RetireJapan

TokyoWart wrote: ↑Sun Aug 18, 2024 5:00 am

Yeah BNDX and BNDW include corporate bonds, and mortgage-backed securities, I think, which I probably want to avoid in retirement.

I am not sure about negative returns on government bond funds though. Over the last five years eMaxis SLIM Developed Bonds returned 5.22% including distributions https://site0.sbisec.co.jp/marble/fund/ ... =20331A172 I doubt inflation and taxes turned that negative. And it has returned 37% since it started in 2017, which is pitiful compared to stocks, but good compared to cash in a Japanese bank account

That 5% total return over 5 years is because it is unhedged. An investor in a currency that had not weakened as much as the yen has in the past 3 years is likely seeing a negative return. The Vanguard total bond ETF BND has returned under 1% total in the past 5 years which will mean a negative return for any US dollar investor who had to pay taxes on the coupon distributions.

Just curious: why do you like "preferred equity funds and senior lien US real estate lending funds" and how do you get hold of them?

These are the private equity funds from the "shadow banking sector." Most of the larger private equity and REIT platforms (e.g. Fundrise, Origin, DLP, Equity Multiple, etc.) have these for accredited investors. They currently get returns around 10% and the first lien position makes them relatively safe even for fixed income funds. As an example, the DLP lending fund has never written down a dollar, delivers a monthly distribution of its pref 8% yearly return and has total annualized returns of over 12% with 90 day liquidity. These funds benefit from the difficulty banks have right now in addressing this part of the real estate market.

https://go.dlpcapital.com/hubfs/Fund%20 ... _campaign=

ToushiTime wrote: ↑Sun Aug 18, 2024 6:26 am

TokyoWart wrote: ↑Sun Aug 18, 2024 5:00 am

Yeah BNDX and BNDW include corporate bonds, and mortgage-backed securities, I think, which I probably want to avoid in retirement.

I am not sure about negative returns on government bond funds though. Over the last five years eMaxis SLIM Developed Bonds returned 5.22% including distributions https://site0.sbisec.co.jp/marble/fund/ ... =20331A172 I doubt inflation and taxes turned that negative. And it has returned 37% since it started in 2017, which is pitiful compared to stocks, but good compared to cash in a Japanese bank account

That 5% total return over 5 years is because it is unhedged. An investor in a currency that had not weakened as much as the yen has in the past 3 years is likely seeing a negative return. The Vanguard total bond ETF BND has returned under 1% total in the past 5 years which will mean a negative return for any US dollar investor who had to pay taxes on the coupon distributions.

Just curious: why do you like "preferred equity funds and senior lien US real estate lending funds" and how do you get hold of them?

These are the private equity funds from the "shadow banking sector." Most of the larger private equity and REIT platforms (e.g. Fundrise, Origin, DLP, Equity Multiple, etc.) have these for accredited investors. They currently get returns around 10% and the first lien position makes them relatively safe even for fixed income funds. As an example, the DLP lending fund has never written down a dollar, delivers a monthly distribution of its pref 8% yearly return and has total annualized returns of over 12% with 90 day liquidity. These funds benefit from the difficulty banks have right now in addressing this part of the real estate market.

https://go.dlpcapital.com/hubfs/Fund%20 ... _campaign=

Thanks for the info on preferred equity.

That explanation for the eMaxis SLIM Developed Bonds occurred to me after posting but the website wouldn't let me add an "edit" to my post. Yes, the weak yen makes the returns on the bonds funds look better.

Hedged vs Unhedged

eMaxis SLIM Developed HEDGED has a total return of -18.32％ since 7 January 2016
https://site0.sbisec.co.jp/marble/fund/ ... =103312167
eMaxis SLIM Developed UNHEDGED has a total return of 37％ since 27 February 2017
https://site0.sbisec.co.jp/marble/fund/ ... =20331A172

So essentially all the gains came from yen weakening from about 115 yen/dollar to about 150 yen/dollar as of today.

