NISA - portfolio for the longest term

[ChapInTokyo]

Since I'm currently re-allocating my portfolio from an accumulation focused one to a post-retirement defensive draw-down focused one, I'm wondering what should go in my NISA account, considering that the NISA will probably be the account that'll stay untouched until the stash in my taxable account is used up.

Thinking of it like that, I'm wondering whether it makes more sense to have an allocation of 100% to a single balanced fund (say 70% stocks internationally diversified + 30% bonds internationally diversified and currency hedged - like the Rakuten Index Balanced fund stocks skewed type) in order to keep it as foolproof as possible, and to make it easy to draw down from without worrying about rebalancing to spec, as well as having a fixed income allocation to mitigate untoward market risk to a certain extent...

or to go for a more optimistic 100% single stocks index ETF portfolio (I'm looking at the ultra low ER iShares Nikkei 225 ETF which should generate a meaningful income stream from quarterly dividends, mitigate currency exchange risk, while keeping up with inflation from capital gains of the Nikkei 225 index) on the premise that the Japanese pensions income and some rainy day cash stash in my bank account will see me though any unexpected market crashes...

I'd welcome any thoughts on this. Which would you go for when you're sixty four?

[RetireJapan]

Going to depend on your situation (of course). I'm planning to have a barbell like allocation: large chunk of cash and world stock fund. But also hoping to have far more money than we need, which will give us a lot of flexibility (we should be able to live off our pensions more or less).

You would probably want something in your NISA that is going to grow though -is a Nikkei 225 fund going to be the best part of your portfolio for that?

[ChapInTokyo]

Going to depend on your situation (of course). I'm planning to have a barbell like allocation: large chunk of cash and world stock fund. But also hoping to have far more money than we need, which will give us a lot of flexibility (we should be able to live off our pensions more or less).

You would probably want something in your NISA that is going to grow though -is a Nikkei 225 fund going to be the best part of your portfolio for that?

I hear what you’re saying. Well, the thing about the Nikkei 225 index is that it seems to be keeping up with the S&P 500 in the last five years or so, and the availability of the ultra low cost ETF from iShares (expense ratio of 0.0495%) which will provide tax exempt income in a NISA account while still keeping up with inflation is the appeal.



An ETF like the Vanguard VT covering the world will also provide income through dividends but the fact that I will need to convert the USD dividends to yen will introduce exchange rate risk to the income stream so I’m a bit wary of that when thinking of NISA as the longest term part of my portfolio…

[Tsumitate Wrestler]

You have Nikkei, less than 5% of the market, S&P500 less than 50% of the market, and FTSE All cap/MSCI ACWI tracking most of the market.

I don't think you can really compare the Nikkei to the overall market in the long-term. Topix would be a much better choice, but the same issues remain.

I think ETF usage in a NISA just leads to a leaky NISA, it's not worth it long term. Max it out with trusts, and you can use Rakuten or SBIs sell features to create an artificial dividend if you need one.

[ChapInTokyo]

I think that in the longest run we all tend to die. So why not enjoy the tax free dividends from ETFs if you’ve already completed your accumulation phase, is my train of thought here.

Plus, by keeping the ETF itself untouched and hopefully increasing in value in the home currency it’ll act as an inflation hedged time deposit of value which can be dipped into as the last tranche of my investment portfolio.

In this mode of thought, the NISA will not be used as a tax advantaged accumulation account but more as a tax advantaged dividend generator to boost my kousei nenkin pension starting next year. If I’m spending the tax free dividends for living expenses while letting my taxable investments DRIP or internally reinvest as the case may be, I feel that I will be paying less in taxes than if I’d kept the NISA investment reinvesting while paying taxes on dividends or on capital gains from sales of assets in my taxable accounts.

I should add that for the main part of my portfolio which will be in my taxable accounts, I have a fully diversified portfolio both in terms of geography and asset class, some of which are in low cost Japanese mutual funds and some of which are offshore in DRIP reinvested ETFs and CEFs which are not available in Japan as either funds or ETFs. So I’m just talking about what might be good to put into NISA as a small part of the whole, and a part that will remain untouched until everything else is gone.

[Tsumitate Wrestler]

I think that in the longest run we all tend to die. So why not enjoy the tax free dividends from ETFs if you’ve already completed your accumulation phase, is my train of thought here.

Plus, by keeping the ETF itself untouched and hopefully increasing in value in the home currency it’ll act as an inflation hedged time deposit of value which can be dipped into as the last tranche of my investment portfolio.

In this mode of thought, the NISA will not be used as a tax advantaged accumulation account but more as a tax advantaged dividend generator to boost my kousei nenkin pension starting next year. If I’m spending the tax free dividends for living expenses while letting my taxable investments DRIP or internally reinvest as the case may be, I feel that I will be paying less in taxes than if I’d kept the NISA investment reinvesting while paying taxes on dividends or on capital gains from sales of assets in my taxable accounts.

I should add that for the main part of my portfolio which will be in my taxable accounts, I have a fully diversified portfolio both in terms of geography and asset class, some of which are in low cost Japanese mutual funds and some of which are offshore in DRIP reinvested ETFs and CEFs which are not available in Japan as either funds or ETFs. So I’m just talking about what might be good to put into NISA as a small part of the whole, and a part that will remain untouched until everything else is gone.

An S&P500 trust will be in USD as soon as it is purchased. I don't see much point to adjusting your overall strategy just for the NISA.

As I said before the dividend aspect can be easily recreated with Rakuten or SBIs auto sale functionality.

The KIS principle applies here.

