RetireJapan

Ori wrote: ↑Mon Oct 23, 2017 2:55 pm A. Invest in the index funds which reinvest dividends (FR) before taxes and then on retirement sell them off and buy index funds which pay dividends (FP). Capital gains occur.
B. Buy FP from the very beginning, reinvest dividends after taxes and then on retirement don't sell off anything, stop reinvest dividends and instead start live off those dividends. Capital gains don't occur.
C. Do same as A, but instead of buying FP on retirement buy blue chip stocks with high dividend yield. Capital gains occur.

My fuzzy plan at the moment is to do all three at the same time. I will see how things are going in a few years time and adjust the plan as necessary

Thanks to everyone for replies.
It looks like it is better to stick with 配当込み index funds, at least for now.

So... how can you tell which ETFs are 配当込み easily (my stuff is in Rakuten), or is it always a deep dive into the prospectus?

ETFs are never 配当込み, only the mutual funds can be.

Ori wrote: ↑Tue Nov 28, 2017 2:39 pm ETFs are never 配当込み, only the mutual funds can be.

Ah that explains.

Concerning the difference between ETFs and Mutual Funds, as discussed above, MF re-invest the dividends for you, whereas ETF does not.

QUESTIONS :
1) Are there any other significant differences, for someone who intends to buy and hold, and keep trades to a minimum, just whatever regular purchasing is required for yen cost averaging & annual re-balancing?

2) I have seen it mentioned that ETFs are cheaper in Japan but I haven't found that to be the case, perhaps i am missing something in the quoted expense ratios?

3) All other things being equal (e.g. if there is an index you want to hold assets based on, such as MSCI Kokusai, and it is available in both MF and ETF, at similar expense ratio) ... would you simply base your choice on whether you prefer to have the dividends reinvested automatically by the MF, or paid out by the ETF? Or if there are other considerations what would they be?

Thanks for opinions.

robster wrote: ↑Thu Dec 28, 2017 1:49 pm Concerning the difference between ETFs and Mutual Funds, as discussed above, MF re-invest the dividends for you, whereas ETF does not. ...

I'm US and have a schwab acct there. I don't own any mutual funds (some 1947 law (?)), but for the ETFs in my acct I can choose whether to reinvest or not at the time of purchase (and can probably switch this later on request).

I've always chosen not to. Distributions go to cash and I redirect them somewhere from there.

In Japan, there are 2 types of MF - the ones which reinvest dividends internally, before taxes, and the ones which don't.
For the second type the dividend re-investment can be set at the time of purchase, but those dividends will be reinvested after taxes.
ETF cannot reinvest internally.
So the difference is 23% tax on dividends.

Hi, I've been considering the same thing... is it better to invest in funds that don't pay out dividends and instead reinvest them internally? Specifically while living in Japan, as the pros/cons are entirely due to taxation - with no tax there would be no difference.

During the accumulation phase it is obviously better to use funds that reinvest dividends internally, you save 20% withholding tax on the dividends, and with dividends being historically responsible for very roughly 50% of total returns* then your total portfolio should be worth around 10% more without paying the dividend tax, which sounds pretty significant.

Now the possible disadvantage is when you start withdrawing money to live off your portfolio. With the non dividend paying fund you have to sell a fraction of the portfolio every year, and pay capital gains tax at a flat 20% of the gain (so roughly 10-15% of the amount you sell, as you deduct the initial cost you paid).

For the dividend paying fund you would generally pay flat 20% tax on the whole dividend, which would make it a bit higher than the non dividend fund case. However for dividend income only (not capital gains) you can choose to have the income taxed along with your main income (aggregate taxation). This may or may not give a lower rate than 20%, it depends on your other income and deductions etc. If you invest only in Japanese companies though there is a substantial dividend deduction (10% of dividend income), which can lower your tax rate a lot if it is your main income. Caveat, all of this is just from reading and playing with the NTA online tax calculator, I have not confirmed any of this with an accountant...

So the trade-off seems to be your portfolio will be worth roughly 10% more money to start with, but then during retirement you may have to pay more tax on the withdrawals from it. Exactly how much tax difference between capital gains and dividends income depends on if you have other income and how much you withdraw, and also of course the tax rules in place in 30 years time...

This of course assumes that you can find funds that do really reinvest dividends internally without paying tax (there seems to be Japanese mutual funds that do this but not ETFs. I'm considering Ireland based ETFs (e.g. SWDA), which definitely don't pay tax) AND that Japan doesn't tax dividends internally reinvested (some countries do, but I haven't found anything from the NTA that suggests Japan does and the existence of the Japanese mutual funds doing this without paying withholding tax suggests they don't).

Would love to hear thoughts on this, there doesn't seem to be much discussion online about it. Maybe because the US doesn't have internally dividend reinvesting funds and other countries tax treatments makes them not advantageous.

* http://www.simplestockinvesting.com/SP5 ... eturns.htm gives 44% for SP500, it will vary a lot depending on how you invest though.

anjin wrote: ↑Sun Mar 04, 2018 5:00 amIf you invest only in Japanese companies though there is a substantial dividend deduction (10% of dividend income)

I don't think that this is the case anymore.

anjin wrote: ↑Sun Mar 04, 2018 5:00 amThis of course assumes that you can find funds that do really reinvest dividends internally without paying tax

Most of the cheap ones do (Tawara, Nissei, e-Maxis slim etc.). I made calls to those three, and they confirmed.

For myself I decided that there are plainly too many uncertainties about the future to justify doing something that doesn't benefit me at the moment, but might slightly better option in 30-40 years.