What to buy with Junior NISA?

[alberto]

Junior NISA is ending in 3 months and I think many have opened the account recently, like myself, but we have only 3 months to decide what to buy and leave there for many years. It's not a lot of money, but its potential is high because of the time frame. I just had the accounts opened for my 2 kids this week, but I am really hesitant about what to buy.

In principle, I would prefer mutual funds rather than ETFs because for some reason in Japan all ETFs distribute dividends, which is not good to leverage the potential growth over a very long term investment like Junior NISA. But there are not many options when it comes to mutual funds. The typical choice would be MSCI World-like, but it is pretty high at this moment. I know that over the long term, it will grow, but just at this moment I personally think it is pretty overpriced, and if that's the case, it may take years until it recovered. If there was a correction within this 3 months, I would invest everything in that, but at this moment, I'm hesitant.

Any ideas??

[RetireJapan]

Whole world stock market fund. You're potentially investing for 5-6 decades

[sutebayashi]

The typical choice would be MSCI World-like, but it is pretty high at this moment. I know that over the long term, it will grow, but just at this moment I personally think it is pretty overpriced, and if that's the case, it may take years until it recovered. If there was a correction within this 3 months, I would invest everything in that, but at this moment, I'm hesitant.

Since it is going to be “set and forget”, for my kids jnisas, for this year I switched to eMAXIS slim all country, too. (Previously I had been buying developed market stocks, developing market stocks funds separately, but since no new purchases will be possible in future, all country seems preferable so as to just take whatever the world index does)

Yes, the world index in yen terms is “high” right now, but each year the fund will accumulate dividends as well, so will have that upwards bias over time unless the world comes to an end (in which case who cares about nisa), besides whatever the value of the index itself is.

In any case, one has to invest jnisa in 2023, by around Christmas (the settlement date of your purchases must fall within 2023, not your trade / purchase date). You might opt to delay your purchase until December if have a bearish short term market view (or a bullish short term yen value view), or you might decide to split into purchases each month to get an average. This year I have been doing the latter with the jnisas.

My kids are 10 and under, and the money would probably pay for any higher education they might pursue at the earliest, and if the market does happen to crash around that time I will not sell the equities fund and pay for the education by other means.

Your timeframe and intent for the money may differ..

[beanhead]

I know that over the long term, it will grow

This is all that matters.
Buy, hold, watch it grow.

[adamu]

Time the market if you want to gamble with your kid's money. You might win, you might lose. Or do the rational thing and get the market return by investing now.

You can't know the future. Just invest and forget. As RetireJapan said, you're looking at potentially decades of growth. Time in the market beats timing the market...

Your dilemma could be extended to every single investment anyone ever makes. If we always wait for a dip, we'll never enjoy the gains. And if there is a dip, you'd be panicking and waiting a bit longer for things to recover, missing the bottom anyway.

[alberto]

Thank you for your answers! I generally agree 100% with those opinions, but I think this case is different because of the strong market timing effect of buying one single time and forget for many years. If you get this wrong now, that investment will be literally for nothing. Please, check the MSCI World chart below. If you had done a single investment in the 2000 peak, you'd have had to wait for 13 years only to get back to the initial point. And I think it is not so unlikely that we are now in a similar overpriced time as we were in 2000. And the JPY effect adds to the equation. I think price is very important when you concentrate this much, buying one single time and hold for many years. The effect of market timing here is huge, and I guess you agree that market timing is not a good thing, well, this is the strongest case of market timing.

[adamu]

Do those graphs account for dividends?

I think you have convinced yourself. Are you posting here looking for someone to agree with you? Wait if you want, but it's the wrong decision rationally. Only the future knows if it'll pay off.

I won't post again in this thread because there's nothing specific here about Japan even though the thread is nominally about Junior NISA, it's really a question of market timing that has probably been discussed a million times already over the internet, so nothing original to add.

[alberto]

Yes, they account for dividends.

No, I'm not convinced at all. In my previous message, I was making the point that the traditional buy and hold the world may not be a good decision at this very exact moment when we have to do this single one-time investment and with all the other circumstances that are specific to this choice that many are now making: Junior NISA to be invested within a timeframe of 3 months to be held for many years and having an overpriced World index.

You say that my decision is to wait, but it's not, because we don't have time to wait. We have to do it now (I don't think much will change within 3 months). So I'm trying to think about the best strategy under these specific cirmumstances, it's not the typical discussion. There are alternatives, like choosing another fund that may be undervalued at this moment and it may give better return over the long run. That's why I was asking for ideas.

Thank you!

[sutebayashi]

The “we are here” strikes me as having similarities to the mid 1990’s, but I have no clue what happens next.

The other thing I would add, is this is about a maximum of 800,000 yen per kid.
If the 800,000 is worth 400,000 in a few years time, would you care? Or would you be buying the dip with other money in your new NISA and be thankful for the chance to buy more at half the price?

I guess an alternative would be to go for a developed country bond fund. That should limit the downside more than for equities, but also limit your upside. And one could explore currency hedged alternatives too if worried about the yen suddenly reverting to a strengthening trend.

Or a mixture.

[alberto]

Thank you for your comments, good advice!