[ChapInTokyo]

I think that in the longest run we all tend to die. So why not enjoy the tax free dividends from ETFs if you’ve already completed your accumulation phase, is my train of thought here.

Plus, by keeping the ETF itself untouched and hopefully increasing in value in the home currency it’ll act as an inflation hedged time deposit of value which can be dipped into as the last tranche of my investment portfolio.

In this mode of thought, the NISA will not be used as a tax advantaged accumulation account but more as a tax advantaged dividend generator to boost my kousei nenkin pension starting next year. If I’m spending the tax free dividends for living expenses while letting my taxable investments DRIP or internally reinvest as the case may be, I feel that I will be paying less in taxes than if I’d kept the NISA investment reinvesting while paying taxes on dividends or on capital gains from sales of assets in my taxable accounts.

I should add that for the main part of my portfolio which will be in my taxable accounts, I have a fully diversified portfolio both in terms of geography and asset class, some of which are in low cost Japanese mutual funds and some of which are offshore in DRIP reinvested ETFs and CEFs which are not available in Japan as either funds or ETFs. So I’m just talking about what might be good to put into NISA as a small part of the whole, and a part that will remain untouched until everything else is gone.

An S&P500 trust will be in USD as soon as it is purchased. I don't see much point to adjusting your overall strategy just for the NISA.

As I said before the dividend aspect can be easily recreated with Rakuten or SBIs auto sale functionality.

The KIS principle applies here.

Seems to me that if I start producing artificial dividends by selling off funds in the NISA account from next year that will be very much a ‘leaky NISA’ and not really taking advantage of the account’s tax advantaged status for both income generation and capital gain. Is that not so?

[Tsumitate Wrestler]

I think that in the longest run we all tend to die. So why not enjoy the tax free dividends from ETFs if you’ve already completed your accumulation phase, is my train of thought here.

Plus, by keeping the ETF itself untouched and hopefully increasing in value in the home currency it’ll act as an inflation hedged time deposit of value which can be dipped into as the last tranche of my investment portfolio.

In this mode of thought, the NISA will not be used as a tax advantaged accumulation account but more as a tax advantaged dividend generator to boost my kousei nenkin pension starting next year. If I’m spending the tax free dividends for living expenses while letting my taxable investments DRIP or internally reinvest as the case may be, I feel that I will be paying less in taxes than if I’d kept the NISA investment reinvesting while paying taxes on dividends or on capital gains from sales of assets in my taxable accounts.

I should add that for the main part of my portfolio which will be in my taxable accounts, I have a fully diversified portfolio both in terms of geography and asset class, some of which are in low cost Japanese mutual funds and some of which are offshore in DRIP reinvested ETFs and CEFs which are not available in Japan as either funds or ETFs. So I’m just talking about what might be good to put into NISA as a small part of the whole, and a part that will remain untouched until everything else is gone.

An S&P500 trust will be in USD as soon as it is purchased. I don't see much point to adjusting your overall strategy just for the NISA.

As I said before the dividend aspect can be easily recreated with Rakuten or SBIs auto sale functionality.

The KIS principle applies here.

Seems to me that if I start producing artificial dividends by selling off funds in the NISA account from next year that will be very much a ‘leaky NISA’ and not really taking advantage of the account’s tax advantaged status for both income generation and capital gain. Is that not so?

You can turn it on or off. Unlike an etf. It is a more diversified stream unlike the REITs and dividend etfs often favored in Japan. Dividend payouts can be easily simulated and are absolutely not worth chasing.

[ChapInTokyo]

An S&P500 trust will be in USD as soon as it is purchased. I don't see much point to adjusting your overall strategy just for the NISA.

As I said before the dividend aspect can be easily recreated with Rakuten or SBIs auto sale functionality.

The KIS principle applies here.

Seems to me that if I start producing artificial dividends by selling off funds in the NISA account from next year that will be very much a ‘leaky NISA’ and not really taking advantage of the account’s tax advantaged status for both income generation and capital gain. Is that not so?

You can turn it on or off. Unlike an etf. It is a more diversified stream unlike the REITs and dividend etfs often favored in Japan. Dividend payouts can be easily simulated and are absolutely not worth chasing.

You see, I’m retired so I definitely do not want to turn off the pay outs. So tax free dividends seem to make excellent sense since I will still keep the NISA account fully invested up to the limit while enjoying the income stream. Of course the account will increase in value if I keep reinvesting the dividends but then won’t I be a high net value individual but with less spending money? Surely at the end of the day the money should be spent, and spending it tax free seems like a good deal to me?

[Tsumitate Wrestler]

Seems to me that if I start producing artificial dividends by selling off funds in the NISA account from next year that will be very much a ‘leaky NISA’ and not really taking advantage of the account’s tax advantaged status for both income generation and capital gain. Is that not so?

You can turn it on or off. Unlike an etf. It is a more diversified stream unlike the REITs and dividend etfs often favored in Japan. Dividend payouts can be easily simulated and are absolutely not worth chasing.

You see, I’m retired so I definitely do not want to turn off the pay outs. So tax free dividends seem to make excellent sense since I will still keep the NISA account fully invested up to the limit while enjoying the income stream. Of course the account will increase in value if I keep reinvesting the dividends but then won’t I be a high net value individual but with less spending money? Surely at the end of the day the money should be spent, and spending it tax free seems like a good deal to me?

Seeking a fund simply because it pays out dividends is nonsensical when you can create that cashflow yourself. It would be just as tax-free.

Details: https://www.rakuten-sec.co.jp/web/rfund ... kyaku.html