Bond Allocation

[ToushiTime]

There's also the "大暴落！ あの時のリターンは？" section if we want to compare asset class performance during market crashes.

I use this for the S&P 500
https://www.macrotrends.net/2324/sp-500 ... chart-data
And this for 10yr Treasury yields
https://www.macrotrends.net/2016/10-yea ... ield-chart
if you invested in stocks in late 1929 you would have to have waited 29 years to break even.
Also if you invested in 1968 you would have to wait until 1992, 24 years.

[adamu]

If it's any good we might even be able to add it to the RetireWiki.jp

[northSaver]

Here it is. It would be nice to add pictures and colours to highlight the results, but no time for that today sorry.
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Performance of Foreign Bonds vs Foreign Stocks for a Yen Investor

Using myindex.jp, a USD.JPY chart and a calculator, we can roughly gauge the performance of yen-denominated foreign bonds and stocks (as well as gold, REITs, commodities and Japanese bonds and stocks) during periods of yen weakening, strengthening and stability. We can do this using the "資産価値がどのように変化したか" (how asset values have changed) section on the main portfolio page.

First we need to look at a USD.JPY chart to determine when the rate was climbing or falling during the last 20 years. We could go back 30 years but there's not much point and it would make the myindex.jp chart harder to analyse. We could also use a JPY index such as JPX that compares the yen to a basket of currencies (not just USD), but a quick glance at both charts on TradingView reveals that they are almost exactly inversely correlated, and since the USD.JPY rate has more meaning we will use that instead.

Which periods should we use? We will focus more on what the exchange rate is doing than what the market is doing, though we will note the stock market and interest rate conditions during the period because these will have a big impact on performance.

How do we calculate the returns? The percentages in the chart on myindex.jp are the cumulative returns since the start of the chart, which is currently April 2003. So to make things easier, I'll assume that we started with 100 yen (it works with any number). So we need to add 100 to the cumulative return percentages at the start and end of the period, then divide the difference of these numbers by the end number to derive the cumulative return during the period.
Note that according to the website, the returns include dividends reinvested but do not include fees.

April 2007 to April 2012 (5 years)

USD.JPY: falling (from 119.5 to 79.8 = -33%)
S&P500: falling then rising (from 1483 to 666 to 1398)
US interest rates: falling (from about 5% to 0%)

Foreign bond cumulative return: (114 - 133) / 133 = -14%
Foreign stock cumulative return: (136 - 211) / 211 = -36%

Japanese bond cumulative return: (113 - 101) / 101 = +12%
Japanese stock cumulative return: (116 - 223) / 223 = -48%

Conclusion: Not a good time to be a yen investor. In fact not a good time to be any kind of investor at the start due to the Global Financial Crisis.

April 2012 to April 2019 (5 years)

USD.JPY: mostly rising, with a dip at the end (from 79.8 to 111.5 = +40%)
S&P500: rising (from 1398 to 2952)
US interest rates: steady at 0% then rising to about 2.5%

Foreign bond cumulative return: (176 - 114) / 114 = +54%
Foreign stock cumulative return: (382 - 136) / 136 = +181%

Japanese bond cumulative return: (129 - 113) / 113 = +14%
Japanese stock cumulative return: (272 - 116) / 116 = +134%

Conclusion: A good time to invest in yen, especially in foreign markets.

April 2016 to April 2021 (5 years)

USD.JPY: mostly range bound between 105 and 115 (start is 106.3, end is 109.3)
S&P500: mostly rising (from 2066 to 4189), though includes the short COVID-19 crash in 2020
US interest rates: rising then falling (from about 0% to 2.5% to 0%)

Foreign bond cumulative return: (194 - 165) / 165 = +18%
Foreign stock cumulative return: (545 - 262) / 262 = +108%

Japanese bond cumulative return: (129 - 129) / 129 = 0%
Japanese stock cumulative return: (334 - 211) / 211 = +58%

Conclusion: A good time to invest, especially in foreign stocks.

