RetireJapan

adamu wrote: ↑Sat Jul 11, 2020 9:57 am I read that Pinebridge article, but came to the opposite conclusion. Interesting that the investment company recommends that you should buy their hedged funds (which they can charge fees for), and then also buy an FX product from them to add back in the currency exposure (which they can charge some more fees for). "The transaction cost of currency hedging should not be much of a concern in today’s market". But we want to invest for tomorrow's market, and we don't know what that will look like.

Look at this graph, from the document:



Their conclusion is that hedging reduces volatility, thus is good. But in this graph, it's the unhedged version that most closely represents the performance of the index. As mentioned earlier in the thread, hedging makes the international bonds behave more like domestic ones.

So I guess the real question is: Do you want your bond portfolio to represent domestic bond performance, but want to diversify in case the local government defaults? Hedge. Do you want your bond portfolio to represent global performance? Don't hedge.

Am I missing something here?

adamu wrote: ↑Mon Jul 13, 2020 1:46 am The problem is that while unlikely, if Japanese bonds suddenly become better performing than international ones, hedging would have made you better off.

So practically, you can go unhedged because based on performance it looks like it will pay off better. But fundamentally, you should choose hedging by whether you want a domestic performance bias or not.

TokyoWart wrote: ↑Mon Jul 13, 2020 4:11 am This might be beside the point but I don't think you capture events after the time of purchase for a bond or bond fund. The yield at purchase will be the yield for whatever the duration (in the technical sense of bond fund duration) of the fund is. If Japanese bonds "become" better performing then you have to purchase them at that new interest rate to get the new performance.

TokyoWart wrote: ↑Mon Jul 13, 2020 4:11 am I understood the effect of hedging a foreign bond fund for yen to mean that we bring the return down to the current equivalent Japanese fund return. Have I misunderstood?

Kanto wrote: ↑Wed Jul 15, 2020 12:21 pm NP! It was a great discussion.

Going back to the original question.

Should one put their bonds in Nisa/iDeco or in a Taxable Account?

There is a lot of information on this subject, however, I thought I would share this piece.

https://news.morningstar.com/classroom2 ... onclusions.

The suggestion is that for those of us who are investing for 15 years+ it makes more sense to hold our stock in our iDecos and Nisas and our bonds in our taxable accounts due to higher yields from ETFs. This is especially true considering the low bond yields over the last few years.

I do not know what this strategy would say about Bond-> stock conversation in iDeco. Or would it matter?

Consider a yearly maxed-out iDeco/Tsumitate would it make sense to rebalance yearly by buying more bonds in your taxable account and not by conversting holdings in your iDeco?

I am unsure about the best strategy here.

Kanto wrote: ↑Wed Jul 15, 2020 12:21 pm I do not know what this strategy would say about Bond-> stock conversation in iDeco. Or would it matter?

fools_gold wrote: ↑Fri Jul 17, 2020 12:50 am it makes sense to start moving over to bonds within your iDeCo as this time approaches so that you don't face a big drawdown when you come to withdraw.