NISA - portfolio for the longest term

[ChapInTokyo]

If that comes thru, notice that the S&P500 has very much outperformed the Dow over the last 14yrs or so.

Google finance is good for this. Here is the five year snapshot.

Do not trust A I at present. It's pulling from Reddit these days.

https://g.co/finance/.DJI:INDEXDJX?wind ... XSP%3A.INX

I guess that the google finance chart is a plot of the market price whereas the chart from the S&P Dow Jones company site says that it is with dividends reinvested. That's why the charts look different.

[RetireJapan]

NISA Growth quota of 14 million yen

Lifetime growth allowance is currently 12 million, but hopefully your investments will also grow over time

[ChapInTokyo]

NISA Growth quota of 14 million yen

Lifetime growth allowance is currently 12 million, but hopefully your investments will also grow over time

Ahh... so only 15,000 yen a month to supplant my pension. Oh ain't life hard!

[captainspoke]

Ahh... so only 15,000 yen a month to supplant my pension. Oh ain't life hard!

You want to supplant your pension?!??



(Are you using bing or chatGPT to write your posts?)

[ChapInTokyo]

Ahh... so only 15,000 yen a month to supplant my pension. Oh ain't life hard!

You want to supplant your pension?!??



(Are you using bing or chatGPT to write your posts?)

Ah, I really should ask chatGPT to write my posts. I meant supplantment my pension, of course...

[ChapInTokyo]

I am afraid you have a pretty fundamental misunderstanding then.



Most of the growth in the market is not from dividends. At best, helf is.

An investor should target growth and dividends together.

Yes yes I understand all that. The difference is that I want to have current income from ETF dividends as well as future potential capital gain from economic growth.

In that respect if I were to sell off enough mutual fund shares every 3 months to generate an equal amount of income as I would get from ETF dividend distributions, the NAV of the mutual fund holdings will decrease by the same amount as the NAV of the ETF after distributing dividends. I really don’t see any difference except that dividends are paid automatically whereas selling mutual fund shares at Monex will entail a few taps of the keyboard.

We are a bit all over the place, but your original plan to use a Nikkei 225, would only give you 1.5% dividend annually. Would that supplement your retirement?

I don't see how this this plan would work unless you have a very large nestegg to devote to it.

...

If you hunt down dividend etfs or covered call etfs you can find more yield, but as a result you accept more risk and less diversification.

So we are back to just pressing a few buttons every few months.

You know, I might go for a more high yield ETF like the Vanguard FTSE Pacific ETF (VPL) with a 2.727% yield and an expense ratio of 0.08% instead of the iShares Nikkei 225 ETF. VPL because it's domiciled in the US will suffer from triple taxation for all of its holdings and held in a NISA account, even the US withholding tax will not be recouplable, but even after deducting 10% for the US WHT the dividend will be around 2.4543% so it'll generate around 24,500 yen per month of dividends which sounds quite appealing even though VPL does bring with it currency risk from 40% of its basket of stocks denominated in AUD, KRW, HKD, SGD and NZD.

[Tsumitate Wrestler]

Yes yes I understand all that. The difference is that I want to have current income from ETF dividends as well as future potential capital gain from economic growth.

In that respect if I were to sell off enough mutual fund shares every 3 months to generate an equal amount of income as I would get from ETF dividend distributions, the NAV of the mutual fund holdings will decrease by the same amount as the NAV of the ETF after distributing dividends. I really don’t see any difference except that dividends are paid automatically whereas selling mutual fund shares at Monex will entail a few taps of the keyboard.

We are a bit all over the place, but your original plan to use a Nikkei 225, would only give you 1.5% dividend annually. Would that supplement your retirement?

I don't see how this this plan would work unless you have a very large nestegg to devote to it.

...

If you hunt down dividend etfs or covered call etfs you can find more yield, but as a result you accept more risk and less diversification.

So we are back to just pressing a few buttons every few months.

You know, I might go for a more high yield ETF like the Vanguard FTSE Pacific ETF (VPL) with a 2.727% yield and an expense ratio of 0.08% instead of the iShares Nikkei 225 ETF. VPL because it's domiciled in the US will suffer from triple taxation for all of its holdings and held in a NISA account, even the US withholding tax will not be recouplable, but even after deducting 10% for the US WHT the dividend will be around 2.4543% so it'll generate around 24,500 yen per month of dividends which sounds quite appealing even though VPL does bring with it currency risk from 40% of its basket of stocks denominated in AUD, KRW, HKD, SGD and NZD.

My comments about dividend aristocrat etfs and REITs was intended to dissuade, not persuade.

Chasing dividends is a classic mistake that leads to underperformance and poor portfolio design. As does “home country bias”.

Buy the haystack. And sell a few bales when you need to.

If you really really just want to go the dividend/ETF route the MSCI ACWI ETFs that can bought on a yen basis (example: (2559.T)) yields 1.7%.

….

Bonus tangent: you'd probably want a dividend paying Topix ETF in a taxable account vs Nisa, if you can already fill the NISA.

Apparently you can claim back dividend tax on a Topix ETF just like you can with single shares that pay dividends, but it's black belt level of tax jiu-jitsu.

[ChapInTokyo]

We are a bit all over the place, but your original plan to use a Nikkei 225, would only give you 1.5% dividend annually. Would that supplement your retirement?

I don't see how this this plan would work unless you have a very large nestegg to devote to it.

...

If you hunt down dividend etfs or covered call etfs you can find more yield, but as a result you accept more risk and less diversification.

So we are back to just pressing a few buttons every few months.

