Rookie wanting to invest

[FIRE-Rookie]

Hey guys, a rookie here who joined RetireJapan recently and I regret not finding this forum any sooner.

I think it is about time to take my financial future into my own hands so I could use a bit of advice.

Let me describe my profile a bit so you can all understand my situation!

I am a non-American citizen in my early 30s and some of my future plans includes:
-- Getting my JLPT N1 and a PR subsequently. (Currently on an Engineer-Type Visa)
-- Having a family. (kid(s) and potentially a pet) (~5 years / Those plans might include sending the kid(s) to international school)
-- Buying a house within Tokyo. (Being socially connected is crucial for my mental wellbeing)
-- MBA degree in FT 1st to 20th ranked university. (Schools in that category are spendy and I have no means of financing it so in that scenario will take loans and pay it off after graduation, moreover noting that will require me to leave Japan for 2-5 years but the long term plan is to settle here)
-- Starting my own business. (Once I find someone scalable and sustainable or if my MBA plans didn’t work)

As for my current financial situation:
Income: Roughly 6M after taxes.
Liabilities: None (Phew!!)
Monthly Spending: 250-400K (Rent, groceries and eating out, utilities, etc)
Assets: Some cash savings sitting in my bank.
Risk Tolerance: Moderate

I researched a bit online and after checking the resources in here, I noticed there are a lot of suggestions to
1- Have an emergency fund (DONE)
2- Maximize the company DC / DB plans (DONE) -- Unfortunately, that means iDeCo is out since I can’t apply for it.

My immediate steps will include:
1- Invest heavily NISA Tsumitate (WIP as my Rakuten Securities account is yet to be approved)
2- Invest in Index funds (WIP as I am not sure which funds to invest to)

My future Plans will include:
1- Investing in Stocks (Once I learn more about stocks and shift from passive to active trader)
2- Investing in Real Estate (Once I learn more about it)

I need your help with basically the “Immediate Steps” section as I am a bit worried as my Japanese level is not perfect so beside NISA in Rakuten, I rather minimize any investments inside Japan till my language capability situation changes.

I created an account on “Interactive Brokers” but since I am not American, then there is a whooping 30% withhold for US taxes (仕方がない) so I wanted to ask whether the following investing strategy

I found some sources suggesting to invest in 5 categories evenly which are:
a) US Total Stock Market Index Fund
b) International Total Stock Market Index Fund
c) US Total Bond Market Index Fund
d) International Total Bond Market Index Fund
e) REITs

Here is what I am considering:
a) FZROX - Fidelity Total Stock Market Fund
b) FZILX - Fidelity International Stock Market Fund
c) FXNAX - Fidelity US Bond Index Fund
d) FBIIX - Fidelity International Bond Index Fund
e) No Idea so far

My questions are:
1) What do you think of these 5 categories and should I invest in them evenly?
2) Do you consider these specific Index Funds to be good options? (I am aware that bonds generally have a slower return but safer)
2) Do you think REITs investment is a good idea for now and if yes, which REITs I should look into?
4) Considering I can invest the cash in the bank (whole savings), what % of the savings should I invest in Index funds? and moving on, how much of my salary should I allocate to increases in these Index Funds on monthly/quarterly/yearly basis?
5) Considering I am a rookie, is there anything I might be missing on and should look into?

Thank you in advance!

[captainspoke]

Here is what I am considering:
a) FZROX - Fidelity Total Stock Market Fund
b) FZILX - Fidelity International Stock Market Fund
c) FXNAX - Fidelity US Bond Index Fund
d) FBIIX - Fidelity International Bond Index Fund

Those look like mutual funds.

And I could be mixed up on this, but I don't think non-residents can buy those. Eg, I'm even US, with a US-based brokerage account, and I cannot buy or add to mutual funds.

But not to worry--Fidelity undoubtedly offers those same things as ETFs (and competing companies do, too).

And someone who knows the eMaxis funds might suggest one of those that will do (almost) the same things.

[TokyoWart]

Just to reiterate what captainspoke posted, I have an account with Fidelity and they won't sell any of those funds to someone who lives in Japan. In fact in general they (and Schwab) will not sell mutual funds to their account holders who live in Japan.

