Ideal iDeCo composition

[AreTheyTheLemmings?]

Hello everyone. After much browsing of this site and reading Minako Takekawa's 個人型確定拠出年金iDeCo活用入門, I feel ready to open an iDeCo account.

I'm 45 and self-employed, and I plan to work for another 20 years or so. With that in mind, I'd like to hear your opinions on what you think would be the ideal split between the different categories of product on offer (at Rakuten or SBI), assuming a 20-year investment period.

Thanks in advance.

[Dabitto]

If I were you, I would go with Monex (not Rakuten or SBI), because they are the only security provider that offers the amazing eMaxis Slim 全世界株式オールカントリー fund in their iDeCo lineup. I signed up with SBI, just before Monex announced they would add the eMaxis Slim 全世界株式オールカントリー fund to their iDeCo products, so I am contemplating to make the switch (but not sure if it's worth the switch, as I would miss out approximately 2 months of market returns while being in the process of switching providers ><).

Aside from what security provider you sign up with, the only funds you need in your portfolio are (in my opinion):
- one that follows a world stock index (for example the eMaxis Slim 全世界株式オールカントリー fund)
- one that follows a developed market bond index (for example the eMaxis Slim 先進国債券インデックス)

(You could also add a Japanese bond index to your bond mix or decide to go for a hedged developed market index fund. However, I would not bother with these two options, just because it makes things more complicated while having negligible effects on your long term returns.)

You could balance these two funds either 100/0 (stocks/bonds), 60/40 (stocks/bonds), or anything in between. Base this number on your own risk tolerance and try to slowly scale up the bonds from at least 10 years before you decide to cash out. However, I would personally never go higher than 50% in bonds.

Hope to have helped you out Just let me know when things are not clear. Maybe others have more to add?

[adamu]

If I were you, I would go with Monex (not Rakuten or SBI), because they are the only security provider that offers the amazing eMaxis Slim 全世界株式オールカントリー fund in their iDeCo lineup.

I was going to post that, but decided not to because I've been sounding like a broken record recently. But 100% agree

[Kanto]

If I were you, I would go with Monex (not Rakuten or SBI), because they are the only security provider that offers the amazing eMaxis Slim 全世界株式オールカントリー fund in their iDeCo lineup. I signed up with SBI, just before Monex announced they would add the eMaxis Slim 全世界株式オールカントリー fund to their iDeCo products, so I am contemplating to make the switch (but not sure if it's worth the switch, as I would miss out approximately 2 months of market returns while being in the process of switching providers ><).

Aside from what security provider you sign up with, the only funds you need in your portfolio are (in my opinion):
- one that follows a world stock index (for example the eMaxis Slim 全世界株式オールカントリー fund)
- one that follows a developed market bond index (for example the eMaxis Slim 先進国債券インデックス)

(You could also add a Japanese bond index to your bond mix or decide to go for a hedged developed market index fund. However, I would not bother with these two options, just because it makes things more complicated while having negligible effects on your long term returns.)

You could balance these two funds either 100/0 (stocks/bonds), 60/40 (stocks/bonds), or anything in between. Base this number on your own risk tolerance and try to slowly scale up the bonds from at least 10 years before you decide to cash out. However, I would personally never go higher than 50% in bonds.

Hope to have helped you out Just let me know when things are not clear. Maybe others have more to add?

Excellent summary! I think we all considered switching to Monex at some time to access eMaxis in our iDeco`s, but the lost contributions and paperwork did not make it seem worthwhile.

I would also add since iDeco allows you to rebalance penalty-free, it may make sense to go 100% equities in you iDeco and hold your bonds in a taxable account. This is assuming you have extra capital to invest outside of your iDeco and Nisa.

You can then rebalance to your risk tollerance as time goes on.

[Dabitto]

I was going to post that, but decided not to because I've been sounding like a broken record recently. But 100% agree

Haha I was already waiting for you to post something similar! Glad we agree though

Excellent summary! I think we all considered switching to Monex at some time to access eMaxis in our iDeco`s, but the lost contributions and paperwork did not make it seem worthwhile.

Thanks! Yeah I would definitely like to pitch on the forum how many of you are actually considering to take the plunge and what everyone's individual reasoning is for either doing so, or not. Maybe we can switch together if we are ever going to agree on the pros outweighing the cons

I would also add since iDeco allows you to rebalance penalty-free, it may make sense to go 100% equities in you iDeco and hold your bonds in a taxable account. This is assuming you have extra capital to invest outside of your iDeco and Nisa.

You can then rebalance to your risk tollerance as time goes on.

