RetireJapan

Tsumitate Wrestler wrote: ↑Thu Oct 26, 2023 4:46 am

alberto wrote: ↑Thu Oct 26, 2023 4:24 am

Tsumitate Wrestler wrote: ↑Thu Oct 26, 2023 2:00 am 3% over 5 years

This is a HUGE difference. .6% a year.

https://www.nerdwallet.com/article/inve ... calculator

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Well, that's just a matter of personal preferences and opinions. As I said, it's 3% over the 5 years with the craziest JPY/EUR volatility. In periods of normal volatility, the deviation is negligible, so the original 0.2% fee of the ETF prevails. High or low, that cost isolates you from the uncontrolled and potentially HUGE volatility of more than 1 order of magnitude higher than that 3%. That is the real gambling in my opinion. But everyone has his own opinion, and it's OK as long as we know what we're doing.

Tsumitate Wrestler wrote: ↑Thu Oct 26, 2023 2:00 am Disclaimer: I bought 390 shares of ＩＳＳ＆Ｐ５００米国株ヘ (2563) in my taxable this morning.

That's funny. You just complained about that 3%, but just bought a similar product. Can you explain the reason?

I plan to hold the fund for less than 1 year. Also, I feel I understand how it operates, I understand the risks, and I understand I am undertaking currency speculation.

Furthermore I understand that holding the fund I'm the medium to long term is likely a poor decision.

In nutshell I am gambling on a BOJ policy shift on October 31 and FED easing in Q1-2 of 2024

.....

Your comments showed that you did not have a firm grasp of the mechanics. I actually made an account just to comment on those errors. (I cannot access former account).

Yet you have not explained those 'errors'. My point is really simple: if you are a conventional MSCI-World long-term investor (this is the premise), it makes no sense to use unhedged MSCI-World because you're adding the JPY/USD fluctuation, which has been shown that can be HUGE. That investor would buy directly the regular MSCI-World in the US, but in Japan chooses to buy the unhedged, despite not actually being investing in the plain MSCI-World, but additionally surfing the currency fluctuation. That can be clearly seen in the chart I shared yesterday. And the reason why I started this thread, and the title comes from that, is that I believe that hedged or unhedged can be not so relevant for the very-long term investor in normal times, but these 2 crazy years have proven that unhedged can totally distort your conservative long-term strategy to put you in a currency gambler position instead of in the conservative long-term ultra-diversified investor that you believed you were. Don't forget the premise, if you are the type of investor that likes to speculate more with different products and shorter timings, then this whole discussion is not for you.

This is only relevant if you think of your profits in yen only. It’s best to accept a range of returns in different currencies rather than fixating on the yen or the dollar or the euro of whatever.

If you only think about things in yen terms you’re putting all your eggs in one basket.

Best not to confuse/conflate investing (buying a diversified basket of equities for the long term) with speculating (trying to guess where the yen is going to be in a few months time).

Deep Blue wrote: ↑Thu Oct 26, 2023 5:55 am This is only relevant if you think of your profits in yen only. It’s best to accept a range of returns in different currencies rather than fixating on the yen or the dollar or the euro of whatever.

If you only think about things in yen terms you’re putting all your eggs in one basket.

Best not to confuse/conflate investing (buying a diversified basket of equities for the long term) with speculating (trying to guess where the yen is going to be in a few months time).

The premise here is that we have a salary in JPY and spend in JPY because we live in Japan. I thought that was clear being in this forum. If our money to invest is in JPY, then if you buy USD to invest in foreign stocks (unhedged), you are not investing only in the movement of those stocks, but also in the fluctuations of JPY/USD. I don't see any reason to invest in the second, but if you want to invest in that too, why not investing directly in FOREX and having a real strategy other than just surfing the JPY/USD without any control?

alberto wrote: ↑Thu Oct 26, 2023 6:56 am

Deep Blue wrote: ↑Thu Oct 26, 2023 5:55 am This is only relevant if you think of your profits in yen only. It’s best to accept a range of returns in different currencies rather than fixating on the yen or the dollar or the euro of whatever.

If you only think about things in yen terms you’re putting all your eggs in one basket.

Best not to confuse/conflate investing (buying a diversified basket of equities for the long term) with speculating (trying to guess where the yen is going to be in a few months time).

The premise here is that we have a salary in JPY and spend in JPY because we live in Japan. I thought that was clear being in this forum. If our money to invest is in JPY, then if you buy USD to invest in foreign stocks (unhedged), you are not investing only in the movement of those stocks, but also in the fluctuations of JPY/USD.

