RetireJapan

northSaver wrote: ↑Tue Jun 06, 2023 5:38 am

TokyoBoglehead wrote: ↑Tue Jun 06, 2023 3:29 am The comparison was to American investor/$ buying treasuries , Brits/£ buying Gilts, etc. Vs Japanese (Yen) investors buying foreign bonds.

Not stocks vs bonds. Hence the more risk, fixed reward.

Fair enough. But I thought earlier in the thread you were implying that you went 0% bonds due to currency risk. This is not a good reason! You go 0% bonds (100% stocks) because you want greater returns in the long run and don't mind the volatility. If you're truly concerned about currency risk then you buy local investments - such as Japanese stocks and rental property - or currency-hedged foreign investments.

When currency risk is removed, Treasuries (as an example) offer some diversification (not always though) and guaranteed returns.

However as the return is capped, they are a poor investment choice for those who face currency risk, as it could strip away all profits,. This isn't true for global equities.

I do not know why this reality would push someone towards Japanese stocks or property. I don't agree with your assessment there.

Deep Blue wrote: ↑Tue Jun 06, 2023 4:14 am

TokyoBoglehead wrote: I personally don't get the appeal of bonds, if they don't come with the reduces risk of being offered in your " current " currency. You are not rewarded for that extra volatility.

I guess some of us think a bit more globally and a little less locally. We take in about a 4% net yield from my rental properties in the UK, after agent fees, maintenance costs etc. This is a fairly decent amount of hassle - dealing with tenant issues, repairs, periodic refurbishment, void periods, filing tax returns etc. There has been capital appreciation over time but I don't bank on this going forward (in fact I believe the opposite is lkely to happen).

However, now we can earn a higher return simply by moving some GBP cash into long duration gilts. None of the ballache of finding new properties, dealing with solictors, all the paperwork and hassle that comes with buying BTL housing. Pretty easy decision. Allocating to some fixed income savings accounts for 12-24 months also generating better returns for less hassle than rental too.

If you only think in yen terms it might be a bit different, but we prefer to diversify a bit - the core is in global equities, some income from UK property and now a bit of income from bonds and savings too.

I'm a 100% global equities investor currently.

Bonds main attraction are usual
A. Fixed guaranteed returns
B. Diversification.

B is more and more on doubt, and
A is relative to your purchasing currency (as well as the bond vehicle).

The math just doesn't make them attractive to me. But it's always an individual decision.

I simply don't know enough about property, especially UK property but I suspect I'm a bit too lazy and a bit too conflicted about the ethics of housing availability to get into renting. I have considered REITS though.

....

I think 80/20, 70/30 get repeated a lot among expats here, just like those who insist ETFs>Mutual funds.

There are different, specific realities about investing in Japan that need to be considered, that often make these "rules of thumb" irrelevant in Japan.

Just to be clear, I am talking about bond funds here (such as ｅＭＡＸＩＳ Ｓｌｉｍ 先進国債券インデックス). I'm not talking about exchanging JPY to USD, buying a fixed term treasury, then exchanging it back to JPY again at the end. Is that what you're talking about? If not, then why do you used words like "fixed" and "capped" to describe the returns? There is nothing fixed or capped about a bond fund return. The price goes up and down like a stock fund does, and the returns are of greater magnitude than the underlying bond yields of course. They are "limited" in that you will never get an amazing return (plus or minus) from a bond fund, but that's the point. Their purpose is to dampen a portfolio's volatility, as well as to provide a bit of income (hopefully) if dividends are distributed.

TokyoBoglehead wrote: ↑Tue Jun 06, 2023 1:40 am For those who's current and future lives are based in Yen, foreign bonds offer a fairly poor risk/reward trade-off.

You will not find many Japanese index investing gurus who recommend foreign or corporate bonds for these reasons.

On the contrary, at least the Japanese folks I follow don’t recommend against holding foreign bonds, but don’t recommend domestic currency bonds much. One of them is Tomoya Asakura who appears in Tokyo TV “morning satellite” etc, so I think he is fairly mainstream.

That myindex.jp site is a great resource, imo.
Looking there at the performance of various asset classes over 10, 20, 30 year spans, foreign bonds have been fairly consistent. Over 30 years, foreign bonds returned 4.9% for 9.9% risk. Similar story in other time frames.

Domestic bonds would have been lower risk, and lower return. I can’t personally bring myself to touch them now because the BOJ has inflated their prices and the Japanese government is the most indebted in the world. And the returns are too low to bother.

Interestingly, over 30 years domestic equities have been worse than commodities(!), at least a lower return for a similarly high risk. But if one looks over just 20 years, the picture is different as I guess the immediate post bubble performance is taken out of the numbers.

Other assets that are hard to justify holding are emerging market REITs.

Foreign bonds, at least from historical data, seem like a reasonably balanced proposition to me, comparing the return and risk data.

Gold looks great in the data right now, I guess because it is recently near all time highs.

