Debating about lump sum jpn retirement allocations.

[shadows]

Hi. We're living permanently in Japan, Canadian 56, Jpn wife 47. Both currently at the end stage of setting up Rakuten Shoken and been in jpn a long time but have never invested. Recently realizing Nisa and tsumitate opportunities one can’t deny the benefits for retirement here.
As a newbie to investing in jpn, my thoughts are to max out NISA for both my wife and I then invest the bulk of other 'idle' yen in our savings into short and mid term US ETFs via Rakuten Shoken and taxed. When 2nd year NISA allocation dates arrive could I plan to sell portions of taxable ETFs and reallocate and max out on NISA? And repeat this process.. I also feel concerned about the uncertainties of the two currency fluctuations wrt short term etfs.
Any thoughts?
Enjoy your weekend

[RetireJapan]

Welcome!

Mutual funds (投資信託) are an excellent option in Japan, and in fact are the only thing available in tsumitate NISA and iDeCo accounts.

[shadows]

thank you.

ok, I guess I mean investment trusts which I though were so similar to etfs. is there a difference in fee..etc..?

[adamu]

I wouldn't bother selling assets to fill up the NISA - just put new money in. For retirement savings an annual NISA allowance is going to be nowhere near enough.

Re Fund/ETF differences, see the wiki: https://retirewiki.jp/wiki/Japanese_glo ... th_US_ETFs

[mighty58]

Hi. We're living permanently in Japan, Canadian 56, Jpn wife 47. Both currently at the end stage of setting up Rakuten Shoken and been in jpn a long time but have never invested. Recently realizing Nisa and tsumitate opportunities one can’t deny the benefits for retirement here.
As a newbie to investing in jpn, my thoughts are to max out NISA for both my wife and I then invest the bulk of other 'idle' yen in our savings into short and mid term US ETFs via Rakuten Shoken and taxed. When 2nd year NISA allocation dates arrive could I plan to sell portions of taxable ETFs and reallocate and max out on NISA? And repeat this process.. I also feel concerned about the uncertainties of the two currency fluctuations wrt short term etfs.
Any thoughts?
Enjoy your weekend

A few comments:

• Not really clear what you mean by "short and mid term US ETFs", but you might be getting caught up in unnecessary jargon, which often happens to otherwise intelligent people who are new to investing. Even though investing is very simple, it's easy to get bogged down in the weeds of niche strategies and financial products.
• So let's keep it simple:
  ETF is basically the same as a mutual fund, the difference being that ETFs are traded on stock exchanges. But both of these are just structures. What's more important than the fact that you are buying an ETF and/or a mutual fund, is what that ETF and/or mutual fund consists of. The best, most diversified, and lowest-fee ETFs and mutual funds are index funds. Index funds are a basket of stocks. There are many indexes, but the most common types are: all companies in a specific country, all companies in a group of countries (e.g. the developed world), or all companies in the entire world.
• So when you say "US ETF", it could mean either an ETF listed on the US stock exchange, or it could mean an ETF listed in Japan that consists of US-based companies, like an S&P 500 ETF, for example. US-listed ETF's come with a variety of currency and tax implications. Japanese listed ETFs will effectively "hide" any currency issues (as you don't actually have to exchange money yourself, although the underlying investments, like for an S&P 500 ETF, will be affected by currency fluctuations), and tax is simpler as you are dealing just with Japanese taxation. As long as you buy an S&P500 fund, no matter where it is listed, you are still investing in the same basket of US companies though.
• ETFs don't have "terms", so your characterization of "short" or "mid term" is a bit confusing. The term is only determined by how long you decide to hold it.
• If you're sitting on a pile of cash, definitely get as much invested as soon as possible. The longer you're in the market, the better. As another poster said, it's ideal if you can put new, fresh money into the NISA every year. If you can afford 1.2m yen, go for regular NISA, if 400,000yen is more feasible, go for tsumitate NISA. Put the rest into index ETFs and/or mutual funds via your taxable account. It's only taxed if/when you sell.
• NISA doesn't really have an "allocation date". You are entitled to put in up to 1.2m (regular) or 400,000 (tsumitate NISA) per year, at any time during that year, whether in one lump sum or whenever you want.
• The only way to directly protect yourself from currency fluctuations is to invest solely in the Japanese market, by buying, say, a Nikkei 225 ETF or fund. The companies you invest in will be affected by currency, of course, but as an investor it will be indirect to you. If you're interested in more global stocks though, as it sounds like you are, there's little you can really do. For example, there were people on this very board proclaiming they would hold off on investing for a while back because the yen had hit 125 and that they would wait for a correction. These things are inherently unpredictable, and a part-and-parcel of investing.

[shadows]

thank you for helping with my ignorance diving into new horizons. but wait, there's more!

ok, so I guess it's all about getting into Japanese global index funds and nothing more inorder to avoid triple tax?

So talking about lump sum. NISA is all about tax exemption from profits via selected Japanese global index funds with a 1.2M/yr limit, but lets say
I have 15M to allocate (sitting doing nothing). With a j spouse and self = 2 NISA accounts = 2.4M for 1 year. therefore 12.6M remains.

should the remaining 12.6M go into more Japanese global index funds which are profit taxable and say, oh well. Or, one year later would I pull 2.4M from the taxable J index funds and max out the 2nd NISA year? Therefore original lump sum of 12.6M - 2.4M = 10.2M ..... and repeat the process with NISA for the other 3 years they offer? what am I missing?

This is all assuming NO fresh money.

[adamu]

Let's do some back-of-napkin arithmetic. I'm going to make a lot of assumptions.

You have ¥15M. With a withdrawal rate of 4%, this could provide you ¥600k/year.

If you invested it for 10 years with no new investments, and it earned 3%, it will approximately double to ¥30M (thanks to compounding), thus provide you with ¥1.2M/year (4% of ¥30M)

If you're planning on living on more than ¥1.2M/year from investment income (you will probably also get the state pension), or retire in less than 10 years, you need more money.

Let's say you want ¥3M a year of investment income. You need ¥75 million of investments.

That's why I assumed you will be saving new money each year. If that's not an option, then rebalancing money from taxable investments into the NISA each year to take advantage of the tax benefits makes sense. My suggestion assumed you would be saving more than the NISA allowance each year - in which case to keep things simple and avoid mistakes, fees, and early capital gains, it is probably simpler to fill up the NISA with new money, rather than rebalance old money into it.

[shadows]

Well that's eye opening, thank you. I now realize how cautious we are with that lump sum allocation, doe! We can boost that up some.
Yeah, I mean once the lump sum is in (tax or not) it's cash doing work for the long hall, topping up NISAs with new funds are the way to go, until you can't.

So, next on the menu - hashing out which j global index funds and allocations to commit to.

I think it's starting to gel. Thank you adamu.

[RetireJapan]

If you invested it for 10 years with no new investments, and it earned 3%, it will approximately double

My impression is that for something to double in ten years, it needs to earn just over 7% (the rule of 72) which is about the historical return on global stocks.

At 3% it would take about 24 years to double surely?

[shadows]

yeah, the rule of 72. perhaps a typo. I understood the solid reply.