Using New NISA for short term investments

[kingbean]

Hi, I’m trying to wrap my head around short term investing beyond T-NISA so please forgive possibly a very Naive question. (I went through the forum but couldn’t find similar topic)

With the new NISA we can invest up to 2mil en in lump sum every year. Looking at past 12months of emaxis slim allcountry (as an example) there was about 32% rise in value. I understand that this not guaranteed to happen again and other factors are in play, but I have a plain question as follows.

If I put in new NISA now e.g. 1mil en, and there would be the same rise in value 32% by the end of the next 12months, does it mean that if I would make 320k when I decided to withdraw the money in 12 months? (Minus some nosubstantial fees) Or is the real gain calculated differently?

Is there a better option if you have money you’ll probably need in “near” future but don’t want it to sit in bank for few years now? Thanks a lot

[RetireJapan]

Yes, but in the short term that fund can also go down by 30, 40, 50%.

Don't invest money you will need in less than a couple of years.

[adamu]

If I put in new NISA now e.g. 1mil en, and there would be the same rise in value 32% by the end of the next 12months, does it mean that if I would make 320k when I decided to withdraw the money in 12 months? (Minus some nosubstantial fees) Or is the real gain calculated differently?

Yes, so you'll save ¥65,008 of capital gains tax.

But another way to look at it is that by taking out the 320k, you forfeit the right for it to compound tax free for the rest of your life. Once you take it out, you can't put it back in. This is why NISA is best used for long term investments.

Also, yes. Imagine if you lost 50% of your investment 1 month after putting it in, but you need the money so are forced to sell. It happens. Don't let greed get the better of you.

[cocacola]

But another way to look at it is that by taking out the 320k, you forfeit the right for it to compound tax free for the rest of your life. Once you take it out, you can't put it back in. This is why NISA is best used for long term investments.

Oh, I thought there is a "reset" of the NISA "bucket" at the start of the following year? Maybe I'm mistaken? Or am I misunderstanding what you guys are talking about...?

[adamu]

Oh, I thought there is a "reset" of the NISA "bucket" at the start of the following year? Maybe I'm mistaken? Or am I misunderstanding what you guys are talking about...?

If you invest ¥1M, it grows to ¥1.32M and you sell it all, you only get the original ¥1M lifetime allowance back to reinvest the following year.

If you leave it invested, you keep the full ¥1.32M and any future gains tax free even though it only used ¥1M of allowance.

Likewise if you sell ¥320k, you won't get back ¥320k of allowance, but ¥242k (amount that 320k originally cost you before the gain).

[kingbean]

Thanks for the answers. Indeed I wish I could just be adding money every year and never needed to withdraw them and I understand the advantage of that. However in few years I might need to use the current money (though I hope not) and seeing that every year such fund consistently adds between 5-30% just sounded bit too good to be true. So I wanted to check that I look at the correct numbers. I realize last year has been exceptional and there are rapid ups and downs all the time.

[styxomaniac]

Likewise if you sell ¥320k, you won't get back ¥320k of allowance, but ¥242k (amount that 320k originally cost you before the gain).

If someone is wondering how the heck you get the ¥242k. (I know I did and tried to figure out the maths)

Let's use the values from the example:

- Original investment: ¥1,000,000
- Total value after 32% gain: ¥1,320,000
- Portion being sold: ¥320,000

1. Original cost of portion sold: ¥320,000
2. Proportion sold: ¥320,000 ÷ ¥1,320,000 = approx 0.2424
3. Total gain: ¥1,320,000 - ¥1,000,000 = ¥320,000
4. NISA allowance on portion sold: ¥320,000 x (times) 0.2424 ≈ ¥77,568
5. Amount considered for NISA allowance rimbursement: ¥320,000 - ¥77,568 ≈ ¥242,432

So, in this scenario, you would get back ¥242,432 of allowance back, not the full ¥320,000.

[adamu]

1. Original cost of portion sold: ¥320,000
2. Proportion sold: ¥320,000 ÷ ¥1,320,000 = approx 0.2424
3. Total gain: ¥1,320,000 - ¥1,000,000 = ¥320,000
4. NISA allowance on portion sold: ¥320,000 x (times) 0.2424 ≈ ¥77,568
5. Amount considered for NISA allowance rimbursement: ¥320,000 - ¥77,568 ≈ ¥242,432

So, in this scenario, you would get back ¥242,432 of allowance back, not the full ¥320,000.

That's right, but it's much simpler:

Proportion sold × purchase cost
(¥320,000 ÷ ¥1,320,000) × ¥1,000,000 = ¥242,432

But it only works here because we only made one purchase. If there are multiple purchases, you can't just use the total balance to calculate the proportion sold, you need to calculate how many units you will sell, then calculate what the total purchase cost of those units was on a first-in-first-out basis, then that is the amount of allowance you'll get back