I do agree with you. You would probably make maximum use of the different tax-free accounts if you do this. However, I would not recommend this for people who do not have experience with investing, as it is somewhat maintenance heavy (you have to calculate and rebalance between the different accounts which is quite めんどくさい ). If you are not 100% sure what you are doing, 'simplicity' is still king. I personally decided to keep the allocations in my different accounts the same, excluding those of Tsumitate NISA (100% stocks for the entire duration for this one, as it works with yearly 'buckets' and is unable to rebalance along the way).

I also would like to add that I would still definitely scale up the bonds 10 years before the year you are cashing out, regardless of whether you are choosing for this 100% stock strategy in iDeCo or not. You want to make maximum use of the exemption of the capital-gains tax. If the markets would crash just before you were to cash out (either because you need the money for retirement or are at its max when age 70), you would not make full use of this tax exemption regardless of whether you would reinvest the money directly within a taxed account or not. Bonds are dampening this risk in the years leading up to the termination of your iDeCo account. If you slowly turn up the bond allocation, you can lower the risk level of your portfolio without giving up too much of the possible gains when going 100% stocks till cash-out.

[AreTheyTheLemmings?]

Thanks to those who replied. That's some food for thought.

If anyone else has something they want to share, feel free...

[fools_gold]

Thanks to those who replied. That's some food for thought.

If anyone else has something they want to share, feel free...

You could also add some REITs if you want to diversify out of stocks and bonds. They've been having a hard time recently, but historically they've done very well.

[Kanto]

but historically they've done very well.....

Dangerous words when it comes to investing.

You already have exposure to REIT through a basic index. I think VOO is around 3%? So only consider REITs if you want more than that.

They are not that different than stock, and my understanding is that the dividends cannot be reinvested? So they only really make sense in a tax advantage account. You would have to give up bond or stock space for them.

They are said to earn like a bond, with the risk profile of a stock.

Finally considering their correlation with rental income I am not sure they would be a great investment for the next few years.

However, I do not know how much of this hold true for JAPANESE REITs.

[fools_gold]

Dangerous words when it comes to investing.

You already have exposure to REIT through a basic index. I think VOO is around 3%? So only consider REITs if you want more than that.

They are not that different than stock, and my understanding is that the dividends cannot be reinvested? So they only really make sense in a tax advantage account. You would have to give up bond or stock space for them.

They are said to earn like a bond, with the risk profile of a stock.

Finally considering their correlation with rental income I am not sure they would be a great investment for the next few years.

However, I do not know how much of this hold true for JAPANESE REITs.

There is a case for more exposure to real estate because although it only makes up 3% of the stock market, it totals 16% of all investments. REITs have done well in the US, delivering slightly higher returns over the last 50 years than the S&P500 for a similar level of risk. Japanese REITs haven't been around so long, but I think it's a similar story. These are historical returns, but they seem to track economic growth like stocks. Index funds offered in iDeCo accounts fund also track total return indices so the dividends will be reinvested.

I agree with the point about rental incomes. However, this should be reflected in the current prices of REITs. They've taken quite a hit because of the coronavirus.

[Kanto]

Dangerous words when it comes to investing.

You already have exposure to REIT through a basic index. I think VOO is around 3%? So only consider REITs if you want more than that.

They are not that different than stock, and my understanding is that the dividends cannot be reinvested? So they only really make sense in a tax advantage account. You would have to give up bond or stock space for them.

They are said to earn like a bond, with the risk profile of a stock.

Finally considering their correlation with rental income I am not sure they would be a great investment for the next few years.

However, I do not know how much of this hold true for JAPANESE REITs.

There is a case for more exposure to real estate because although it only makes up 3% of the stock market, it totals 16% of all investments. REITs have done well in the US, delivering slightly higher returns over the last 50 years than the S&P500 for a similar level of risk. Japanese REITs haven't been around so long, but I think it's a similar story. These are historical returns, but they seem to track economic growth like stocks. Index funds offered in iDeCo accounts fund also track total return indices so the dividends will be reinvested.

I agree with the point about rental incomes. However, this should be reflected in the current prices of REITs. They've taken quite a hit because of the coronavirus.

Personally I would be cautious about REITs at the moment.

In America 25 Million people are getting 600 dollars a week in Benefits. -> That stops at the end of this month.

I do not pretend to understand the wide ranging effect of that. However, I strongly suspected the following might happen...

X million stop paying rent -> X landlords become overdue/default -> REIT take a hit.

I should pause and say that for the sake of these 25 million, and also their landlords to a lesser ammount, I really hope the American administration does something. I really feel for them.