Simple Q&A - Stock market investing

[blos]

Super dumb question

Does it matter at all the JPY/USD exchange rate when investing into, let's say, eMaxis Slim S&P500 fund?

Should I wait for the yen to get a bit stronger before investing?

I had a rather large fallout (settlement from illegal dismissal) that I'd rather not keep in my bank account much longer.

[Beaglehound]

Super dumb question

Does it matter at all the JPY/USD exchange rate when investing into, let's say, eMaxis Slim S&P500 fund?

Should I wait for the yen to get a bit stronger before investing?

I had a rather large fallout (settlement from illegal dismissal) that I'd rather not keep in my bank account much longer.

It matters in that the lower the yen the less overseas market stock it will buy and vice versa, but unless you can confidently predict which way the yen is going to move you would be better off just investing it ASAP I think. You might consider drip feeding the sum into the market if currency (or stock price) fluctuations concern you.

[blos]

It matters in that the lower the yen the less overseas market stock it will buy and vice versa

I thought this might be the case.

Just did a quick calc, the spread I'd be confident to predict that might happen is less than 9%, so yeah I better invest now.

Thanks for the clarification!

[pfdsa]

Quick beginner's question:
When investing on Nisa, is there something with lower risk than an index fund (emaxis slim all country)?

EDIT: Will need the money in 5 years to buy an house in euros.

[sutebayashi]

Index funds are by their nature very diversified, so good for lowering risk.

EMAXIS slim all country puts your money into thousands of companies around the world (mostly the US and other developed markets though).

Still, if equities globally meltdown, which happens every decade or so I guess, they might all suffer together.

Less risky than equities, are bonds. There are indexes that invest in a diversified selection of bonds too.

But even global bonds are risky too, since buying them means exposing yourself to currency risk, and even governments don’t pay back their debt always… but they are less risky than equities normally.

If you are averse to that sort of risk, you might consider restricting yourself to only Japanese bonds or equities.

But if you are planning to be invested for more than 10 years, there might be some ups and downs all by the way, but after 10 years you’ll probably come out looking good.

What’s the alternative?
Keep your yen in the bank, and see the value of your savings whittled away by 2% a year.

If you stick to doing tsumitate in your nisa and stick to only funds that are approved for purchasing in tsumitate nisa, and stick to it for 10 years, I think the risks are very low.

[Butterball]

Quick beginner's question:
When investing on Nisa, is there something with lower risk than an index fund (emaxis slim all country)?

Well, all-country index funds are about as low-risk as you can get with equities. However, if you need/want lower risk, you could buy bond funds (債券) or balanced funds (資産複合/バランス) . Usually one would manage their risk by holding a combination of stocks & bonds, rather than avoiding stocks outright. But it depends on your overall savings and time horizon.

[pfdsa]

Index funds are by their nature very diversified, so good for lowering risk.

EMAXIS slim all country puts your money into thousands of companies around the world (mostly the US and other developed markets though).

Still, if equities globally meltdown, which happens every decade or so I guess, they might all suffer together.

Less risky than equities, are bonds. There are indexes that invest in a diversified selection of bonds too.

But even global bonds are risky too, since buying them means exposing yourself to currency risk, and even governments don’t pay back their debt always… but they are less risky than equities normally.

If you are averse to that sort of risk, you might consider restricting yourself to only Japanese bonds or equities.

But if you are planning to be invested for more than 10 years, there might be some ups and downs all by the way, but after 10 years you’ll probably come out looking good.

What’s the alternative?
Keep your yen in the bank, and see the value of your savings whittled away by 2% a year.

If you stick to doing tsumitate in your nisa and stick to only funds that are approved for purchasing in tsumitate nisa, and stick to it for 10 years, I think the risks are very low.

Quick beginner's question:
When investing on Nisa, is there something with lower risk than an index fund (emaxis slim all country)?