A. Unhedged funds.can be incredibly low cost. They are the best bet for longer-term investment.

B. Hedged funds eat up your investment.with higher relative fees and high associated hedging costs.

C. Unhedged funds benefit from strengthening foreign currencies

D. Hedged funds benefit from strengthening home currencies.
.....

When you buy a hedged fund you are.not.removing the risk your better on a strengthening yen, and paying for that bet.

You are speculating on yen rising.

You characterize it as a neutral position, which is incredibly backwards. You are literally buying an index fund with.a series of currency lottery tickets stapled to it.

alberto wrote: ↑Thu Oct 26, 2023 6:56 am

Deep Blue wrote: ↑Thu Oct 26, 2023 5:55 am This is only relevant if you think of your profits in yen only. It’s best to accept a range of returns in different currencies rather than fixating on the yen or the dollar or the euro of whatever.

If you only think about things in yen terms you’re putting all your eggs in one basket.

Best not to confuse/conflate investing (buying a diversified basket of equities for the long term) with speculating (trying to guess where the yen is going to be in a few months time).

The premise here is that we have a salary in JPY and spend in JPY because we live in Japan. I thought that was clear being in this forum. If our money to invest is in JPY, then if you buy USD to invest in foreign stocks (unhedged), you are not investing only in the movement of those stocks, but also in the fluctuations of JPY/USD. I don't see any reason to invest in the second, but if you want to invest in that too, why not investing directly in FOREX and having a real strategy other than just surfing the JPY/USD without any control?

Many of us have both assets and liabilities in other countries and currencies.

Even for those without, it’s still better to diversify risk away from planning all investments and only thinking about yen based returns. You really constrain your investment options otherwise, especially now fixed income offers some attractive yields.

Tsumitate Wrestler wrote: ↑Thu Oct 26, 2023 7:24 am A. Unhedged funds.can be incredibly low cost. They are the best bet for longer-term investment.
B. Hedged funds eat up your investment.with higher relative fees and high associated hedging costs.

Less than 0.2% (hedged ETF) doesn't eat up anything. The huge JPY/USD volatility (unhedged ETF) can.

Tsumitate Wrestler wrote: ↑Thu Oct 26, 2023 7:24 am C. Unhedged funds benefit from strengthening foreign currencies
D. Hedged funds benefit from strengthening home currencies.

When you buy a hedged fund you are.not.removing the risk your better on a strengthening yen, and paying for that bet.

You are speculating on yen rising.

You characterize it as a neutral position, which is incredibly backwards. You are literally buying an index fund with.a series of currency lottery tickets stapled to it.

We have absolute opposite understandings here. The hedged ETF I showed does remove the JPY/USD volatility. Have you seen the chart? It moves exactly the same as the original MSCI World. The unhedged is MSCI World plus JPY/USD volatility.

You would be speculating on yen rising if you only hedged expecting that. My point is that I don't want to speculate on any JPY/USD movement, and that is exactly what the hedged ETF does for you.

Deep Blue wrote: ↑Thu Oct 26, 2023 7:45 am

alberto wrote: ↑Thu Oct 26, 2023 6:56 am

Deep Blue wrote: ↑Thu Oct 26, 2023 5:55 am This is only relevant if you think of your profits in yen only. It’s best to accept a range of returns in different currencies rather than fixating on the yen or the dollar or the euro of whatever.

If you only think about things in yen terms you’re putting all your eggs in one basket.

Best not to confuse/conflate investing (buying a diversified basket of equities for the long term) with speculating (trying to guess where the yen is going to be in a few months time).

The premise here is that we have a salary in JPY and spend in JPY because we live in Japan. I thought that was clear being in this forum. If our money to invest is in JPY, then if you buy USD to invest in foreign stocks (unhedged), you are not investing only in the movement of those stocks, but also in the fluctuations of JPY/USD. I don't see any reason to invest in the second, but if you want to invest in that too, why not investing directly in FOREX and having a real strategy other than just surfing the JPY/USD without any control?

Many of us have both assets and liabilities in other countries and currencies.

Even for those without, it’s still better to diversify risk away from planning all investments and only thinking about yen based returns. You really constrain your investment options otherwise, especially now fixed income offers some attractive yields.

