Bond Allocation

[Tkydon]

https://www.youtube.com/watch?v=JlgMSDYnT2o

[Tsumitate Wrestler]

So....why bother? Most new research data
{It may be worth considering an index that tracks inflation linked government bonds}

Thanks I I have now moved part of my emergency fund out of cash and into JGBi.

Are you going to hold them 10 years until maturity?

I thought about parking some of my spare cash there but the debt-to-gdp ratio of 260% is a bit off-putting.

I know the Japanese government has plenty of foreign reserves if hit the fan, but I’m not sure whether it could immediately dump a big chunk of its US Treasuries without causing a stampede and fall in the rest of its holdings as it has overtaken China again as the largest foreign owner of US debt.

Dunno. Just wondering why others on here and elsewhere don’t go for JGBi…

No, I would use a reinvesting mutual fund. Tokyo Marine has one, as does MUFG/Emaxis.

I do not believe individual investors can buy the iJGBs directly.

Dunno. Just wondering why others on here and elsewhere don’t go for JGBi…

Can’t speak for others but the returns are not attractive enough for me.

For cashlike positions? It is either this or a bank account, or bog standard JGBs

[Deep Blue]

For cashlike positions? It is either this or a bank account, or bog standard JGBs

I prefer my cash in cash. For yen cash, just enough to survive for a few months, and then all other cash tucked away in currencies with a decent yield.

[ToushiTime]

Thanks I I have now moved part of my emergency fund out of cash and into JGBi.

Are you going to hold them 10 years until maturity?

I thought about parking some of my spare cash there but the debt-to-gdp ratio of 260% is a bit off-putting.

I know the Japanese government has plenty of foreign reserves if hit the fan, but I’m not sure whether it could immediately dump a big chunk of its US Treasuries without causing a stampede and fall in the rest of its holdings as it has overtaken China again as the largest foreign owner of US debt.

Dunno. Just wondering why others on here and elsewhere don’t go for JGBi…

No, I would use a reinvesting mutual fund. Tokyo Marine has one, as does MUFG/Emaxis.

I do not believe individual investors can buy the iJGBs directly.

Dunno. Just wondering why others on here and elsewhere don’t go for JGBi…

Can’t speak for others but the returns are not attractive enough for me.

For cashlike positions? It is either this or a bank account, or bog standard JGBs

Ah I guess one of those is this fund https://www.am.mufg.jp/pdf/koumokuromi/ ... 231026.pdf

So unlike a single TIP or JGBi, you are not guaranteed an amount at maturity. You get whatever the market thinks your fund is worth. I had a TIPs ETF but gave up as I figured the cost of inflation protection wasn’t worth it - only when inflation goes beyond that which is priced into regular bonds.

[ToushiTime]

https://www.youtube.com/watch?v=JlgMSDYnT2o

Yeah, I follow him, and Pensioncraft and James Shack.
See his caveat at 8:11 mins.
100% equities has best returns if you can handle the deeper drawdowns along the way. People get nervous, particularly as they approach retirement, and risk screwing it up by panic selling.
This podcast from Many Happy Returns/Pensioncraft covers the same research and makes that point.

From the transcript:
"This is the risk if you retire in the year 2000, right? You retire, you think, wow, look at all this money I've built up. Wow, Cisco's doing so well. And then boom ,the dotcom bubble burst, you're 50% down, and you actually won't recover in real terms. So I think 13 years, because you got the financial crisis coming straight after this.
Yeah, that was a very, very extreme case. But even then, you did recover, but it wouldn't have been a comfortable ride. You just have to hang on for dear life and trust those back tests, I guess.
But like you say, a lot of people, maybe even most people, would probably get scared and do the wrong thing in that scenario. If you look at stats about how people perform versus how the optimal investor performs, people underperform their funds that they hold by around 2% on an annual basis, which is a huge underperformance because they do the wrong thing at the wrong time.”

https://podcasts.apple.com/jp/podcast/m ... 0653415831

[Tsumitate Wrestler]

Ah I guess one of those is this fund https://www.am.mufg.jp/pdf/koumokuromi/ ... 231026.pdf

So unlike a single TIP or JGBi, you are not guaranteed an amount at maturity. You get whatever the market thinks your fund is worth. I had a TIPs ETF but gave up as I figured the cost of inflation protection wasn’t worth it - only when inflation goes beyond that which is priced into regular bonds.