Although that series of zero fee Fidelity funds gets a lot of attention if you look at their performance against some Vanguard ETF's (such as VOO, VTI, VT) which track the same indexes there's no advantage to the Fidelity funds. I haven't looked at the eMAXIS fund experience because it's difficult for me to own them but they may also be very similar in performance because once you get around 10 basis points in fees other actions taken by these funds (lending securities, order flow, etc.) can make up for the slight fee differences.

That said, I applaud your thinking about investing. Personally I don't favor bond funds especially for younger investors in this very low interest rate era but a total international equity index fund with perhaps an additional US fund that allows overweighting the US market is not a bad choice. If you are anticipating significant expenses in the near future it may help to divide your investing into long-term retirement accounts which can take the higher risk of equity index funds and a shorter term cash equivalent fund which can fund a home purchase or MBA program.

[adamu]

Easier said than done, but since you live in Tokyo and work in the tech sector, you can probably double your salary by moving jobs. That would certainly help save for those international school fees and the MBA program

I think you should consider Japanese investment products too. For example:

• FZROX → ｅＭＡＸＩＳ Ｓｌｉｍ 米国株式（Ｓ＆Ｐ５００） S&P 500
• FZILX → ｅＭＡＸＩＳ Ｓｌｉｍ 先進国リートインデックス Developed Country Stocks (includes US)
• FXNAX/FBIIX → ｅＭＡＸＩＳ Ｓｌｉｍ 先進国債券インデックス International Bonds

The full list is here: https://emaxis.jp/lp/slim/pr1/index.html

Personally I just go 100% ｅＭＡＸＩＳ Ｓｌｉｍ 全世界株式（オール・カントリー）.
Here's a thread about the fund: viewtopic.php?f=11&t=419

Once I learn more about stocks and shift from passive to active trader

This is a huge red flag. Unless you want to trade professionally, most people will be better off sticking to passive investing with low-cost index funds. Active investing takes a huge amount of time and effort and the odds are stacked against you. Better to just accept the market return and get on with life.

You seem quite ambitious and have a high-expense future planned. I think you might enjoy Mr Money Mustache: https://www.mrmoneymustache.com/

[Kanto]

That is quite the todo list!

1. I would suggest you research the Boglehead approach. 2-3 funds usually do the trick. (1 World Stock, 1 World Bond / ..or... 1 US/1Internation/1Bond.)

2. The thinking on Bonds have changed a bit, many people in their 30`s are at 0% bonds. I would suggest a bond index fund, 5-15% at most, rebalance ever 5-10 years.

3. No idea about REITs, but the current US housing market is very uncertain. REITs can be residential, corporate etc... They are not a simple vehicle. You will need to do more research.

4. You should have 6 month savings in cash, you should invest anything over that amount.

5. Choose low cost, diverse mutual funds or ETFs. Think international, not US only. Think long term. Do not get seduced by highflying tech stocks, daytrading, or god forbid options trading.

Boglehead>Wallstreetbets

[FIRE-Rookie]

Those look like mutual funds.

And I could be mixed up on this, but I don't think non-residents can buy those. Eg, I'm even US, with a US-based brokerage account, and I cannot buy or add to mutual funds.

But not to worry--Fidelity undoubtedly offers those same things as ETFs (and competing companies do, too).

They mentioned they are Index funds when I looked them up but again and I am a total rookie so I might be mistaken. As per my research, mutual funds tend to have a better ROI than Index Funds and ETFs.

Let me verify because I might be misunderstanding, does Mutual funds have restrictions on buying while FIL ETFs are more flexible for account holders in Japan? (Regardless of nationality?)

[FIRE-Rookie]

I haven't looked at the eMAXIS fund experience because it's difficult for me to own them but they may also be very similar in performance because once you get around 10 basis points in fees other actions taken by these funds (lending securities, order flow, etc.) can make up for the slight fee differences.

That said, I applaud your thinking about investing. Personally I don't favor bond funds especially for younger investors in this very low interest rate era but a total international equity index fund with perhaps an additional US fund that allows overweighting the US market is not a bad choice. If you are anticipating significant expenses in the near future it may help to divide your investing into long-term retirement accounts which can take the higher risk of equity index funds and a shorter term cash equivalent fund which can fund a home purchase or MBA program.

