RetireJapan

Tkydon wrote: ↑Thu May 06, 2021 7:46 am an important first step is Insurance - 1. term life, 2. medical, and 3. long-term disability - to protect you and your family from the vicissitudes that threaten people today - 1. funeral costs and the life style of your family after the loss of their primary wage earner, 2. medical bills and treatments that may not be covered by the standard Kokumin Kenkou Hoken (or other) cover, and 3. your income if you were rendered disabled and could never work again... In Japan, the system only covers you for about three years at a low fraction of your income)

This is a good point that I don't think is discussed much (at least around here).

The funny thing with investing is that if you do it long enough, you will end up with a high net worth that sort of is an insurance policy. Eventually it should be big enough that your assets alone could cover the sort of things you might otherwise want insurance for. Insurance companies are basically doing the same thing you are doing by investing anyway. They are just doing it on a much larger scale, charging extra fees, and pooling the risk.

But paying for insurance where the payout would be earlier or bigger that you could otherwise afford seems worthwhile. Of course having too much insurance is also a red flag, because you may never use it but it's consuming funds that could otherwise go into compounding investments. I wonder where the balance is.

adamu wrote: ↑Thu May 06, 2021 10:35 am
This is a good point that I don't think is discussed much (at least around here).

The funny thing with investing is that if you do it long enough, you will end up with a high net worth that sort of is an insurance policy. Eventually it should be big enough that your assets alone could cover the sort of things you might otherwise want insurance for. Insurance companies are basically doing the same thing you are doing by investing anyway. They are just doing it on a much larger scale, charging extra fees, and pooling the risk.

But paying for insurance where the payout would be earlier or bigger that you could otherwise afford seems worthwhile. Of course having too much insurance is also a red flag, because you may never use it but it's consuming funds that could otherwise go into compounding investments. I wonder where the balance is.

I am curious about this too. My wife and I are in our 30`s and went with term life insurance.

I am not sold on the benefits of extra health insurance in Japan as most of the benefits seem to go to offsetting better hospital rooms and the like, nothing life-saving.

......

In reference to Tkydon`s other points, I do not think chasing dividends is a good investment strategy, nor is dollar-cost averaging.

The research supports lumpsum investing over dollar-cost averaging.

Dividend investing is fairly tax-inefficient. Japanese mutual funds that reinvest dividends tax-free are an amazing tool for growth that is often overlooked in favor of North-America strategies that view mutual funds as being less advantageous.

However, there is more to investing than min-maxing, and this strategy seems to a better fit psychologically for some people.

Hmmm.

"The research supports lumpsum investing over dollar-cost averaging."

If you don't have the lumpsum to drop on an investment, which I never had, and I assume most working people looking at these forums don't have, then Dollar Cost Averaging is the only way to go. Better to do that than put the money in the bank until you have the lumpsum

Even if I had a lumpsum to invest... when to invest it? Unless you have a clear Market Bottom signal, then there is a chance that whatever you buy could equally go down, and you'd make a loss.
If you weren't sure about the timing, it may pay, to reduce the risk, to divide the lumpsum into 5 chunks and invest the chunks at intervals.
Let's say you had a lumsum to invest in Dec 2019...
Say S&P500
https://finance.yahoo.com/chart/%5EGSPC ... I6bnVsbH0-

You'd have bout at 3300, but the price went down to 2300 in March 2021 - You'd be looking at a paper loss of 30% Ouch..
It came back and the value is nearly 4300, so if you had kept your nerve and not paniced, and not sold, then today you'd be looking at a gain of 30%

If you had used Dollar Cost Averaging
Lump Sum 100,000
5 equal chunks of 20,000 at end of:
December @ 3235 = 6.18
January @ 3225 = 6.2
February @ 2954 = 6.77
If you missed the bottom
March @ 2488 = 8.04
Oh, it bounced back much faster than expected...
April @ 2830 = 7.06

Total 36.26

100000 / 36.26 = Average 2918

That's still better than 3235, and today would have increased your gain to 47%. That's an additional 50% gain over the lumpsum...

