assumptions ive ended up like this.

I purchased the GBP US stocks as I had stg available to invest and figured this was a good aay to diversify risks. I now understand that this approach will probably hit me in terms of tax/etc.

But, regardless of how I've got ino this mess, i'm hoping to make some more appropriate choices going forward.

Everything except the たわらproduct is not in NISA. I have a small ideco but it's only open 4 months so i didn't include it here. It's using 3 different maxislim products available on monex split between bonds and stock (international and domestic)

So ive got separate pension (gbp, frozen) which has a decent amount of bond exposure so am planning on having around 35%bonds in main investment accounts. A split between JP, international and emerging markets in stock. I'm not sure where retirement will be so looking to hold usd, eur and jpy assets.

I've been reading about VOO which may be a better alternative to some of the multiple Vangaurd products i'm using now. If this is in USD Im not sure if i should buy the gbp equivalents or do forex to buy the usd.

Sorry if i'm asking really dumb questions or have some incorrect assumptions. I finally kicked myself to get investment accounts and NISAs setup, i'd rather look stupid now rather than live with bad decisions in 20-30 years time

[jcc]

Still not entirely clear on where your non-nisa assets are(are they in a japanese account or in a uk brokerage?), or whether you plan to return to britain.

If it's not too expensive I'd consider trying to shift the assets to a more tax advantageous format, unless you're feeling really fond of Britain and feeling like gifting it some extra taxes. There are three main tax treatments you should be aware of:

Any japanese stock should really be bought via a japanese fund or etf: it will only get taxed here.

Any US stock should be bought in either a japanese fund/etf or a US ETF: either way it well get taxed in both japan and the US. Of course if you bought a pure UK portfolio the same would apply(just replace US with UK). This is the most attractive place to buy vanguard really as you get the full advantage of their low costs without extra tax costs.

Any multi-national etfs or funds will get taxed twice if owned in a japanese(the originating countries stock and japan) fund or three times anywhere else(the stocks domicile, the ETF's domicile and japan). For something like VT it's worth noting the US portion of it only gets taxed twice, so you're getting taxed something like 2.5 times rather than 3.

My honest opinion is that rather than deal with the hassle of currency exchange, reinvesting dividends, tax returns to get a partial rebate on foreign dividend taxes that a domestic 3 fund portfolio for stocks is simple, sweet and easy to manage/rebalance: japanese stock index, developed nations index and emerging markets index. You can weight that according to personal preference or whatever. These days the japanese brokers are developing some pretty compatitively priced indices: eMaxis slim developed nations has an expense ratio of .11% and when you consider the tax advantages and the deferring of dividend taxation that you get with the internally reinvested dividends, it will generally come out ahead of vanguard.

Vanguard is fantastic, but it is working at a disadvantage in japan and it's worth considering that all the "use vanguard" advice is coming from american investors and intended for american investors for whom these tax issues are a non-factor.

Finally, regarding your bond allocation, you mention retirement in 20-30 years time. For that range, I think 31% is enough but you could increase it if you wanted to play it safe. But I'd definitely diversify it more.

You should definitely build a target allocation that matches your feelings regarding diversification. If you're overweight somewhere, there should be a good reason. It could be as simple as "I'm going to retire in the UK so I want to keep more stock there where it is safe from currency risk". Once you figure out that allocation, you can get started on bringing your portfolio in line with it, either by just keeping what you have and adding to it, or by selling it at a good time and reallocating everything(probably going to have some costs but is going to save a lot of headaches further down, possible resulting in you being better about managing and rebalancing your portfolio).

[JapaneseMike]

Hi JCC, thanks for your reply.

I've finally sat down to a PC to write this reply, previous posts were from phone so may have lost something in brevity.

Currently most of my non NISA assets (Vanguard stuff and UK bonds) are in an Interactive Brokers account. I was initially put off by Monex/SBI because I didn't feel confident running an investment account with less than perfect Japanese. I was only able to open a US account with IB though so no NISA was possible. I started to use the IB account to get comfortable with the environments as I researched the NISA and language component of it.

As of now I have no plans to retire in the UK and I don't see me returning there for work any time in the future. I'll be entitled to a fairly decent UK state pension and I have a (small) frozen company pension domiciled in the UK. These i will leave alone and just claim whatever comes on retirement. (Thanks to Ben for his posts about the UK state pension by the way, I'm currently finding out if I can pay a bunch of years at class 2). With the above in mind I think I've sufficient exposure to GBP and can probably switch out of the GBP stuff in my IB account.

Given the tax issues with an IB account (US taxes) I may just withdraw the money and shift it into monex. I'm not a US citizen/greencard holder so avoiding additional taxes sounds like a plan.

I do plan on keeping the IB account for now as there is a reasonable chance that I'll get transferred out of Japan in the future. If that happens I'll use IB primarily if living abroad. My plan is to get eijuken before I leave so that I can leave any assets in JP (NISA/iDeCo/JP kokumin/kosei nenkin) until I return.

I've been reading the other active thread in this forum on low cost index funds and I've put 25% of my annual NISA allowance into the eMaxis Slim 先進国株式インデックス and will probably use the japan and developing versions for the rest. I think I read in a previous thread that we're better off putting the higher yield stock funds (as opposed to bond funds) in the NISA since the higher the potential gain, the greater the tax benefit, so I may make NISAs 100% stocks and keep my bond portfolio in my tax reportable monex account.

I'm still new to the monex account (only a few months). I've worked out how to automatically transfer money into the account, next step will be automating the purchase of the products.

Thanks again for your help.

[jcc]

I think I read in a previous thread that we're better off putting the higher yield stock funds (as opposed to bond funds) in the NISA since the higher the potential gain, the greater the tax benefit, so I may make NISAs 100% stocks and keep my bond portfolio in my tax reportable monex account.

This is my thinking too, but it's worth noting that if your nisa investments go pear shaped you don't get to claim those losses against gains in your taxable account. But given the average expected return, in general you would indeed be better off with the stocks in the nisa and bonds outside if you're using beyond your annual allocation