Performance versus inflation

The benchmark for the eMaxis SLIM bond fund is FTSE/Citigroup WGBI Non-JPY (JPY)
It had a total return, including dividends, of 5% to 6% over 3, 5, 10, 15, 20 and 30 year periods since 1985
(look at 期間別リターン in the graph section)
https://myindex.jp/data_i.php?q=CI1020JPY

Japan has had cumulative inflation of 30% since 1985 and 14% since 2009
https://www.in2013dollars.com/japan/inflation
https://www.in2013dollars.com/japan/inflation

So we would have received 5 to 6 % returns versus 14% inflation over the last 15 years or 30% inflation since 1985.

I had accepted that international bond funds deliver worse returns than equity funds in return for reduced volatility and risk of panic-selling etc, but I didn’t expect them to lose money in currency-adjusted and inflation-adjusted terms, i.e. perform worse than cash sitting in my bank!!!

I think the yen will ultimately remain weak but crucially, I cannot be sure it will weaken further, and it seems pointless to make an investment that is basically a reverse bet on the yen.

I may still buy hedged short-term bond funds to complement cash when I retire, but researching the above has made me consider reducing my current weighting for international bond funds down to almost zero!

ToushiTime wrote: ↑Sun Aug 18, 2024 8:22 am Thanks. I also messed up the calculations.
See my reply just before this one, where I estimated that the unhedged SLIM version gives a negative return if you ignore the effect of a weaker yen, and then adjust for inflation. I think neither fund is good, including the Tawara one which I think follows the same index, unless I missed something.

ToushiTime wrote: ↑Fri Aug 16, 2024 12:02 am Hi,
I am wondering about retirement which is still someway off but I like to have broad plans way in advance

A common option just before and during retirement seems to be laddering individual short term bonds in your own currency to avoid currency risk and because they are less price sensitive to interest rate increases.
That's fine for people living in the US and Europe, but we don't have that option because JGB rates are so low and the massive debt/economic outlook is an issue too, as you know.

My current plan for retirement (not now) is to use a combination of
Yen in fixed-term deposits (abysmal interest rates might improve slightly by the time I retire)
Get a 3-7 year US treasury ETF (hedged) (average bond duration 4 yrs) (TSE ticker: 2856)
Hold on to some of my eMaxis SLIM Bonds (unhedged, average bond duration 7 years)
Consider Japanese MMFs if the rates are any better by then.
I will scale down the weighting for equities of course.

Any other/better ideas?

ChapInTokyo wrote: ↑Sun Aug 18, 2024 8:38 am

ToushiTime wrote: ↑Fri Aug 16, 2024 12:02 am Hi,
I am wondering about retirement which is still someway off but I like to have broad plans way in advance

A common option just before and during retirement seems to be laddering individual short term bonds in your own currency to avoid currency risk and because they are less price sensitive to interest rate increases.
That's fine for people living in the US and Europe, but we don't have that option because JGB rates are so low and the massive debt/economic outlook is an issue too, as you know.

My current plan for retirement (not now) is to use a combination of
Yen in fixed-term deposits (abysmal interest rates might improve slightly by the time I retire)
Get a 3-7 year US treasury ETF (hedged) (average bond duration 4 yrs) (TSE ticker: 2856)
Hold on to some of my eMaxis SLIM Bonds (unhedged, average bond duration 7 years)
Consider Japanese MMFs if the rates are any better by then.
I will scale down the weighting for equities of course.

Any other/better ideas?

I'm currently in my early sixties, retired, and am in the process of juggling my portfolio around for the draw down phase during retirement.

I do not have specific fund or ETF recommendations since I feel that those decisions are not something which can be lightly made on an anonymous bulletin board.

However, I thought it might be useful to share the general asset allocation of my portfolio. This is a work in progress as I am still in the process of tweaking it, as I shall no doubt continue to do while I can be bothered to do such things.



