RetireJapan

So, as many others here have, I read through the `Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School` book before making my investment choices. However, much of the information in the book is different to what the majority of people follow, and I assume this is due to us being in Japan and the fact that the options we have here are limited/ cheaper than US equivalents. But I have a couple of questions along these lines:

1. The book heavily suggests investing mainly in index funds and to avoid mutual funds, but everyone here purports that the eMAXISLIM series of mutual funds are the 'best bet'. What's the reason for the difference?

2. The book also says multiple times that long-term gains could be 'expected' (not guaranteed) to be around 9.96% year-on-year - but what is this number for the eMAXISLIM All Country fund, for example? I assume less of course, but by how much? I know I could look at the last few years of data and work out a guesstimate, but I'm wondering how much research into this people have done, and how much worse off we will be not being able to invest (cheaply) in our US-equivalents?

That's about it for now! Thanks as always

Viralriver wrote: ↑Tue Jan 12, 2021 7:43 am So, as many others here have, I read through the `Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School` book before making my investment choices. However, much of the information in the book is different to what the majority of people follow, and I assume this is due to us being in Japan and the fact that the options we have here are limited/ cheaper than US equivalents. But I have a couple of questions along these lines:

1. The book heavily suggests investing mainly in index funds and to avoid mutual funds, but everyone here purports that the eMAXISLIM series of mutual funds are the 'best bet'. What's the reason for the difference?

2. The book also says multiple times that long-term gains could be 'expected' (not guaranteed) to be around 9.96% year-on-year - but what is this number for the eMAXISLIM All Country fund, for example? I assume less of course, but by how much? I know I could look at the last few years of data and work out a guesstimate, but I'm wondering how much research into this people have done, and how much worse off we will be not being able to invest (cheaply) in our US-equivalents?

That's about it for now! Thanks as always

1. Mutual Funds

What reason does the book give for avoiding mutual funds?

Japan is just getting more competitive ETFs now, but the mutual fund lineup is currently more diverse and cost-effective.

Most people prefer them here because you can buy them in YEN amounts.

The Tsumitate NISA and iDeco wrappers also only offer mutual funds so most people will keep it simple and allocate to those in their taxable accounts as well.

ETFs are more liquid sure, but if you are investing for the long run do you really need to be able to sell during trading hours?

2. Risk vs Return vs Crystal Ball

Let's use Vanguard ETFs for Example

VOO S&P500 - 500 stocks, all American
VTI Total American Market - 3586 Stocks, All American
VT Total World Stock - 8789, World Market

What will do better in the future? Impossible to say.

What is less risky? Hard to be sure, however, diversity helps reduce risk.

Domestic trackers of these funds should perform similar to the fund, not accounting for currency fluctuations.

Note: If you are American you will need to approach things differently. https://www.retirejapan.com/us-citizens ... d-holders/

1. The book heavily suggests investing mainly in index funds and to avoid mutual funds, but everyone here purports that the eMAXISLIM series of mutual funds are the 'best bet'. What's the reason for the difference?

I haven't read the book you mention but I think there may be a misunderstanding here in the idea of " investing mainly in index funds and to avoid mutual funds". Index funds are either mutual funds or ETF's. It's likely that book gives the usual (from Bogleheads among others) advice to avoid actively managed mutual funds and choose passive index funds instead. The eMAXIS series includes mostly passive funds and the ones most frequently mentioned here are market-weighted passive index funds such as "eMAXIS Slim 全世界株式（オール・カントリー)." It's kind of an academic point but even passive index funds have to use rules on which securities are actually included so there is some amount of active management not only in, for instance, the S&P 500 index (which is actively managed by a committee) but even total market index funds because decisions on which stocks are included in a "total market" index need to be made based on tradeable market capitalization, liquidity, share price and profitability for security selection and index funds have to use sampling techniques because they rarely actually include every security in a market.

Personally, I think 9.96% is unreasonable to base any planning on. Long term (longest term), 7-8% is what I more often read for equities, tho maybe that's a ballpark figure. Over the last 35 yrs both the S&P500 and nasdaq100 both exceeded that 7-8% (the latter index by more), but that 35yr picture ignores that a lot of that gain was over the most recent 8yrs or so. The previous 27yrs didn't come close.

I use 5% in my planning/guesstimates, and if I want to get speculative, I use 6%.

The emaxis slim all country fund is relatively new, so there's not much data available.

However, there's data available for the index which the fund tracks, the MSCI ACWI. The emaxis fund tracks the index quite closely, so it would have had similar returns. Here you are: https://myindex.jp/data_i.php?q=MS1025JPY


As for ETFs vs mutual funds... The main benefit is in the way dividends are handled. US ETFs are required to pay out dividends. However, with Japanese mutual funds the dividends are accumulated tax-free within the funds. This means that they are much more tax efficient than ETFs for taxable accounts, as tax on dividends is deferred. Even in a tax-sheltered account (i.e., NISA), they are preferable because the dividends are kept within the fund allowing you to "grow" your tax-free allowance.

captainspoke wrote: ↑Tue Jan 12, 2021 8:12 pm Personally, I think 9.96% is unreasonable to base any planning on. Long term (longest term), 7-8% is what I more often read for equities, tho maybe that's a ballpark figure. Over the last 35 yrs both the S&P500 and nasdaq100 both exceeded that 7-8% (the latter index by more), but that 35yr picture ignores that a lot of that gain was over the most recent 8yrs or so. The previous 27yrs didn't come close.

