Ray Dalio's All Weather Portfolio (vs. slowly investing a chunk of money)

[Petronius]

why would someone in Japan put say, 10M yen down on a house when they could borrow that 10M yen at around 1% for 35 years and invest their 10M yen for a return of something that over the next 35 years is probably gonna turn out to be something quite a bit more than 1% per year?

Because the risk profile of the options you describe are not the same.
It's an old debate on this forum, should you pay back your loan early or invest your money instead.
The truth is that it's two different risk/return profiles and there is no "best" option. it depends on your investment goals.

[amattie]

why would someone in Japan put say, 10M yen down on a house when they could borrow that 10M yen at around 1% for 35 years and invest their 10M yen for a return of something that over the next 35 years is probably gonna turn out to be something quite a bit more than 1% per year?

Because the risk profile of the options you describe are not the same.
It's an old debate on this forum, should you pay back your loan early or invest your money instead.
The truth is that it's two different risk/return profiles and there is no "best" option. it depends on your investment goals.

Well, I guess everything seems to reduce to preferences for different risk return profiles and investment goals. So maybe my real question is whether or not you can ever call someone's preferences or goals irrational or not sensible? If a person's goal is to have their home paid for by the time they are 40, most people would not consider that an unreasonable goal. But what about someone whose goal was to have a bunch of gold bars in a safe in their house that they could take out and fondle every night so that they could feel like a king, and they had no other assets? One might find that a bit odd. But in both cases these are people trying to achieve a certain emotional state, and pursuing a course of action in accordance with that (and one that is not likely to maximize their wealth in the long run). Or maybe some guy hates banks so holds 100% of his financial assets in crypto. And someone else loves Mickey Mouse so they only hold Disney stock. From a certain financial perspective these things might seem unreasonable but from a broader life perspective it's what they wanna do so and what makes them feel good, so it's hard to say they aren't sensible, right?

So I guess it is possible to have goals/preferences that are not what would be considered financially reasonable. Does making a big down payment on a house when interest rates are 1% and historical returns in the stock market are 6 or 7 or whatever they are fall into this category? Well, I guess not.

But here is a more extreme real world example. My father in law saved up and dropped ichi oku cash on a house 13 years ago (let's not talk about how much it has depreciated cause it doesn't really matter). And it's not cause he had a bunch of oku sitting in the bank, he saved up cash to about that level and he had zero non-cash financial assets -- I would bet that he dropped 90% of his net worth on that house. Why? Cause he didn't like debt. And he didn't like stocks because stocks are risky. If he had talked to a professional financial adviser before doing so, would the adviser have said, "All cash all the way! Makes sense. You don't like debt and you don't like stocks!"? Or would he have said something else? I dunno. It just always struck me as a strange preference that was not particularly helpful for him and his family.

[RetireJapan]

Well, I guess everything seems to reduce to preferences for different risk return profiles and investment goals. So maybe my real question is whether or not you can ever call someone's preferences or goals irrational or not sensible?

My experience is that different people have different situations/preferences/goals and the best we can do is help them understand themselves and their situation as well as possible so they can make choices that make sense for them.

At the end of the day as long as it is their money and they are legally of sound mind, it's up to them

My wife's cousin worked for a large company that went bankrupt and had most of their investments in that same company's stock, so when they lost their job they also lost all their savings at the same time. Not the choice I would have made nor advised, but they made that decision and lived with the consequences.

[Petronius]

Well, I guess everything seems to reduce to preferences for different risk return profiles and investment goals.

I think that you are mixing together a lot of concepts in your last answer so it is hard for me to answer in a logical and organized manner.

You are trying to refute my argument by changing it to something close to "each investment has a different risk/return profile, some investments are ridiculous, therefore all investments can be ranked in an absolute manner"
Which has a logical flaw and is not what I am saying.