Thanks for your reply. I am not going to pretend to know how the different funds perform because I am a rookie but I just wanted to touch on the 10 BP you mentioned. Do you mean that eMAXIS has extra 10 BP in interest value (versus FIL or Schwab) that I should be wary of?

Additionally, thanks for raising the bonds funds aspect, I totally disregarded the very low interest rate aspect so I will probably drop the bonds when I make the final purchase decision on my portfolio because I still have time on my side (so to speak).

As for the MBA case, it is practically impossible to save up anything, some of the MBA programs I am targeting are so expensive that if I put all my savings into them, I would barely afford a semester cost. I think the ROI in increase in salary will outweigh the burden of debt eventually.

That being said, I have to ask question in relation to the less risker, shorter term “Cash Equivalent” fund which you suggested as it never crossed my mind till now. I think it might be advantageous in case of house buying as I know there are only 2 banks for foreigners (SMBC and Shinsei) and I think in SMBC’s case, they only allow 90% loan so I got to finance 10% on my own. Do you have any suggestions on which “Cash Equivalent” fund to look for? I will try to look on my end but I will appreciate any leads.

[FIRE-Rookie]

I think you should consider Japanese investment products too.

Personally I just go 100% ｅＭＡＸＩＳ Ｓｌｉｍ 全世界株式（オール・カントリー）.
Here's a thread about the fund: viewtopic.php?f=11&t=419

As you said my friend “easier said than done!”

The fact is we live in COVID era and the fact that I have “less than fluent” Japanese limits my options a bit (till I get the N2 at least )

Thanks for sharing the thread. I did my best to understand but there are a lot of details that it will probably take me a bit of experience of decipher and fully comprehend. I will probably buy into 3 categories and drop the bonds as I have a bigger risk appetite.

My priority will be like:
1- ｅＭＡＸＩＳ Ｓｌｉｍ 全世界株式（オール・カントリー）
2- ｅＭＡＸＩＳ Ｓｌｉｍ 米国株式（Ｓ＆Ｐ５００） S&P 500
3- ｅＭＡＸＩＳ Ｓｌｉｍ 先進国リートインデックス Developed Country Stocks (includes US)

That being said, I have 2 questions:

1- I noticed in the thread there is a lot of talk around expense ratios associated so does the 3 above have different that I should keep an eye to? (I imagine not since they are all offered by the same company)

2- Do you see a value in investing in similar mutual funds, ETFs or Cash Equivalents on my IB account (Overseas) in different currency (USD)? I am not sure if will serve additional value in the above funds do or more less the same. (Also in terms of currency exchange or expense ratios)

On a separate point, the whole point on trading is just a “mind-fart”, I will admit that I have no idea what I am getting myself into so I will probably end up dropping it.

Finally, I just RSS’ed to Mr. Money Mustache, looks promising! Thanks a lot!

[FIRE-Rookie]

Boglehead>Wallstreetbets

Thank you Sir!

1 & 2- Roger that, replying to others above, I will probably cut out the bonds aspect as my appetite for risk is greater and to keep management of the
portfolio simple till I get the hang of it.

3- REITs is something I found online but again; I am a rookie so I will look into that at some later stage.

4- Roger that but I meant, how would you divide your portfolio between US total vs Japan total vs Developed Countries vs Emerging Markets and etc? and do you buy in on regular basis or just re-invest the dividends?

5- Got your point, I quickly checked the “Options” and nah, thanks! Will pass on that!

[Kanto]

Boglehead>Wallstreetbets

4- Roger that but I meant, how would you divide your portfolio between US total vs Japan total vs Developed Countries vs Emerging Markets and etc? and do you buy in on regular basis or just re-invest the dividends?

That is why people often like in investing in a single find like Emaxis all country, or Vanguard VT. They rebalance yearly automatically.

Otherwise you need to calculate the changes in global market weighting yourself and buy or sell within your 3-4 funds according

......

Also, it does not makes sense to own a world market fund, and an S&P 500 fund and another Develped fund. Have you looked at the perspectus for the Emaxis All country fund? Do not let the Japanese scare you.

https://emaxis.jp/pdf/koumokuromi/25342 ... 200723.pdf

As you can see it is weighted accordingly to market size. Adding more of another ETF will just overweight that country.