If you already have investments in USD (or any other currency) of stocks already in USD, then why do you need to add the JPY/USD volatility to your investments in Japan too? I cannot see that logic. If you have USD already outside Japan, then those USD already strengthened relative to the JPY. If you used your JPY also to buy USD investing in the unhedged fund, then that fund is now already much higher relative to its hedged alternative. You must be happy because it went well, but everything went in the same direction dictated by the JPY/USD rate. All eggs were really in a risky currency bet there, and if the JPY had strengthened, your USD would be worth less relative to JPY, and also your foreign investments bought with JPY in the unhedged fund would be much lower because of the JPY depreciation. If you already have assets in USD and want to diversify currency risk, then the logical movement would be to buy the hedged fund if you're buying foreign stocks with JPY.

alberto wrote: ↑Thu Oct 26, 2023 8:11 am

Tsumitate Wrestler wrote: ↑Thu Oct 26, 2023 7:24 am A. Unhedged funds.can be incredibly low cost. They are the best bet for longer-term investment.
B. Hedged funds eat up your investment.with higher relative fees and high associated hedging costs.

Less than 0.2% (hedged ETF) doesn't eat up anything. The huge JPY/USD volatility (unhedged ETF) can.

Tsumitate Wrestler wrote: ↑Thu Oct 26, 2023 7:24 am C. Unhedged funds benefit from strengthening foreign currencies
D. Hedged funds benefit from strengthening home currencies.

When you buy a hedged fund you are.not.removing the risk your better on a strengthening yen, and paying for that bet.

You are speculating on yen rising.

You characterize it as a neutral position, which is incredibly backwards. You are literally buying an index fund with.a series of currency lottery tickets stapled to it.

We have absolute opposite understandings here. The hedged ETF I showed does remove the JPY/USD volatility. Have you seen the chart? It moves exactly the same as the original MSCI World. The unhedged is MSCI World plus JPY/USD volatility.

You would be speculating on yen rising if you only hedged expecting that. My point is that I don't want to speculate on any JPY/USD movement, and that is exactly what the hedged ETF does for you.

I fear you have not read the article on currency forwards and you still do not understand how a currency hedge fund.... hedges

You need to do that. It will makes things clearer to you.

Hedged fund performed so so pooy because the yen has depreciated. If you bought them 5-10 ago you made a bad bet and you have lost aot of potential gains.

.....

If you buy one today and the yen drops to 160 you will face the same issue.

You understand that right? If the yen drops more my hedged S&P500 position will be at a loss vs an unhedged position.

I have not removed risk. I have increased the risk of me losing money if it the yen depreciates, in exchange for more benefit of it appreciates.

You cannot remove currency risk unless you want to go and buy the topix or better yet a basket of Japanese companies that don't export. That would really remove currency risk.

All eggs were really in a risky currency bet there,

We are all picking our preferred poison or combination of poisons, through one choice or the other.

The poison you are picking is the yen, and if you are unlucky you might see it lose another quarter of its value, and not shield yourself from that by taking the unhedged option.

Yes, the opposite could conceivably occur also, and you may do well if the yen’s future is bright for the duration of your investment horizon.

and if the JPY had strengthen, your USD would be worth less relative to JPY, and also your foreign investments bought with JPY in the unhedged fund would be much lower because of the JPY depreciation.

The appreciation, yes, but this is not what has actually happened, looking backwards.

Looking forwards now, either way we have to make a risky choice. A yen hedged offering still has the risk that it will suffer due to further yen depreciation, and as a result inflation in Japan may go up and your future money might not buy what it might have otherwise.

We cannot eliminate currency risk, we can only select which currency risk we take.

Tsumitate Wrestler wrote: ↑Thu Oct 26, 2023 8:31 am I fear you have not read the article on currency forwards and you still do not understand how a currency hedge fund.... hedges

You need to do that. It will makes things clearer to you.

Hedged fund performed so so pooy because the yen has depreciated. If you bought them 5-10 ago you made a bad bet and you have lost aot of potential gains.

.....

If you buy one today and the yen drops to 160 you will face the same issue.

You understand that right? If the yen drops more my hedged S&P500 position will be at a loss vs an unhedged position.

I have not removed risk. I have increased the risk of me losing money if it the yen depreciates, in exchange for more benefit of it appreciates.

You cannot remove currency risk unless you want to go and buy the topix or better yet a basket of Japanese companies that don't export. That would really remove currency risk.

Taken from the description of the hedged ETF you just bought today:
"The fund is currency hedged and aims to mitigate the risk of exchange rate fluctuations of assets denominated in foreign currencies."

Of course you lose potential gains if the JPY depreciates, and you would have had real losses if the JPY had appreciated. We are talking of huge gains and losses here, which completely distorts the index behavior. That is exactly what I want to avoid. That's the point: the JPY/USD rate works like a volatility element in this investment if you use your JPY to buy foreign stocks. If you want to speculate with that, it's perfectly OK, but I'm trying to make the case that if you want to avoid the rate fluctuations, you should be buying hedged products with your JPY.