You know, I might go for a more high yield ETF like the Vanguard FTSE Pacific ETF (VPL) with a 2.727% yield and an expense ratio of 0.08% instead of the iShares Nikkei 225 ETF. VPL because it's domiciled in the US will suffer from triple taxation for all of its holdings and held in a NISA account, even the US withholding tax will not be recouplable, but even after deducting 10% for the US WHT the dividend will be around 2.4543% so it'll generate around 24,500 yen per month of dividends which sounds quite appealing even though VPL does bring with it currency risk from 40% of its basket of stocks denominated in AUD, KRW, HKD, SGD and NZD.

My comments about dividend aristocrat etfs and REITs was intended to dissuade, not persuade.

Chasing dividends is a classic mistake that leads to underperformance and poor portfolio design. As does “home country bias”.

Buy the haystack. And sell a few bales when you need to.

If you really really just want to go the dividend/ETF route the MSCI ACWI ETFs that can bought on a yen basis (example: (2559.T)) yields 1.7%.

….

Bonus tangent: you'd probably want a dividend paying Topix ETF in a taxable account vs Nisa, if you can already fill the NISA.

Apparently you can claim back dividend tax on a Topix ETF just like you can with single shares that pay dividends, but it's black belt level of tax jiu-jitsu.

I'll definitely need to look again at all the various options available. Thanks for suggesting the MAXIS MSCI ACWI ETF. It's substantially costlier than a Vanguard VT but I will definitely be looking at it, since the dividends in this case will be paid out in yen, which is convenient. I did a bit of googling about claiming back dividend tax on a ETF and it seems that although you can't do that with an ETF tracking a foreign index like the FSTE or MSCI, it is in principle possible with an ETF tracking a Japanese index like the TOPIX or Nikkei225 the reason being that the companies following those indexes have already paid corporation tax to the NTA and so they are enabling the tax payer to avoid double taxation on that income by filing for a dividend tax profit. So in this case, home country bias might have a tax advantage in addition to mitigating currency rate risk.

Thanks for all your thoughtful advice. I might not suddenly agree with everything and say yes yes that's absolutely true! but I am thinking about it in my own contrary way.

[Tsumitate Wrestler]

I did a bit of googling about claiming back dividend tax on a ETF and it seems that although you can't do that with an ETF tracking a foreign index like the FSTE or MSCI, it is in principle possible with an ETF tracking a Japanese index like the TOPIX or Nikkei225 the reason being that the companies following those indexes have already paid corporation tax to the NTA and so they are enabling the tax payer to avoid double taxation on that income by filing for a dividend tax profit. So in this case, home country bias might have a tax advantage in addition to mitigating currency rate risk.

Right, which is why I recommend them in a taxable account if you can fill you NISA with other funds {In your set on your plan that is]. I toyed with the idea of being Ex-Japan in my tax-advantaged accounts, and keeping a TOPIX tracker in my taxable account to maximize this advantage, but decided against it as I am still well in my accumulation phrase.

Be very careful about selecting funds, it seems not all ETFs that contain domestic equities qualify. I think only certain ETFs have been approved?

Also, there are other considerations, due to progressive taxation. https://www.daiwa.jp/seminar/study_tax/tax_zeisei.html

This strategy could have merit but I am not sure any tax advantage would makeup for the lower expected returns of Japanese equities, I certainly do not want to overweight Japan.

Basically....Is it even worth it?

Thanks for all your thoughtful advice. I might not suddenly agree with everything and say yes yes that's absolutely true! but I am thinking about it in my own contrary way.

I am happy to help, I am still in my mid 30s and in the accumulation phase so my viewpoint will be different on some things.

[ChapInTokyo]

I did a bit of googling about claiming back dividend tax on a ETF and it seems that although you can't do that with an ETF tracking a foreign index like the FSTE or MSCI, it is in principle possible with an ETF tracking a Japanese index like the TOPIX or Nikkei225 the reason being that the companies following those indexes have already paid corporation tax to the NTA and so they are enabling the tax payer to avoid double taxation on that income by filing for a dividend tax profit. So in this case, home country bias might have a tax advantage in addition to mitigating currency rate risk.

Right, which is why I recommend them in a taxable account if you can fill you NISA with other funds {In your set on your plan that is]. I toyed with the idea of being Ex-Japan in my tax-advantaged accounts, and keeping a TOPIX tracker in my taxable account to maximize this advantage, but decided against it as I am still well in my accumulation phrase.

Be very careful about selecting funds, it seems not all ETFs that contain domestic equities qualify. I think only certain ETFs have been approved?

Also, there are other considerations, due to progressive taxation. https://www.daiwa.jp/seminar/study_tax/tax_zeisei.html

This strategy could have merit but I am not sure any tax advantage would makeup for the lower expected returns of Japanese equities, I certainly do not want to overweight Japan.

Basically....Is it even worth it?

Thanks for all your thoughtful advice. I might not suddenly agree with everything and say yes yes that's absolutely true! but I am thinking about it in my own contrary way.

I am happy to help, I am still in my mid 30s and in the accumulation phase so my viewpoint will be different on some things.

I did a bit of googling around and am now clued in to which ETFs are eligible for dividend tax credits. Basically, as long as the ETF is 100% Japanese company stocks, without any REIT or bonds or foreign company stocks is what it is. And whether an ETF is eligible or not is clearly stated on the prospectus too. Like this prospectus for iShares TOPIX index ETF where it says the "投資対象地域：国内" & "投資対象資産（収益の源泉）：株式" at the beginning of the prospectus in the 商品分類 table, and "]配当控除および益金不算入の適用対象です" towards the end of the prospectus in the お申し込みメモ section.

These Tokyo stock exchange registered ETFs are definitely worth considering for someone needing dividends, since they don't suffer from triple taxation and even allow for lower taxes on dividends as long as your income is below a certain level, which I think I shall be since I've sold off a good chunk of my ETF holdings and am looking to reinvest them in non distributing mutual funds here in Japan.