That mitigated the risk of the market downside. Of course, IF IF you were lucky enough to time your lumpsum investment perfectly between mid-March and mid-April you would have done better. But what if your lumpsum only became available today?? Do you want to punt it into a market at 4300?
Hind sight is 20-20

If you don't have the lumpsum to drop on an investment, which I never had, and I assume most working people looking at these forums don't have, then Dollar Cost Averaging is the only way to go. Better to do that than put the money in the bank until you have the lumpsum

These are all "lump sums". Some people are fortunate to save 100,000 yen each month while others might think of 1 million yen as a low monthly investment goal. The real question is if you suddenly had an unusually large sum compared to your total portfolio is it better to invest it immediately (lump sum) or in increments (dollar cost averaging)? The lump sum vs. dollar cost averaging comparison has been made in a very large number of academic studies as well as by Morningstar, Vanguard and Fidelity. When the study uses as a background the US stock market which rises about 2/3rds of the time it finds that lump sum beats dollar cost averaging 2/3rds of the time. You can easily pick a point in time where lump sum does worse than dollar cost averaging but that assumes perfect hindsight. If you did not believe that investing as a lump sum at once is appropriate then the question is, why are you allowing the rest of your investments to be in the market at that moment?

In the past my "lump sum" was about $10,000 which I figured was enough to make the hassle of sending funds overseas worthwhile. I suppose you could say it was "dollar cost averaged" in that I sent the amount 4 times a year.

Similar situation for my Roth IRA, which I add to every January. Is it a lump, or is it an average? Bit of both perhaps.

Getting a serverance payout or inheritance would be a real "lump" but I would probably just invest it at the time, unless I thought things were really iffy. But even then, consider early 2020, when COVID was starting to feel real. In Feb/March/April you could have made or lost a lot of money depending on your timing.

I'm bumping this thread as I have just finished a book/PDF called Dollars and Sense: How We Misthink Money and How to Spend Smarter.



This was was really a nice fun read. It assumes you are financially literate, but takes its time to explain how companies use psychology and to get is to spend more than we needed to and even explains how BS, the housing market is, and how values work,
Thing like ANCHOR PRICES, they use this in the book and it seems to be happening right now in the housing markets.
Arousal and Self Control.Compartmentalizing,and the psychology of language people use. From chocolate to houses to financial products
How rituals so basic, we don't see them as rituals but somehow, it take us down a road we can enjoy, and we give things more value even though, its the same thing that was only half the price in a different box.Actually you can see this in the drug stores every day with the exact same drug, but you can pay three times the price.Or even when you get your prescriptions.( just look at the prices of a painkiller for periods, opposed to the exact same drug sold as BOG STANDARD pain killer.
Another one that came to my mind was a bar of chocolate, and the ritual of unwrapping it, not to mention the bottle of plonk they tell us is worth .blah blah, cause of some BS story. There really is a lot to understand here and we probably know a lot of the tricks, but there are some great tricks they highlight in how to short cut things.

EG. in house buying, holidays, etc.
I loved the little jokes the authors dropped in, which made me connect to it more.
Anyway, I read it, enjoyed it, and we can see how creepy salesman/and women can be or at least how manipulative they are. ( remember my council estate being called an up and coming area with a lower villas for sale, and security) Seriously! A freaking VILLA! I nearly choked on my sushi .Should have been ground floor flat, armored doors, and shitty neighbors).
I wonder if we have that amount of BS here when selling property?
I've always thought money can be corrupting and this book kinda highlights how companies can manipulate is, but this book has changed how I view money and the benefits it brings and I can go in with bigger eyes now.
I hope someone can get something from it, and maybe even enjoy it. I know I did.

Bubblegun wrote: ↑Sat Aug 28, 2021 7:20 am I'm bumping this thread as I have just finished a book/PDF called Dollars and Sense: How We Misthink Money and How to Spend Smarter.

Thanks for the recommendation! Looks interesting.

I removed the link as I don't want to facilitate piracy on the forum

RetireJapan wrote: ↑Sat Aug 28, 2021 8:25 am

Bubblegun wrote: ↑Sat Aug 28, 2021 7:20 am I'm bumping this thread as I have just finished a book/PDF called Dollars and Sense: How We Misthink Money and How to Spend Smarter.

Thanks for the recommendation! Looks interesting.

I removed the link as I don't want to facilitate piracy on the forum

No problem at all.
I wasn’t sure why they had a free PDF file and then right next to it, an Amazon click button to buy. Certainly don’t want to facilitate piracy but it was a good read. ( omg can financial stuff we good to read as I’m
The only one I know,out of my friends, who does)

Anyway I hope some people can enjoy it.