(Personally I have traditionally had a thing for commodities, and may have been lucky with my timing, but having looked at the myindex.jp data recently am thinking to eliminate them from my core asset allocation.)

sutebayashi wrote: ↑Tue Jun 06, 2023 3:48 am

ToushiTime wrote: ↑Mon Jun 05, 2023 10:41 pm I think the age minus 10 is outdated.
This was useful. I am leaning toward 70 - 30 for equity vs bonds
https://moneyunshackled.com/2020/11/why ... llocation/

One thing about that article is it dates prior to the recent inflation outbreak and bond sell-off.

So I am more inclined to own bonds than I was in 2020.

The article makes some good points though. It need not be just a stocks versus bonds world these days, and I have a more diverse mix.

I agree. I am not against holding bonds at all. I just linked to the article as further evidence that 40%-plus for bonds is probably excessive.

TokyoBoglehead wrote: ↑Tue Jun 06, 2023 9:11 am just like those who insist ETFs>Mutual funds.

I would only get an ETF if a mutual fund wasn't available.
Easier to sell quickly but too much hassle reinvesting the dividends, I think.

northSaver wrote: ↑Tue Jun 06, 2023 2:38 am The risk is the same for foreign bonds as it is for foreign stocks, if you're talking about currency risk.

I don't think so, right?

Bonds are literally priced in the currency, so are exposed to currency risk.

Stocks are based on business performance. If the currency the stock is priced in strengthens/weakens, then theoretically the stock price will adjust accordingly. One recent example is the rise in GBP value of UK stocks after Brexit. No fundamental change in stock value, just a devaluation of the currency.

Of course the currency valuation is likely to affect the business, so there is some exposure.

northSaver wrote: ↑Tue Jun 06, 2023 10:23 am Just to be clear, I am talking about bond funds here (such as ｅＭＡＸＩＳ Ｓｌｉｍ 先進国債券インデックス). I'm not talking about exchanging JPY to USD, buying a fixed term treasury, then exchanging it back to JPY again at the end. Is that what you're talking about? If not, then why do you used words like "fixed" and "capped" to describe the returns? There is nothing fixed or capped about a bond fund return. The price goes up and down like a stock fund does, and the returns are of greater magnitude than the underlying bond yields of course. They are "limited" in that you will never get an amazing return (plus or minus) from a bond fund, but that's the point. Their purpose is to dampen a portfolio's volatility, as well as to provide a bit of income (hopefully) if dividends are distributed.

I agree. By the way, this is a case where I am also considering iShares TIP ETFs, as I cannot find a mutual bond fund that provides protection against inflation for low fees. The iShares fee of 0.19% is similar to eMaxis Slim and it has a better five-year return of 2.9% versus 2.4%. I'd lose out if there is deflation of course, but I'm more worried about inflation when it comes to the US. Maybe I should buy some of both...

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northSaver wrote: ↑Tue Jun 06, 2023 10:23 am Just to be clear, I am talking about bond funds here (such as ｅＭＡＸＩＳ Ｓｌｉｍ 先進国債券インデックス). I'm not talking about exchanging JPY to USD, buying a fixed term treasury, then exchanging it back to JPY again at the end. Is that what you're talking about? If not, then why do you used words like "fixed" and "capped" to describe the returns? There is nothing fixed or capped about a bond fund return. The price goes up and down like a stock fund does, and the returns are of greater magnitude than the underlying bond yields of course. They are "limited" in that you will never get an amazing return (plus or minus) from a bond fund, but that's the point. Their purpose is to dampen a portfolio's volatility, as well as to provide a bit of income (hopefully) if dividends are distributed.

Bond funds are not going to yield any materially different results then laddered individual bonds.
They are both interest rate sensitive.

ToushiTime wrote: ↑Tue Jun 06, 2023 11:28 am
I agree. By the way, this is a case where I am also considering iShares TIP ETFs, as I cannot find a mutual bond fund that provides protection against inflation for low fees. The iShares fee of 0.19% is similar to eMaxis Slim and it has a better five-year return of 2.9% versus 2.4%. I'd lose out if there is deflation of course, but I'm more worried about inflation when it comes to the US. Maybe I should buy some of both...

Tips can still decline with rising rates. If your buying them as a hedge it would best long-term not medium or short, also you need to consider if CPI is really a good marker for overall inflation.

Bond funds are not going to yield any materially different results then laddered individual bonds.
They are both interest rate sensitive.

I thought that as well, but I guess funds like eMaxis automatically reinvest the gains in bond price (index) , and you would get compounding returns, whereas with individual bonds, you would only get that benefit with a lot of effort and capital.

Tips can still decline with rising rates. If your buying them as a hedge it would best long-term not medium or short, also you need to consider if CPI is really a good marker for overall inflation.

True, but having an ETF that tracks the TIP index is less of a risk than just making a lump sum investment in actual TIPs which I cannot do anyway in Japan. I agree on CPI too, but cannot find one linked to the other US inflation indicator (PCE?). Some inflation protection is better than none.