Tsumitate Wrestler wrote: ↑Wed Oct 02, 2024 11:53 am...Japanese mutual funds ...in addition to the tax efficiency ...
How about a look at that "tax efficiency" of internally reinvesting dividends while adding expense ratio into the mix. At first, it would seem that reinvesting those dividends without tax would be better--but is it? (and I welcome any criticism on this math!
)
Let's say two people invest 100,000 --and that could be dollars or yen, I don't think that makes any difference here.
So person J invests in the eMaxis slim S&P 500 mutual fund, and person US invests in the vanguard ETF, VOO. In the first case, the investor never sees the dividend, and it is invested
tax-free, and life goes on. Wow, what a deal!
In the latter case, VOO pays a dividend of
1.26%. So to simplify things, after a year, the US investor gets a dividend payout of 1.26% x 100,000 = 12.6, and oh my gosh, they're going to pay tax on that, whereas person J, above, is smiling, since they get the dividend reinvested internally--and
no tax.
But the expense ratio of the eMaxis slim fund is 0.09372%, so that means it has cost person J 100,000 times that percentage, or 93.72 to own that mutual fund for the year.
On the other hand, person US bought the VOO ETF, and the expense ratio is 0.03%. So their 100,000 times that comes to 30 to own that for the year.
So person J has paid 93.72, and person US has paid 30, so far. That's a difference of 63.72 (and of course assuming fund performance has been equal) But doesn't person J have the more tax efficient mutual fund?
Person US will pay 20.315% tax here on the 1.26% dividend. So 100,000 x 1.26% = 126 (= dividend), and the tax will be 126 x 20.315 = 25.5969 and then, subtract that from the 63.72 above, and you still get a positive number--person US who bought the ETF is still ahead by 38.1231
So to me (and again, correct me if this math is wrong) it looks like person US is coming out ahead--the lower expense ratio of the VOO ETF more than offsets what person J gets via tax free reinvested dividends, but with an expense ratio that is
triple what the US person pays.
I've done all this on the back of this envelope that I happened to have here, and I've run out of space. So I won't go on to how this itty-bitty difference (advantage, person US) is magnified in successive years.
My point is that the supposed conclusion that Japanese MFs and their tax-free reinvesting is simply the cat's meow of it all, and that ETFs are satan's instrument, might not be correct.
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We return you now, to the "monex tokutei" topic. Or not, as you please.