When we compare investments we are of course comparing risk/return profiles. This is all finance is about.
With enough time and knowledge one could draw a function of all return vs risk for investments available. That's indirectly what investment professionals do. Anything below the average line would be a bad investment in absolute, anything above the line would be a good investment in absolute (i.e. there are investments with similar risk but better return available)
But what about 2 investments that are on this line (or on a line parallel to it)? You cannot rank them. They are both equally good. The one you pick is purely a matter of what risk you are comfortable taking.

Coming back to the initial problem of "paying back the loan early" Vs "Investing in Equities", assuming that both markets are efficient, these are 2 options on the line that we described above.
You are saying that investing in equities yields a better return, which we can all agree with. But you also imply that both options carry a similar enough risk, which is not trivial.
I might be missing something but if long term date carried a similar risk to LT equity investment, banks would not loan you money for 35 years.

If someone points me to a serious study backing up their claim that in today's environment investing in equity carries the same risk as repaying a loan early I will be the first one to recognize the facts and grateful because that will simplify my investments. Bonus point if it includes sensitivity analysis around rates, investment horizons, availability of money and real estate value.

[adamu]

But what about someone whose goal was to have a bunch of gold bars in a safe in their house that they could take out and fondle every night so that they could feel like a king

I used to do that with 1oz £100 Britannia coins. Felt good.

[fools_gold]

But then I was just thinking about this Ray Dalio all weather portfolio that seems to help avoid getting wrecked in one year, though it maybe trails the S&P500 in average returns over time.

The portfolio is:
30% Stocks
40% Long term bonds
15% Intermediate term bonds
7.5% Commodities
7.5% Gold
(all of which can be gotten easily enough through ETFs)

Ray Dalio's All Weather Portfolio is designed for American investors. If you're investing from Japan, American bonds will carry currency risk. If you swap the bonds out for Japanese bonds or hedged foreign bonds, your returns will be less. Either way the portfolio may not perform as you expected. You can backtest different portfolios at https://myindex.jp/, but it only goes back 20 years.

For me, the eMaxis Slim 8-way balanced fund offers a better return for a similar level of risk to the All Weather Portfolio and it does all he rebalancing for you.

[gaijinkun]

What are gold ETFs under NISA?

[DragonAsh]

The eMaxis Slim 8-way balanced fund isn't bad, but it's on the expensive side (0.7% in trust and management fees), and it's a blunt instrument - do you always want to be essentially evenly balanced at 12.5% each in domestic/global/emerging stocks, domestic/global/emerging bonds and domestic/global REITs?

I'm not saying it's necessarily a bad thing - as noted, one of the benefits is that essentially forces you to be rebalanced...the key is, it forces you to be rebalanced whether you like it or not. The best traders all say a variant of the same thing - the key to success is to have lots of small losses and a few big wins. Rebalancing forces you to sell the winners to buy more of the losers. Yes, I understand this isn't technically accurate and grossly over-simplifies things, but the underlying point is (IMHO) still valid.

And more importantly - I suspect you could create your own balanced fund for significantly less than 0.7%. For example, even in the same eMaxis series, most of the individual components are available for less:
Domestic stocks (TOPIX): 0.15%
Domestic REIT: 0.19%
Emerging stocks: 0.20%
Global ex-Japan stocks: 0.11%
Domestic bonds: 0.13%


The eMaxis 8-way balanced is almost certainly simply tracking various indices - probably MSCI indices etc. Almost certainly going to be cheaper to go with individual funds that are tracking the same benchmark(s). Why pay 0.7% for one fund when you could simply buy separate funds at 0.15%?

Other than ensuring you're always saving and investing, costs are probably the single most important factor (that you have control over) to take into account.

[DragonAsh]

What are gold ETFs under NISA?

There are a few options - SBI has four or five gold domestic ETFs, including I think the SPDR, than you can purchase under NISA. Also a ton of overseas ETFs available.

There are also investment trusts available, they'd be under commodities. Look for コモディティ型; if you specifically want gold, look for ゴールド・ファンド or ゴールドインデックス・ファンド etc.