I use 5% in my planning/guesstimates, and if I want to get speculative, I use 6%.

I use 4% for projected growth in my planning spreadsheets. I'd rather guess too low and be pleasantly surprised than the opposite

fools_gold wrote: ↑Tue Jan 12, 2021 11:41 pm...with Japanese mutual funds the dividends are accumulated tax-free within the funds. This means that they are much more tax efficient than ETFs for taxable accounts, as tax on dividends is deferred.
...

Perhaps not the emaxis funds, but it's pretty easy to find an ETF that pays relatively low dividends--e.g., QQQ pays about 0.5%, which on $100k is only about $500. 20% tax on that is $100. Even VOO (S&P500) pays 1.51%, so on $100k, $1510 in dividends, $302 would be your tax bill.

Then, since there are limits on NISA contributions, it may be a while before such an account reaches 100k, so your tax hit will be lower. (I'm not sure what the size of the average/median NISA account is.)

Yes, I know it's compounded yearly, and makes a difference, but I'd probably phrase it as "somewhat more tax efficient."

captainspoke wrote: ↑Wed Jan 13, 2021 2:26 am

fools_gold wrote: ↑Tue Jan 12, 2021 11:41 pm...with Japanese mutual funds the dividends are accumulated tax-free within the funds. This means that they are much more tax efficient than ETFs for taxable accounts, as tax on dividends is deferred.
...

Perhaps not the emaxis funds, but it's pretty easy to find an ETF that pays relatively low dividends--e.g., QQQ pays about 0.5%, which on $100k is only about $500. 20% tax on that is $100. Even VOO (S&P500) pays 1.51%, so on $100k, $1510 in dividends, $302 would be your tax bill.

Then, since there are limits on NISA contributions, it may be a while before such an account reaches 100k, so your tax hit will be lower. (I'm not sure what the size of the average/median NISA account is.)

Yes, I know it's compounded yearly, and makes a difference, but I'd probably phrase it as "somewhat more tax efficient."

That being said, it would not make a lot of sense to buy an American fund when a Japanese domiciled fund tracks the same index and is cheaper tax-wise, and avoids currency conversion fees and headaches.

Also if you do prefer ETFs Maxis ETFs trade free! Thoughts?

https://www.rakuten-sec.co.jp/web/domes ... s-etf.html

Thanks for all the replies, everyone. I seem to have a better understanding now and will lower the interest % in my spreadsheet .

I have put everything into the All Country eMAXISslim anyway, so it's not really feasible to invest in each of the consituents in local currencies.. Still much more to learn, however!

Still need to get those bonds...

Kanto wrote: ↑Wed Jan 13, 2021 3:26 am...

I guess that we may be two people passing by each other in a darkened room or hallway... I'm US, and afaik you're not, so while some things will be the same, or almost, a range of other things (POVs) will be different.

As is well known, PFICs are kryptonite for Americans. And I've always had a US account for investing (from before the rules prevented that from being easy), and have never felt that I needed to invest via some channel here in Japan. There's no need to go down a list, but I'm satisfied with this, and it boils down to great value, great service, and great access.

Even when working, I virtually never paid any tax in the US--and not just on income, gains and divs up to a certain threshold are not taxed either. I've always filed returns, so there's never been any withholding, in contrast to the 10% that non-US people are subject to.

My tax 'burden' has always been here in Japan--that 20%, or when something gets added to and then taxed as income. But (a) that's been going on long enough that it seems normal/accceptable to me, and (b) Japan is and has been really nice to us, to my family, and, as simply put as possible, I don't mind paying for that.

Back to the topic: For non-US people, I'm sure that Japan-domiciled funds of one type or another are likely better/easier (and I say 'likely' since I'm not at all an expert on that--I'll take your word for it). I've heard that or have read in passing that some US funds here (vanguard) are sold in a wrapper, and may have higher ERs than the vanguard fund as when sold directly to americans. Maybe that's analogous to a tax?

Currency conversion has always seemed transparent--you can skip from one to another anytime online (and then even back), picking and choosing a time if that's preferred. Then a phone call sends dollars to the US in a day, maybe two, and that transfer has mostly been a freebie (shinsei platinum). Secondarily, the account provides a debit card usable worldwide that uses spot fx rates, and any ATM fees are refunded. It's not my habit (yet) but for daily spending money here I could use that card to pull cash from an ATM. (For anything big--new housing, car, I'd wire money back.)

So to some degree, or in some ways, it's apples and oranges. POV of a US person, compared to non-US.

(And there's probably something I'm skipping over or forgetting here, sorry in advance.)