FIRE in Japan

[Ryuuku]

Hey, I recently read through the thread about the 45歳アーリーリタイア guy.
The thread has been a plethora of knowledge that goes well above my understanding (but I'm getting there) and I've seen people, almost everyone it seems, be critical of the guy's portfolio.

I'm just wondering what you all would recommend to do, portfolio priorities, etc. if you were aiming to a similar thing (FIRE in Japan, basically.).

The reason I ask is that I'm turning 30 this month, been paying my national pension like a good boy, got a private pension and health insurance (which also pays out at the end, iirc) set up. Got my SBI and Rakuten accounts set up, just waiting on my new Rakuten bank account to rack up points (my foreign name causing damn problems taking more than a month to sort out.)
Income of 30万 a month, down to 20万+ in pure savings after everything is paid for. Currently got 100万 in the bank ready to drop on this investing thing.

I've read all the threads about NISA and iDECO but they seem mainly focused on the payout at 65+.
I'd like to know which route you would recommend to go FIRE. Or at least get a fairly decent side-income with dividends such as the 45 year old guy is doing, without as much risk as he is taking.
As for what else I've read into; I've read the stuff recommended on the site (Millionaire Next Door, お金の教養) Rich Dad Poor Dad←yes, I know the problems with this one., and few essays by Warren Buffet.

tldr; teach me how to do this, please! I'm charged n ready to go, I just don't want to shoot myself in the foot.

[RetireJapan]

There are two main approaches I believe:

-put together a portfolio that produces cash (real estate, dividend paying shares, social lending) and get it big enough that you can live off the cash
-put together a portfolio that grows enough that you can take 2, 3, 4, 5+% out (and not deplete the portfolio too much) and live off that

It seems the latter might work better tax/results-wise and the former can be more appealing on an emotional level.

Personally I am going for a combination of the two, although I am going off the idea of retirement per se and thinking about continuing to work at things I like that don't take up too much time on a regular basis (I prefer working in sprints then resting rather than marathons).

I think the most important thing is to get started and see how it goes. Your plans and situation will almost certainly change along the way, and you will learn more about investing and about yourself as you gain more experience.

I would recommend trying to enjoy the process and not worry too much about any specific goal or result.

[Jansen]

There's the MMM approach of estimating your annual expenses and extrapolating that 25 years to calculate what your retirement goal is. I'm lazy so I went with 100m yen, or 1 oku, because it's a nice round number. I'm not too worried about expense ratios or even whether 1oku is actually sufficient, it's just an easy target to set. The numbers will become clearer as you near that goal. Worrying about it now is a premature optimisation and there are more urgent matters to bother yourself with.

Next would be how you structure your investments, which depends on how much risk you're willing to take and also how much time you wish to spend analysing the markets. I'm relatively OK with some risk, therefore I have nothing in bonds or precious metals. My allocation is 100% in equities, split between the S&P 500 using VOO and various tech stocks.

Why the S&P 500, and why VOO specifically?

Because I have no knowledge in this matter. Both VOO and VTSAX and the ones that keep popping up in various conversations like this around the internet, so I flipped a coin. I also picked tech stocks because I work in this sector and can see what is going on. I'm split equally between AAPL, AMZN, GOOG and MSFT.

Whatever method you choose, the basic principle remains the same, reduce unnecessary expenses and maximise your savings. Everything else is an implementation detail.

[adamu]

My allocation is 100% in equities, split between the S&P 500 using VOO and various tech stocks. I'm split equally between AAPL, AMZN, GOOG and MSFT.

Just pointing out that those 4 companies make up around 15% of the S&P500, so you may be over exposed if one of them was to fail / devalue dramatically - or a general market decline could hit your tech stocks too.

[Jansen]

I’m fine with that risk.

[StockBeard]

I've read all the threads about NISA and iDECO but they seem mainly focused on the payout at 65+.
I'd like to know which route you would recommend to go FIRE. Or at least get a fairly decent side-income with dividends such as the 45 year old guy is doing, without as much risk as he is taking.
As for what else I've read into; I've read the stuff recommended on the site (Millionaire Next Door, お金の教養) Rich Dad Poor Dad←yes, I know the problems with this one., and few essays by Warren Buffet.

tldr; teach me how to do this, please! I'm charged n ready to go, I just don't want to shoot myself in the foot.

You probably already have the basics, so I will most likely restate a lot of things you already know:

Types of accounts

• iDECO is definitely focused on getting the money at 65+, but it doesn't mean you shouldn't use it, given its tax advantages. It just means you will be using that portion of the money after 65+, but you will have other funds you can use in the meantime.
• NISA is in my opinion ok for FIRE given that there are no specific time constraints. It's actually pretty short term if you consider the tax benefits only last 5 years (and I'm not sure if NISA will continue long in the future?)
• The rest of your money (and, in my case, that's really the bulk of it) goes into a regular stock account (which you probably already have in parallel to your NISA, from the same provider).
• You probably also want an "emergency fund", which is in cash or in a very liquid investments. Think "6 months worth of expense" that you will hold in that great Japanese bank of yours and its 0.01% return

Know your risk tolerance
Investment wise, your next step is to understand how much you want to put in bonds (lower return but has a reputation of being more secure and have low correlation to stocks, so reduces risk), and how much you want to put in stocks (higher returns, more volatility). A bunch of blogs out there have clever computation as to what ratio has the best outcomes for a long term expectation for FIRE. The "retire early now" series (https://earlyretirementnow.com/2016/12/ ... t-1-intro/ ) is the most in-depth theoretical discussion on the topic, that I know of.

