Rookie wanting to invest

[TokyoWart]

Thanks for your reply. I am not going to pretend to know how the different funds perform because I am a rookie but I just wanted to touch on the 10 BP you mentioned. Do you mean that eMAXIS has extra 10 BP in interest value (versus FIL or Schwab) that I should be wary of?

What I mean is that the difference between Fidelity's "zero expense ratio" fund and funds like eMaxis or Vanguard is within 10 basis points for fees (Vanguard funds get down to around 3 basis points or 0.03%, eMaxis is around 10 or 11 basis points or 0.11% for the yearly expense ratio). The actual efficiencies from running the fund in ways that are not reflected by the expense ratio and the tracking error against the targeted index are in that range so the last time I checked the final return on Fidelity's zero expense all US stock market fund was actually a little below Vanguard's version of that index fund even though Vanguard is charging around 4 basis points of expense.

See for instance:
https://www.marketwatch.com/tools/mutua ... re=Returns

[FIRE-Rookie]

4- Roger that but I meant, how would you divide your portfolio between US total vs Japan total vs Developed Countries vs Emerging Markets and etc? and do you buy in on regular basis or just re-invest the dividends?

Also, it does not makes sense to own a world market fund, and an S&P 500 fund and another Develped fund. Have you looked at the perspectus for the Emaxis All country fund? Do not let the Japanese scare you.

As you can see it is weighted accordingly to market size. Adding more of another ETF will just overweight that country.

I apologize for the delayed reply, I wanted to make sure I researched well and fully understand everything you mentioned before I get back to you.

Thanks for challenging my way of thinking, I really appreciate it. After carefully reviewing the link, I can see the logic of just buying into Emaxis all country fund alone versus diversification.

I would ask you to be a bit more patient with me and give me a bit of advice since I am still worried (Rookie mindset), wouldn’t you think that investing purely in Japanese fund might have a bigger risk incase the yen itself decreased in value?

Although, I admit it would be overweighting another category but I am thinking of buying an ETF via IBKR in USD to mitigate the risk a bit. I am aware there will be expenses for transfers, exchange and taxation but overall, do you think it is a good strategy?

[FIRE-Rookie]

The actual efficiencies from running the fund in ways that are not reflected by the expense ratio and the tracking error against the targeted index are in that range so the last time I checked the final return on Fidelity's zero expense all US stock market fund was actually a little below Vanguard's version of that index fund even though Vanguard is charging around 4 basis points of expense.

I apologize for the delayed reply, I spent a longer time over the weekend studying this to be able to reply properly.

Thanks again for explaining and I get your point so to summarize, I can’t know in advance if the higher ER will be worth it because we can never see the return rate till later. (i.e. It might be worth it or not depending on how it will perform in the future)

That being said, I checked on IBKR and it seems I can only buy ETFs as a non-American based in Japan. (Very limited or no good Index or Mutual Funds)

[TokyoWart]

Thanks again for explaining and I get your point so to summarize, I can’t know in advance if the higher ER will be worth it because we can never see the return rate till later. (i.e. It might be worth it or not depending on how it will perform in the future)

I think I would say when the ER differences are this low and small you can't tell which will do best so you no longer make the decision based on ER. I think we still want to avoid funds that have high ER's like 1.0 or even 0.5%.

That being said, I checked on IBKR and it seems I can only buy ETFs as a non-American based in Japan. (Very limited or no good Index or Mutual Funds)

Yes this is a pain.You still have many ETF's to choose from and there again you want to check the ER but I think not worry too much about the ER if it's below 0.1%

[RetireJapan]

wouldn’t you think that investing purely in Japanese fund might have a bigger risk incase the yen itself decreased in value?

This is actually a bit difficult to understand, but it's a great question that comes up from time to time.

The answer is that the currency the fund is listed in does not matter, only the value of the underlying investments.

So a yen-denominated fund that contains international companies would not be affected by a weak yen: the price of the fund would rise so that the yen price matched the value of the assets. This would be the same if the fund were denominated in dollars or euros.

[FIRE-Rookie]

wouldn’t you think that investing purely in Japanese fund might have a bigger risk incase the yen itself decreased in value?

This is actually a bit difficult to understand, but it's a great question that comes up from time to time.

The answer is that the currency the fund is listed in does not matter, only the value of the underlying investments.

So a yen-denominated fund that contains international companies would not be affected by a weak yen: the price of the fund would rise so that the yen price matched the value of the assets. This would be the same if the fund were denominated in dollars or euros.

That puts me so much at ease! Thanks for baring with the rookie
I think I have a very good understanding about what to do next.

Thank you so much sir!

[captainspoke]

...

Hey there,

Sorry I missed that you quoted me and asked something earlier in this thread, but I think that your question has been answered.

I guess it's arguable, but in my personal opinion ETFs are better than mutual funds, and you should have no worries about buying one or several of these.

(But yes, shop around, as you would do when browsing mutual funds.)

[Kanto]

...

Hey there,

Sorry I missed that you quoted me and asked something earlier in this thread, but I think that your question has been answered.

I guess it's arguable, but in my personal opinion ETFs are better than mutual funds, and you should have no worries about buying one or several of these.

(But yes, shop around, as you would do when browsing mutual funds.)

I would generally agree, that all things being equal, ETFs have a slight advantage over mutual funds.

However, in Japan, many of the mutual fund products are more tax-advantageous and have lower fees.

Things may be changing though. For example the new MAXIS ETF series. https://maxis.mukam.jp/etf_fund/182558.html

[FIRE-Rookie]

I guess it's arguable, but in my personal opinion ETFs are better than mutual funds, and you should have no worries about buying one or several of these.

@captainspoke, roger that! Thank you so much for your feedback, I will most likely incorporate some ETFs in my portfolio via IBKR.

However, in Japan, many of the mutual fund products are more tax-advantageous and have lower fees.

Things may be changing though. For example the new MAXIS ETF series. https://maxis.mukam.jp/etf_fund/182558.html

@Kanto, thanks again Sir, both mutual funds and ETFs will be incorporated in the portfolio, just need to nudge the numbers one last time to find the sweet spot

[adamu]

I'm in the mutual fund camp.

ETFs are just mutual funds that are wrapped up as a company and traded on the stock exchange.

To me, that's a disadvantage for long-term investing. The fund price can fluctuate based on market factors other than the value of its underlying assets. ETFs can also be bought and sold instantly during trading hours, whereas a mutual fund is traded once a day. For long term investments the price fluctuations within a single day are of little meaning, and having to wait a few days for a mutual fund order to settle is a boon that saves you from making rash decisions.

Not to mention that with mutual funds you can use every last yen of your NISA / iDeCo allowance, but with ETFs in a NISA there will always be a little change leftover.

@captainspoke, roger that! Thank you so much for your feedback, I will most likely incorporate some ETFs in my portfolio via IBKR.

Why are you sold on the Fidelity ETFs? For example, there are also great ETFs by Vanguard, Schwab, iShares, etc.