[sutebayashi]

Wow thanks! I just wanted to say that for your efforts, and now I shall read it very carefully At a glance I see my investing journey started at a good time, about 10
years back… lucky.

[Deep Blue]

Here it is. It would be nice to add pictures and colours to highlight the results, but no time for that today sorry.

Please could you let us know about the 2023-2028 period?

[northSaver]

Wow thanks! I just wanted to say that for your efforts, and now I shall read it very carefully At a glance I see my investing journey started at a good time, about 10 years back… lucky.

Thanks! I hope my calculations are correct. Yeah, starting 10 years ago was really lucky Since April 2013:

Foreign bond cumulative return: (194 - 165) / 165 = +34%
Foreign stock cumulative return: (545 - 262) / 262 = +252%
Japanese bond cumulative return: (129 - 129) / 129 = +8%
Japanese stock cumulative return: (334 - 211) / 211 = +121%

Please could you let us know about the 2023-2028 period?

I'll tell you in five years The last five years is easy though:

Foreign bond cumulative return: (194 - 165) / 165 = +14%
Foreign stock cumulative return: (545 - 262) / 262 = +94%
Japanese bond cumulative return: (129 - 129) / 129 = -2%
Japanese stock cumulative return: (334 - 211) / 211 = +31%

Japanese bonds really suck! Foreign bonds would have sucked too if it weren't for the weak yen. Going forward... who knows?

[ToushiTime]

Wow thanks! I just wanted to say that for your efforts, and now I shall read it very carefully At a glance I see my investing journey started at a good time, about 10 years back… lucky.

Thanks! I hope my calculations are correct. Yeah, starting 10 years ago was really lucky Since April 2013:

Foreign bond cumulative return: (194 - 165) / 165 = +34%
Foreign stock cumulative return: (545 - 262) / 262 = +252%
Japanese bond cumulative return: (129 - 129) / 129 = +8%
Japanese stock cumulative return: (334 - 211) / 211 = +121%

Please could you let us know about the 2023-2028 period?

I'll tell you in five years The last five years is easy though:

Foreign bond cumulative return: (194 - 165) / 165 = +14%
Foreign stock cumulative return: (545 - 262) / 262 = +94%
Japanese bond cumulative return: (129 - 129) / 129 = -2%
Japanese stock cumulative return: (334 - 211) / 211 = +31%

Japanese bonds really suck! Foreign bonds would have sucked too if it weren't for the weak yen. Going forward... who knows?

Thank you for taking the time to crunch these numbers, including the ones above

[ToushiTime]

I forgot to ask: what were the foreign bonds in your portfolio?

Bond index funds? TIPs, TIP ETFs? individual Treasuries?

[sutebayashi]

The developed market bonds at myindex.jp are probably either a broad MSCI or FTSE index of sovereign bonds.
日本を除く先進国の国債（約23か国）

Personally I don’t worry about TIPs. The currency volatility is typically going to contribute much more than inflation, I imagine.

[ToushiTime]

I imagine the inflation adds up over time.

The annualized 5-year return on the iShares ETF (TIP) is 7.4% on a yen basis (2.9% on a dollar basis) versus 2.5% for eMAXIS Slim 先進国債券インデックス on a yen basis, according to the MyIndex site. I had to click on the individual fund and scroll down to 円換算したデータを見る to get the yen value for the TIP ETF.

On the other hand, I'll get taxed on the distribution from the TIP ETF. Presumably the data on MyIndex is before tax.
I might try to put it in NISA next year which would avoid the Japanese tax but I would still have to pay the 10%? US tax on the distribution.

I guess the question is does the increased protection against inflation of the TIP ETF justify the 10%? US tax on the distribution (I'd have to pay tax on the capital gains from eMaxis but it has no distributions).

I wonder what proportion of the 7.4% annualized return is from the ETF's gain in value and what portion is from its distributions?

I'll probably go for a mix of the eMaxis mutual fund and TIP ETFs.