Once you know your "target" allocation (personal example: I'm at 30% bonds, 70% stocks), you simply have to choose which funds you will buy in those two categories. There are lots of discussions on that topic, lots of choices (including the "should I get a fund with high dividends?" question. As Ben mentioned, this one might make you feel more secure but I think it's been proven to not be the better choice - you trade one risk for another - , again lost of literature available on that), and nobody has the definitive answer here. I would give you my personal list of ETFs but it probably wouldn't help as most my account is on a Schwab account in the US so you won't find those easily in Japan.

But bottom line, you probably want one "world" bond fund, and one "world" stock fund. In some cases you will have to split those into "Japan only" and "rest of the world" (so basically you'd have 4 funds: Japan Bonds, rest of world bonds, Japan stock, rest of world stock). In some cases you might want to be overweight Japan, or overweight your own country, or something else, but at that level it probably boils down to preference. What tends to matter a lot is the actual costs of the funds. In Japan it seems that anything at 0.25% or less fee is acceptable. (in the US, the battle is raging and it's pretty common to find funds at 0.05% or less now). Lots of discussion here at retirejapan as to what funds people tend to hold, so browse the forums.

Some suggestions here but they need to be adapted to your Japanese situation (SBI/Rakuten might not have these funds, or might overcharge for it, or, since they are US-based funds you might have bad tax surprises related to them, so people here tend to buy Japan-based equivalents): https://www.bogleheads.org/wiki/Lazy_po ... _portfolio

For what it's worth, here is the allocation on my wife's portfolio. I can explain the thought process if needed:
10% of Sumitomo JP Bond Index (https://site0.sbisec.co.jp/marble/fund/ ... rch_result )
10% of NISSEI Foreign bond index (https://site0.sbisec.co.jp/marble/fund/ ... rch_result )
10% of Japan REIT ( http://www.jpx.co.jp/equities/products/ ... 1345-j.pdf )

10% of Maxis Topix(1348) (http://www.jpx.co.jp/equities/products/ ... 1348-j.pdf )
60% of Maxis kokusai (1550) ( http://www.jpx.co.jp/equities/products/ ... 1550-j.pdf )

Investment is the simple part!
This is very cliche, but investing your money is the simple part! Once you've got that in place and semi automated, it's pretty much "leave it as is and watch it grow". The real struggle will be with how boring the thing is after you've figured it out
Other issues along the way are:
1) Fighting the urge to change your plan
2) Getting a clearer picture of what your actual yearly expenses are, and will be, in the future (housing, transportation, kids costs can vary wildly depending on what you think the future holds. As I get closer to my personal target, my "number" changes almost weekly which can be frustrating)
3) did I mention the thing gets extremely boring, extremely fast, once everything is in place? The first year is insanely fun as you feel like you've unlocked a cheat code in life that nobody else around you seems to understand. Then you have to find other things to get excited about, as watching your brokerage account every day gets old (or frustrating) very fast. Also see point 1)

Non investment related FIRE stuff
I don't have much on that topic. I think the "45 old guy" and his blog is a good source of information for everything else, like daily life and issues/optimization once you reach FIRE: e.g. getting some unemployment benefits for a few months, getting some "low income" exception to reduce some of your Nenkin costs, etc... All of this needs to be part of the plan eventually (once you leave your company you will have to pay Nenkin and Health insurance yourself, instead of relying on your company to take it from your paycheck), so you need to take it into account when computing your yearly expenses as a FIREd person, but that can be fined tweaked as you go along, you probably have many years to figure those bits.

[MyTime]

For what it's worth, here is the allocation on my wife's portfolio. I can explain the thought process if needed:
10% of Sumitomo JP Bond Index (https://site0.sbisec.co.jp/marble/fund/ ... rch_result )
10% of NISSEI Foreign bond index (https://site0.sbisec.co.jp/marble/fund/ ... rch_result )
10% of Japan REIT ( http://www.jpx.co.jp/equities/products/ ... 1345-j.pdf )

10% of Maxis Topix(1348) (http://www.jpx.co.jp/equities/products/ ... 1348-j.pdf )
60% of Maxis kokusai (1550) ( http://www.jpx.co.jp/equities/products/ ... 1550-j.pdf )

I have a small question--it could just be the way you typed it, and because you mentioned a 30% bond allocation earlier in your post, but I'm wondering: It seems like your wife has the REIT as part of her bond allocation. Is that because it behaves more like a bond fund than a stock fund?

[StockBeard]

Great question!
Initially we were planning to have her being 30% bonds, 70% stocks. Then in an email conversation with Ben (if I recall correctly) he mentioned REITs to me and I decided to include a bit of those in the mix. I didn't want to touch the share of stocks though, so reduced the bonds allocation in favor of REITs. (This is why I artificially include them in the "bonds" section, when really they should probably be in their own section).

Honestly though I'm regularly thinking we should have kept things simpler and not have REIT in the mix at all. just 20%of international Bonds and 10% of Japanese bonds would have done it.

[MyTime]

@StockBeard:
Thanks for the response. The reason I was interested is because when I first started investing in Japan a few years ago, I decided to allocate 5% of holdings to RIETs--for the very fuzzy reason of "diversifying."
In the year or so after I made my first purchases, the stock funds all did pretty well--only the REIT fund lost money. So I thought, "OK, screw REITs!" And never bought any more.

But I held on to the small amount that I had already bought, and they are currently doing amazingly well. Far outperforming everything else... So, yeah, they definitely seem to behave differently from stock funds.

[Jansen]

Investment is the simple part!
This is very cliche, but investing your money is the simple part! Once you've got that in place and semi automated, it's pretty much "leave it as is and watch it grow".

This is the point where you start messing around with google spreadsheets to get some fancy charts!
I have quite a bit of data now after 3 years so I've set it up to look like a bloomberg terminal with their fancy charts and tables that pulsate from red to green. Next thing I'm planning to do is growth forecasting and having it compared to actuate numbers.