10 Q&As about the new NISA

[TokyoBoglehead]

What is true for American in USD is not true for Japanese investors in Yen.

Yeah, you're probably right. The ones I'm still buying regularly are in my iDeCo account, so currency risk is an issue. I try not to worry about it much
I also have treasuries in USD and gilts in GBP (distributing ETFs) in my IB account. The passive income they're creating these days is a sight to behold, especially when converted to yen.

Well iDeco allows you to change what your invested in without triggering a sale or purchase!

Why do you have your bond products in your tax-free account, and not your taxable? Are you at the later stages of planning, and/or retired?

[TokyoBoglehead]

A rise in JPY could easily wipe any profit an investor was expecting when it comes to foreign bonds. A Japanese investor must be conscious of the fact that foreign bonds are not necessarily a "safer" investment.

Which do you think is less likely to lose value: US-denominated bonds or just cash in the bank (JPY)?

The value of the US bond is not relevant.

Are you asking me to predict currency movement of the yen? I cannot. That is exactly the point and where the risk comes from with foreign bond investments.

It is very possible for a rise in the Yen to demolish any expected returns in real terms.

When you buy USD bonds you are effectively speculating on a future low yen.

[northSaver]

Why do you have your bond products in your tax-free account, and not your taxable? Are you at the later stages of planning, and/or retired?

I have bonds in both iDeCo and taxable (IB - Interactive Brokers) accounts. Not in NISA though, only stocks. My iDeCo portfolio is based on Ray Dalio's All Weather Portfolio, hence the bonds. I'm 55 so I guess in the later stages, yes.

[TokyoBoglehead]

Why do you have your bond products in your tax-free account, and not your taxable? Are you at the later stages of planning, and/or retired?

I have bonds in both iDeCo and taxable (IB - Interactive Brokers) accounts. Not in NISA though, only stocks. My iDeCo portfolio is based on Ray Dalio's All Weather Portfolio, hence the bonds. I'm 55 so I guess in the later stages, yes.

Is this what you were referring to? May I ask if you are paid in USD?

all_weather_allocation_yc.png (9.43 KiB) Viewed 1196 times

[northSaver]

Is this what you were referring to? May I ask if you are paid in USD?

Since you asked, these are the allocations. This is not a recommendation, it's just something that suits me personally. I am happy with the returns. As to the second question, apart from USD and GBP dividends, all my income is in JPY.

10% ニッセイ日経平均インデックスファンド
10% ニッセイ外国株式インデックスファンド
10% ｅＭＡＸＩＳ Ｓｌｉｍ新興国株式インデックス
16% ｅＭＡＸＩＳ Ｓｌｉｍ国内債券インデックス
18% ｅＭＡＸＩＳ Ｓｌｉｍ先進国債券インデックス
16% ｉＦｒｅｅ 新興国債券インデックス
4% ニッセイＪリートインデックスファンド
6% 三井住友・ＤＣ外国リートインデックスファンド
10% 三菱ＵＦＪ純金ファンド（ファインゴールド）

Actually I stopped buying 16% domestic bonds last month because their performance is bad and I feel that I already have enough. Instead I'm buying 16% international stocks (ＳＢＩ・全世界株式インデックス・ファンド).

[adamu]

ＳＢＩ・全世界株式インデックス・ファンド

I can't discuss bonds, but since you already have eMaxis Slim, I would prefer all country (or just upping your existing allocations) over this, due to the triple tax reasons mentioned on the wiki. Might have some overlap with ニッセイ外国株式インデックスファンド too?

[northSaver]

Thanks adamu. I wanted All Country but couldn't find it SBI's iDeCo list, so went for the SBI fund. It would have been better to increase my other stock allocations, as you say. Or buy ｅＭＡＸＩＳ Ｓｌｉｍ 全世界株式（除く日本）, which SBI do have. I'm overloaded with Japanese stock funds in NISA so don't need any more of those.
Thanks for the reminder about the US withholding tax issue. I'll switch funds and change my allocation now

[sutebayashi]

A rise in JPY could easily wipe any profit an investor was expecting when it comes to foreign bonds. A Japanese investor must be conscious of the fact that foreign bonds are not necessarily a "safer" investment.

Currency risk is there for any sort of foreign asset, I suppose we can say stocks return more than bonds generally, but if the currency rate went against one it could eliminate gains for stocks too. At least in the short run.

These days I am unfazed about the yen. The central bank is printing loads of it, and I don’t see much to brighten Japan’s economic prospects. Quite happy to invest in foreign assets (and precious metals etc) given my exposure otherwise to Japan and the yen (home ownership and salary income).

It is very possible for a rise in the Yen to demolish any expected returns in real terms.

Possible yes, but how likely?

With so much public debt and no signs of attempts to stabilize it, I can only see prolonged money printing in Japan, so the best the yen gets is a temporary reprieve, in my view. This could be something like a 20% gain in value, due to speculative fluctuations in the currency markets, but having a long term horizon (10 years +) I expect higher returns overseas to beat what Japanese assets can offer despite that.

Mine is indeed a speculative view - but one has to choose what asset allocation one will have, and isn’t that in itself full of speculation? For example if one says that the current market cap shall be what one invests in with respect to equities, isn’t that implicitly speculating that status quo will prevail?

Not only is mine a speculative view. I am pretty bearish on Japan. But if my speculative view is totally wrong, the worst that will happen is my foreign assets decrease in value relatively, while my home and future salary income would increase (speculating that I do not get laid off or opt to quit.)

[TokyoBoglehead]

Possible yes, but how likely?

No one knows. But the cost of futures contacts will show you how the market is betting.

The argument made in the article is simply that foreign bonds offer poor risk-reward for the yen investor, and little actual diversification. A conclusion that is born out in the data.

The higher expected future returns and diversification offered by a global equity fund would be a better option.

......

If you feel that you can predict the movements of the currency market, or the domestic stock market then arguments the point is moot as the article is about passive investing.

[beanhead]

A rise in JPY could easily wipe any profit an investor was expecting when it comes to foreign bonds. A Japanese investor must be conscious of the fact that foreign bonds are not necessarily a "safer" investment.

Which do you think is less likely to lose value: US-denominated bonds or just cash in the bank (JPY)?

Are you asking me to predict currency movement of the yen? I cannot. That is exactly the point and where the risk comes from with foreign bond investments.

Understand that your crystal ball is not so accurate
My question was, what is the alternative if we want some 'safe' cash or cash-like funds in the portfolio? There are risks to holding cash, too.

Let's say you have a decent $1M/130M JPY saved for your retirement. Boglehead theory would say that perhaps 40% should be in bonds. For a 20 or 30 year retirement period, if we keep cash instead we have obvious inflation risk.
You have pointed out that there are currency risks to US-based bond funds. And the JPY bonds and bond funds have 0 return, basically.

So, what is the sensible ballast for a conservative investor?