Well, all-country index funds are about as low-risk as you can get with equities. However, if you need/want lower risk, you could buy bond funds (債券) or balanced funds (資産複合/バランス) . Usually one would manage their risk by holding a combination of stocks & bonds, rather than avoiding stocks outright. But it depends on your overall savings and time horizon.

Thank you for the insight. Very helpful.
Forgot to add some context. We are considering buying an house in 5-6 years in euros, so we will eventually withdraw the money we have in the emaxis slim fund. It is a small quantity, but it is money.

[Tkydon]

It matters in that the lower the yen the less overseas market stock it will buy and vice versa

I thought this might be the case.

Just did a quick calc, the spread I'd be confident to predict that might happen is less than 9%, so yeah I better invest now.

Thanks for the clarification!

You could choose a Fund that invests in Overseas assets, but is Exchange Rate Hedged 為替ヘッジ有 to remove the exchange rate risk.

Or you can just choose to ignore the exchange rate risk.

You could choose to invest in Japanese assets until such time as the Yen strengthens to remove the exchange rate risk, and then switch the funds to overseas assets in the future.
This strategy would use your annual allowance now (initial investment amount), and again when you switch, but would credit back the amount of the allowance used for the initial investment now to your Lifetime Allowance for reuse (only the initial investment, but not any gain on that investment).

Or you can just choose to ignore the exchange rate risk.

The choice is up to you.

[Seasider4374]

Japanese Taxes on Dividends.

If you hold shares in a regular account, your broker is obliged to withhold Dividend Tax on the Dividends you receive at the Dividend Tax Rate of 20.42%.

At Kakutei Shinkoku Time, you can elect to have your dividends taxed by the Aggregate Income Taxation Method at your marginal Tax Rate OR by the Separate Taxation Method for Dividend Income at the fixed Tax Rate of 20.315% (15% National, 0.315% Reconstruction and 5% Residents' Tax Rates).

Due to some credits that I will not go into here, as I have written about it before...
For Dividends on Japanese Stocks, if your Total Taxable Income is less than about Y6M, then it would be better for you to select the Aggregate Income Taxation Method at your marginal Tax Rate.

For Dividends on Foreign Stocks, if your Total Taxable Income is less than about Y3.5M, then it would be better for you to select the Aggregate Income Taxation Method at your marginal Tax Rate.

Otherwise, it would be better for you to select the Separate Taxation Method for Dividend Income at the fixed Tax Rate of 20.315% (15% National, 0.315% Reconstruction and 5% Residents' Tax Rates).

Having read through all 25 pages of this thread (and planning to do a read through again but next time also reading links posted too soon) I wish I could give a thumbs up or bookmark certain posts within any given thread.

Not to say any other members' advice/comments were not useful, but Tkydon here hit the nail on the head with regard to my current personal query regarding dividends. I trust the Japanese taxation system regarding dividends is the same in 2024 as it was in 2022?

But, just for absolute clarification, can I check what constitues a Foreign or Domestic dividend paying fund?

I'm not American, and use Rakuten funded with Japanese Yen only. And so therefore I assume I am only able to buy "Japanese" funds on my Rakuten platform? Is this assumption correct?

If I were to buy (in JPY) any given fund on Rakuten broken down by holdings of, say, 60% US, 5% Japanese, (other countries' 35%) companies is this still a Japanese fund in the eyes of the Japanese tax office, or does it become a foreign fund due to amount of overseas investment?

[Tsumitate Wrestler]

....

If I were to buy (in JPY) any given fund on Rakuten broken down by holdings of, say, 60% US, 5% Japanese, (other countries' 35%) companies is this still a Japanese fund in the eyes of the Japanese tax office, or does it become a foreign fund due to amount of overseas investment?

You can buy US, Chinese, and ASEAN listed stocks on Rakuten. But you certainly couldn't do so "accidentally". They have their distinct sections.

For ETFs and stocks, it means a Japanese company headquartered in Japan. You need to be careful with ETFs, not all qualify.

For trusts there is a different formula depending on the constituent parts, and how much of it is domestic vs foreign.