Request for Feedback on iDeCo Asset Allocation

[Merican]

My thinking for only holding Japanese bonds with my wife's account was that the bond portion of portfolio is not so much about maximizing returns as it is about managing risk and making sure the account doesn't drop too far in the event of a big drop in stocks. Also the bond portion could be used for rebalancing and there would be no currency risk by staying domestic. Lastly, I have 25% foreign bonds and 0% Japanese bonds in my own investment portfolio so I thought that make some kind of sense to balance things out. Does that make sense? Are the returns so abysmal that I should consider some foreign bonds?

[Cracaphat]

Hi guys,
Joined this site back in November,but commenting for the first time now! My missus read me the riot act last week for
not looking into iDeCo.I've been devouring comments on here and trying to get my head around how it all works.Finally I can
talk a bit about it with her,but when I read some of the high powered comments on funds,bonds,equities,stocks and the like I get lost.
What I've gathered is SBI's better than Rakuten for your account.A combo of world,emerging and Japanese equities or stocks,bonds or something.Choosing a low cost fund and iDeCo offers 3 types of products along the lines of mutual funds,insurance products and savings? Could I get in layman's terms an iDeCo for dummies breakdown please? Thanks.

[RetireJapan]

I spent a couple of months writing something like that

[Cracaphat]

I spent a couple of months writing something like that

Actually I'm reading what you write on it the most,so it'd seem somethings are registering with me thanks

[RetireJapan]

Sorry, that wasn't very clear -my only excuse is that I wrote it on my phone!

I was referring to the RetireJapan Guide to iDeCo: https://www.retirejapan.com/ideco-j401k/

Takekawa's book is better if you can read Japanese

[Cracaphat]

Thanks RJ. My Japanese reading sux,but with what I'm reading up on here,I'm sure I'll join up soon.Thanx.

[KyushuWoozy]

By the way, Retire Japan's iDeCo guide has been extremely helpful and informative

I've picked up the general idea of iDeCo from this forum and it seems pretty straightforward and a no-brainer. I'm already a passive investor outside Japan. I persuaded my wife to get the Minako Takekawa book (I don't read Japanese) and she answered a few questions I had from there for me. However money stuff is basically my task.

I'm wondering if I need this book (¥2000). Is it up-to-date? Ben, feel free to chip in.

Edit: just read further down the thread Ben and saw you took a couple of months to write it. I'm feeling I should buy it after all the work you've put in ...

[RetireJapan]

By the way, Retire Japan's iDeCo guide has been extremely helpful and informative

I've picked up the general idea of iDeCo from this forum and it seems pretty straightforward and a no-brainer. I'm already a passive investor outside Japan. I persuaded my wife to get the Minako Takekawa book (I don't read Japanese) and she answered a few questions I had from there for me. However money stuff is basically my task.

I'm wondering if I need this book (¥2000). Is it up-to-date? Ben, feel free to chip in.

Edit: just read further down the thread Ben and saw you took a couple of months to write it. I'm feeling I should buy it after all the work you've put in ...

Ha, ha, thanks

You probably don't need the guide. It's aimed at people who are beginners, either with investing or iDeCo.

If you have access to the Takekawa book that is more comprehensive.

[jcc]

1. the US withholding tax on dividends (not capital gains). This is taken at source and cannot be claimed back in a tax-exempt account like iDeCo or NISA. I think it is 10% (but might be 30%) levied on dividends worth 2-3% so results in a 0.2-0.3% a year drag on the investment.

This 0.2-0.3% is also what I have calculated in the past. When I first figured it out it surprized me that it was so small.

When we compare expense ratios we're looking at differences of much less than that.

Every little bit drags down an investment, and small things add up.

Say you have a compounding investment plan where you invest 10000 a year and that is making 3.5% a year after costs. After 40 years that's worth 875k. Now imagine you make a bunch of small "convenient choices" like choosing something that gets doubles taxed, something that avoids manual rebalancing etc, and it "only" brings you down 0.5% to 3.0% annual... your final balance is 776k. Or 100k less. Considering the size of the stakes for .5% difference in returns I think it's worth spending some time to make sure you're using the cheapest options available

Tiny percentage differences are much bigger when they're part of a small initial amount(annual growth). You can be optimistic(delusional) and believe you'll get 10% annual gains and that .2% is a drop in the pond, but more realistically, that .2% can be something like 5-10% of your annual gain.

Also, one thing that was missed is that the 0.2% calculation is only one part of it. The rakuten vanguard world is taxed in the source(each individual stock) countries that tax dividends, and then the dividends from the wrapped fund are taxed in the US. Finally you're taxed in japan(IF the fund isn't in a tax benefitted account). "Only getting taxed in the US is a thing if you get a US only fund", and this is going to be the cheapest(in expenses) rakuten/vanguard fund since it's only taxed once in the US and once in japan(but it's gonna be less diversified).

All that being said, the rakuten vanguard is still a decent low-effort alternative within the ideco fund. Tawara no-load has a higher expense rate but would probably be cheaper due to the tax ramifications, but it's gonna be a small difference .

[Merican]

Thank you jcc. Good reminder that small fees can really add up over time.

BTW, here is the most current asset allocation that we plan on using with an account at SBI Securities:

65% ｅＭＡＸＩＳ Ｓｌｉｍ全世界株式（除く日本） 0.15336% (World Stock Fund Excluding Japan)
10% ｅＭＡＸＩＳ Ｓｌｉｍ国内株式（ＴＯＰＩＸ） 0.17172% (Japan Stock Fund)
15% ｅＭＡＸＩＳ Ｓｌｉｍ先進国債券インデックス 0.18360% (Developed Countries Bond Fund)
10% ｅＭＡＸＩＳ Ｓｌｉｍ国内債券インデックス 0.15012% (Japan Bond Fund)

Overall Expense Ratio 0.15941%

The plan has changed quite a bit since my initial post because of the great points posted above in this thread. Thank you all for your feedback.