The pie chart above is how my diversified balanced portfolio looks at the moment.

The reddish slices of the pie are my Japanese stock ETF/funds, developed market stock ETF/funds, and emerging market stock ETF/funds, plus some commodity ETFs. The blue-ish to purplish slices of the pie are my Japanese bond ETF/funds, developed market bond ETF/funds, US junk bond funds, and emerging market bond fund holdings, and the greenish bits are my US and ex-US REIT ETF holdings. So basically, a half and half equities + bond with some REITS and commodity exposure for added diversification and inflation protection.

In order to mitigate the low returns of JGBs, I opted to hold inflation linked JGBi funds for the lion's share of Japanese bonds.

In order to mitigate exchange rate risk on the foreign bonds part of the portfolio, I opted to go for Rakuten's VT+BNDW wrapped balanced mutual fund which currency hedges the BNDW part. I also have additional currency hedged developed market bond funds.

Hopefully, this will allow for continued growth in the equity part of the portfolio, while keeping volatility in check!

ToushiTime wrote: ↑Sun Aug 18, 2024 9:06 am

ChapInTokyo wrote: ↑Sun Aug 18, 2024 8:38 am

ToushiTime wrote: ↑Fri Aug 16, 2024 12:02 am Hi,
I am wondering about retirement which is still someway off but I like to have broad plans way in advance

A common option just before and during retirement seems to be laddering individual short term bonds in your own currency to avoid currency risk and because they are less price sensitive to interest rate increases.
That's fine for people living in the US and Europe, but we don't have that option because JGB rates are so low and the massive debt/economic outlook is an issue too, as you know.

My current plan for retirement (not now) is to use a combination of
Yen in fixed-term deposits (abysmal interest rates might improve slightly by the time I retire)
Get a 3-7 year US treasury ETF (hedged) (average bond duration 4 yrs) (TSE ticker: 2856)
Hold on to some of my eMaxis SLIM Bonds (unhedged, average bond duration 7 years)
Consider Japanese MMFs if the rates are any better by then.
I will scale down the weighting for equities of course.

Any other/better ideas?

I'm currently in my early sixties, retired, and am in the process of juggling my portfolio around for the draw down phase during retirement.

I do not have specific fund or ETF recommendations since I feel that those decisions are not something which can be lightly made on an anonymous bulletin board.

However, I thought it might be useful to share the general asset allocation of my portfolio. This is a work in progress as I am still in the process of tweaking it, as I shall no doubt continue to do while I can be bothered to do such things.



The pie chart above is how my diversified balanced portfolio looks at the moment.

The reddish slices of the pie are my Japanese stock ETF/funds, developed market stock ETF/funds, and emerging market stock ETF/funds, plus some commodity ETFs. The blue-ish to purplish slices of the pie are my Japanese bond ETF/funds, developed market bond ETF/funds, US junk bond funds, and emerging market bond fund holdings, and the greenish bits are my US and ex-US REIT ETF holdings. So basically, a half and half equities + bond with some REITS and commodity exposure for added diversification and inflation protection.

In order to mitigate the low returns of JGBs, I opted to hold inflation linked JGBi funds for the lion's share of Japanese bonds.

In order to mitigate exchange rate risk on the foreign bonds part of the portfolio, I opted to go for Rakuten's VT+BNDW wrapped balanced mutual fund which currency hedges the BNDW part. I also have additional currency hedged developed market bond funds.

Hopefully, this will allow for continued growth in the equity part of the portfolio, while keeping volatility in check!

What about a cash bucket, such as the guys above were discussing?
I guess you could use the short-term 0-3 month treasuries ETF that you mentioned but that is not currency hedged so you would have to wait for the yen to come down.

Tsumitate Wrestler wrote: ↑Sun Aug 18, 2024 10:48 am Unless you are paid in USD, I do not think you could qualify short term treasuries as cash like due to the currency risk.

Cash like in Japan for those paid in yen would be some flavor of JGBs or deposit.