Asset allocations

[N00bster]

I have been considering hedging too actually. Does anyone have suggestions for funds we can acquire in Japan?

[RetireJapan]

My current understanding of hedging is that it adds an extra cost and might not always make sense. Found this article interesting: https://www.ft.com/content/5f33f404-953 ... 144feabdc0

[N00bster]

My current understanding of hedging is that it adds an extra cost and might not always make sense. Found this article interesting: https://www.ft.com/content/5f33f404-953 ... 144feabdc0

Subscriber-only link.

[RetireJapan]

My current understanding of hedging is that it adds an extra cost and might not always make sense. Found this article interesting: https://www.ft.com/content/5f33f404-953 ... 144feabdc0

Subscriber-only link.

That's weird, I was able to read it. Try searching for the title, that should get you in

[Ori]

Is it this one? https://www.cnbc.com/2016/03/03/to-hedg ... stion.html
When reading articles about investment in English it is important to keep in mind that in 90% of the cases they are written by US residents and for US residents. And what is true for them is not always applicable for us. I've noticed people on this forum, including myself, sometimes don't account for that.
This article is clearly for US investor (particularly the piece about Japan).
I recommend reading these two, as they describe some general principles and provide some statistics for Japan:
https://personal.vanguard.com/pdf/ISGHC.pdf
https://personal.vanguard.com/pdf/ISGCMC.pdf
According to them, there is some sense for Japanese investors to hedge foreign currency exposure (but not for those who invest in Japan!).

Wrt to funds, for developed equities Tawara no load seems to be the best one:
https://site0.sbisec.co.jp/marble/fund/ ... rch_result

I couldn't find any fund for emerging markets. Maybe it is impossible to hedge them?
As for bonds, I'm not going to hedge them because I'm investing in AGG directly in USD.

So I'm going to hedge only the developed equities, but I haven't decided how much yet (if any, because I'm not 100% confident that I'm going to stay in Japan forever, what greatly complicates things).

[eyeswideshut]

I don't hedge. The standard advice is not to hedge stocks but to hedge international bonds. The rationale is because stocks don't have currency risk (stocks have innate value that is independent of the underlying currency) whereas bonds are effectively a debt instrument that relies entirely on the value of the currency in which the debt was issued (if the currency collapses then the value of your bonds also collapses).

However, notwithstanding the above, I choose not to hedge my bonds. The reasons I made this choice are:

1) I only buy international bond ETFs/funds which provide exposure to a basket of major currencies.
2) As mentioned above, hedging adds some drag on a fund so there is a cost performance issue.
3) I may retire in Japan but I may decide to retire overseas so I am not sure which currency I will be drawing down from in retirement. Hedging my fixed income to JPY (or any other currency) could work against me if I retire overseas.
4) I have sufficient JPY exposure via local savings and my salary. I prefer to have currency diversification via these overseas bond funds.

My current question I am wrestling is whether I need to take into account crypto-currencies in my diversification strategy. I feel the market is too immature for investments but in the future if there is a fund that invests in a broad basket of popular crypto-currencies and pays interest I may consider adding it to my portfolio.

[N00bster]

Wrt to funds, for developed equities Tawara no load seems to be the best one:
https://site0.sbisec.co.jp/marble/fund/ ... rch_result

Looks like they also propose the same fund non-hedged, for those who want to compare the trajectory of both versions:

https://site0.sbisec.co.jp/marble/fund/ ... rch_result

[Ori]

I don't hedge. The standard advice is not to hedge stocks but to hedge international bonds. The rationale is because stocks don't have currency risk (stocks have innate value that is independent of the underlying currency)

Not quite. Here is a quote from the Vanguard paper referenced above:
"There is a potential diversification benefit from hedging exposure to currencies with historically positive correlations—sometimes termed “risky” or “risk-on” currencies—and from leaving intact exposure to currencies with low or negative correlations—termed “safe-haven” or “risk-off” currencies."
The chart next to it shows that Japanese yen and Canadian dollar have negative correlation with equities, but for example, European currencies and US dollar ones have positive.
The article "To hedge or not to hedge?" says the same: "Looking at the relationship of the U.S. dollar to the euro and the yen over a 10-year period ending in 2014, you find that increasing the currency-hedged percentages did steadily reduce the volatility in the developed European and the broader-developed international markets; however, the reverse held true for Japanese markets."
So it looks that there might be a sense in hedging developed market equities, which consist mostly of US and Europe (provided that ER of the hedged fund is not too high).
I will probably hedge in 0-20% range of developed marked stocks until my future will become more clear.

[Jamo]

Hedging to me just seems like another way to charge a fee. If you're in it for the long term, currency fluctuations probably won't affect you that much.

[Ori]

Hedging to me just seems like another way to charge a fee.

I think about it as something similar to bonds - a way to reduce volatility, but for a price. Whether one needs to that or not depends on the individual circumstances. And the potential benefit and the price highly depend on the hedged currency.

If you're in it for the long term, currency fluctuations probably won't affect you that much.

I've seen statements that in the long run currency fluctuations average to zero, but my understanding is that it the same as +10 and -10 average to zero, but it would still suck to sell at that moment when it's -10.