This one is recommended. Due to low fees. https://www.rakuten-sec.co.jp/web/fund/ ... 90C0000HW0

A reinvesting mutual fund is usually a more convenient option, however it seems buying iJGBs as an individual is possible.

Again this is only for cashlike positions, not really and "investment" just inflation insurance. It has done that job quite well from the chart.

....

https://www.youtube.com/watch?v=JlgMSDYnT2o

I love Ben Feliz but #1 Canadian bank accounts actually have yield, #2 GIC offerings in Canada are broad, you cannot really get this in Japan for obvious reasons.

Insuring cash position against inflation "near risk free" isn't really the same as investing. It's basically making sure your cash emergency fund (or a portion of it) isn't eaten away by inflation.

Caveat: Now that we have 2 young kids a years frugal spending is in cash. As my risk tolerance for my emergency fund suddenly became zero.

[ToushiTime]

Again this is only for cashlike positions, not really and "investment" just inflation insurance. It has done that job quite well from the chart.

What chart?
I am looking at page five of this https://www.am.mufg.jp/pdf/koumokuromi/ ... 231026.pdf which shows negative returns from 2014 to 2020, and positive returns from 2021 to 2023.
Is there another fund that does better?
Doesn't look that tempting even for a cash alternative. Japan's debt situation and the lack of 10 million yen protection you get for bank deposits isn't a selling point either.

Edit: the one you linked to had negative returns from 2015 to 2020, on page 7 of the 交付目論見書.

As I understand it, these inflation-linked bond funds only work if inflation rises more than expected. If inflation rises as expected, you lose out because regular bonds/bond funds are already discounted for inflation expectations, and the premium you pay for inflation protection from JGBi funds is wasted. I might consider JGBIs and hold to maturity if they were available to us retail investors, but they are not.
Unfortunately, the past performance of these mutual fund versions and the issue of Japan's debt puts me off them.

[Tsumitate Wrestler]

As I understand it, these inflation-linked bond funds only work if inflation rises more than expected. If inflation rises as expected, you lose out because regular bonds/bond funds are already discounted for inflation expectations, and the premium you pay for inflation protection from JGBi funds is wasted. I might consider JGBIs and hold to maturity if they were available to us retail investors, but they are not.
Unfortunately, the past performance of these mutual fund versions and the issue of Japan's debt puts me off them.

It's a hedge against inflation, how expected that inflation is is perhaps a bit more difficult to judge in Japan.

Ideally, for those with large cash positions. (Say a 100% equity investor) Cash in the bank along with some iJGB/JGB should smooth out the curve.

Other have mentioned that some like to time the currency market a bit, try to buy a dip and then hold a foreign currency for the yield. My comment would be that is no difference then buying a treasury or gilt ETF etc.

[captainspoke]

...
From the transcript:
"This is the risk if you retire in the year 2000, right? You retire, you think, wow, look at all this money I've built up. Wow, Cisco's doing so well. And then boom ,the dotcom bubble burst, you're 50% down, and you actually won't recover in real terms. So I think 13 years, because you got the financial crisis coming straight after this. ...”

https://podcasts.apple.com/jp/podcast/m ... 0653415831

sequence of returns risk

[ToushiTime]

...
From the transcript:
"This is the risk if you retire in the year 2000, right? You retire, you think, wow, look at all this money I've built up. Wow, Cisco's doing so well. And then boom ,the dotcom bubble burst, you're 50% down, and you actually won't recover in real terms. So I think 13 years, because you got the financial crisis coming straight after this. ...”

https://podcasts.apple.com/jp/podcast/m ... 0653415831

sequence of returns risk

Yes exactly, the good-ol “sequence of returns risk”. That scenario above would spook me.

However, to take the side of the authors of the original paper: https://papers.ssrn.com/sol3/papers.cfm ... id=4590406
Their conclusions suggest that sticking with 100% equities even after retirement has less risk of ruin than stocks mixed with bonds, which came as a shock to me.
Here's a quote from the transcript of the podcast Many Happy Returns/PensionCraft discussing the paper
“And the even more shocking thing is that that holds true even in the far left tail, even in the worst case scenarios where there's a crash in the stock market at retirement, the 100% stock portfolios have less risk of ruin than the stock bond portfolios.”