RetireJapan

I've been reading some of the Japanese early retirement blogs. Apart from inconceivable asset allocations I'm struck by the fact that none of them seem to be paying into nenkin or using NISA or iDeCo.

It seems to me that it would be worth at least maxing out tsumitate NISA in order to tax shelter some of your investments each year. Depending on how old you are and what kind of taxes you are paying it may also be worth paying kokumin nenkin (tax-deductible) and using an iDeCo account.

I'm currently planning to use tsumitate NISA after leaving full-time work to set up a 'NISA ladder' that delivers tax free money each year.

What does everyone else think?

RetireJapan wrote: ↑Sat Jun 05, 2021 12:38 am I've been reading some of the Japanese early retirement blogs. Apart from inconceivable asset allocations I'm struck by the fact that none of them seem to be paying into nenkin or using NISA or iDeCo.

It seems to me that it would be worth at least maxing out tsumitate NISA in order to tax shelter some of your investments each year. Depending on how old you are and what kind of taxes you are paying it may also be worth paying kokumin nenkin (tax-deductible) and using an iDeCo account.

I'm currently planning to use tsumitate NISA after leaving full-time work to set up a 'NISA ladder' that delivers tax free money each year.

What does everyone else think?

Do most of them invest in index funds? I only ask because the few Japanese people with whom I cam talk about investing don't seem that interested. I try to explain to the best of my (limited) ability and they nod and say naruhodo and then carry on picking 'popular' stocks. Maybe that's just the people I know, though.

I will carry on using NISA in some form after I retire, assuming I have some money to put away. Likewise, I am (sort of) shrinking my school and as my income decreases I will continue putting the maximum away in the small business fund thing until I close the school completely and am no longer allowed to do so.

goodandbadjapan wrote: ↑Sat Jun 05, 2021 2:17 am Do most of them invest in index funds?

Yeah, that was the inconceivable asset allocation thing. A lot of them seem to invest in dividend paying stocks/funds/etc.

But even selling your dividend stocks and then rebuying them in an ordinary NISA account would mean five years of tax-free dividends though, right? Seems like a bit of an oversight.

I plan to take every advantage possible, for as long as possible.

I too find very few Japanese talk about serious investing, although my wife chats a bit about NISA and iDECO with her friends and those seem to be getting popular.

Individual stocks do send out gifts, which at least makes us feel good, even if the stock is dormant.

I suspect many people who might have been investing got burned in the Nikkei crash of 1990 and the 13-year slide afterward, no to mention a lot of ups and downs. Really only the last five years have been decent.

I just checked the numbers, and it is pretty devasting for anyone who bought in the mid-80s and had to wait 30 years for the recovery.

1990 38,000
2003 7,800
2007 18,000
2009 7,700
2010 11,000
2011 8,300
2020 29,000

TJKansai wrote: ↑Sat Jun 05, 2021 6:04 am
Individual stocks do send out gifts, which at least makes us feel good, even if the stock is dormant.

This seems to be a major part of the decision-making process...if I have ANA stocks I get coupons, or Oriental Land gives me discounts on Disneyland...
Even the financial articles talk about the gifts more than the dividend returns.
Nuts.

Reminds me of the Premium Bonds in the UK; no return but weekly lottery...

Remember; The vast majority of Japanese Equities of larger companies are cross-held between companies in the same business groups, so there isn't much incentive... The American Administration after WWII tried to force the dissolution of the Keiretus, but gave up after the first one or two, when their priorities changed due to Korea / Vietnam wars... Most Japanese have no faith in the system.

I have a Japanese 401k, and there used to be a graph on the main page showing my Internal Rate of Return - IRR and the bell curve of the IRRs of all investors, not in my company, but in their entire 401k system. It was a very narrow graph with the peak at 0% (ie. all monies of the vast majority of customers in the Guaranteed Principal with Accident Insurance option, despite 10 years of bull market since end of GFC, and very long but flat tails of people who have done better or worse than 0%... They removed the graph... I guess it was too embarassing for the company...
I remember when Japan introduced the 401k and how absolutely inadequate the end customer training was, has been, and probably will continue to be... But then, I guess they are not really motivated to educate the customers, if they can pay out 0.001 % and invest the monies and keep the returns their own gain...

The vast majority of Japanese Equities of larger companies are cross-held between companies in the same business groups...

Do you have a reference for this? I think that cross holdings of equities have never been a majority of shares for the market as a whole and while not yet completely eliminated are relatively small as a percentage of outstanding market cap.

I can’t access through the paywall but I don’t think that article will report that the vast majority of equities in Japan are held as cross-holdings. Many companies do have cross holdings of suppliers or customers but those are small fractions of outstanding shares. The legacy of zaibatsu-like cross-holdings of affiliates only affects a few hundred out of the thousands of listed companies in Japan.

Cross holdings still exist but have been very significantly dialed down in the last decade. I don't have a figure, but nowhere near a "majority" by any means.

As for Japanese investors, I've noticed they usually phrase the dichotomy as インカムゲイン (income gain) vs. キャピタルゲイン (capital gain), with a firm bias towards income gain as the better of the two. Perhaps this is because of underperformance in Japanese equities in the last few decades, or the sense that relying on capital gains is "gambling", but in any case, it seems in Japan you've FIREd if have enough "income gain" from dividends to cover your annual expenses. Meanwhile, the whole 4% rule is based on selling down and living off capital gains.