RetireJapan

Wasn't sure what board to put this in, so I just went with general.

My wife and I just built a new house, and as such we will have 13 years of tax adjustments based on the remaining amount of the loan/value of the property. I'm thinking of investing each of these tax refunds, and then once the tax break is finished, do a large repayment on the home loan. But the question is, what do people think would be a good strategy for a 13 year horizon? This will have to be outside of my tax-advantaged accounts, as those are already maxed in case that changes peoples thinking. Do people think I should do a 50/50 split? More conservative? More aggressive? I've still got a while before the first tax return, so I'm not planning on rushing into anything. I will also likely add a little extra to this money to pay back my mortgage as fast as possible, although again, I won't make any voluntary repayments until the 13 years are up to maximise the tax break.

Setting aside whether a lump sum repayment is a good idea or not (I tend to side on psychological comfort being more important than pure returns), 13 years is a long enough time that you could dump your money in an index fund (All country for maximum safety) and be able to ride out the bumps in the road.

My thoughts.

Others may not agree.

I would do the following:

As you are already maxed out on your tax advantaged investments, you should go to your broker or bank and put the money into International Equity Mutual Funds (Unhedged). Pick a couple that have good exposure to Developed and Emerging Markets.
These kinds of Mutual Funds usually have an Initial minimum investment requirement of Foreign Currency (USD, AUD, EUR, GBP, Etc.) 3,000 or 5,000, or JPY 300,000 or JPY 500,000.
Having identified the Mutual Funds you are (initially) interested in, then when the refund comes (first one in April with your Kakuteishinkoku, and subsequent refunds in Decembers with your Nenmatsu Chousei), having made the Initial minimum investment required to kick this off, any further moneys, I would divided in 5 equal amounts, and then invest a fifth per month across the Funds for 5 months, thereby dollar cost averaging into the Funds. This way you will take advantage of Yen exchange rate swings and the underlying equity price swings over the 13 year period to enhance your returns. You want the prices to Go Down while you are buying to maximise the number of unit you can buy, and up when you come to cash out.
April - First Buy In
May - Aug if anything left, add to the positions.
Dec-Apr, add to the positions, 20% of the refund per month for 5 months every year

And in 13 years time, I would not pay down or pay off the mortgage. It is afterall (almost) Free money.
I would continue to purchase those Mutual Funds, or change to new ones if you like... Accumulate as many units as you can...

If you spent money to pay off the mortgage you can consider that as a Return on your money of the Mortgage Interest Rate... 1.25% - Big deal...
If you chose to pay down the mortgage, your account will be empty, but your house will be paid off. If you die, your heirs will inherit the house, minus inheritance taxes.
Instead if you leave that money invested in the account, it will continue to grow at maybe 5%, so you'll be making a positive return of 5-1.25 = 3.75% per year compounded...
Further, Mortgages in Japan are covered by life insurance.
If you chose not to pay down the mortgage, If you die, the life insurance will pay off the remaining balance on the mortgage so the house will be paid off (Same as above), and your heirs will inherit the house (same as above) but also the money left in the account that has compounded at 5% per year, minus inheritance taxes. I think that is a much better deal.



My 2c

Tkydon wrote: ↑Thu Jun 17, 2021 2:10 pm As you are already maxed out on your tax advantaged investments, you should go to your broker or bank and put the money into International Equity Mutual Funds (Unhedged). Pick a couple that have good exposure to Developed and Emerging Markets.
These kinds of Mutual Funds usually have an Initial minimum investment requirement of Foreign Currency (USD, AUD, EUR, GBP, Etc.) 3,000 or 5,000, or JPY 300,000 or JPY 500,000.

Seems reasonable, except that mutual funds have a minimum investment of around 100 yen in Japan (the eMaxis Slim range does, at least). So possibly even better?

Tkydon wrote: ↑Thu Jun 17, 2021 2:10 pm
As you are already maxed out on your tax advantaged investments, you should go to your broker or bank and put the money into International Equity Mutual Funds (Unhedged). Pick a couple that have good exposure to Developed and Emerging Markets.
These kinds of Mutual Funds usually have an Initial minimum investment requirement of Foreign Currency (USD, AUD, EUR, GBP, Etc.) 3,000 or 5,000, or JPY 300,000 or JPY 500,000.

What are the management fees on these products? And what product names should we look for or ask our broker about?

This is the list of funds currently available at Prestia (formerly Citibank) (Only Japanese, I'm afraid)

https://gllt.morningstar.com/smbctbfund ... $$ALL_3758

Tkydon wrote: ↑Fri Jun 18, 2021 2:10 am This is the list of funds currently available at Prestia (formerly Citibank) (Only Japanese, I'm afraid)

I searched for no-load funds and they seem to have 2 bond funds, no equity funds.
They have a few index funds.
This Dow one looks great...for Prestia's profits.
Do you sell this or something?
If not, can you explain how this is better for the average investor than following a boglehead/RJ approach and investing in low-cost index funds yourself?

beanhead wrote: ↑Fri Jun 18, 2021 2:52 am If not, can you explain how this is better for the average investor than following a boglehead/RJ approach and investing in low-cost index funds yourself?

OP, I cannot speak to the funds Tk, mentioned. However, in my research, these are the two bond funds I selected.

Rakuten has wrapped Vanguard BNDW into a hedged bond fund.

楽天・全世界債券インデックス（為替ヘッジ）ファンド

Rakuten->　https://www.rakuten-sec.co.jp/web/fund/ ... 90C000HBG4
Vanguard ->　https://investor.vanguard.com/etf/profi ... folio/bndw

Rakuten fees -> 0.282%　（Vanguard .15 + Rakuten .13)

............................

The common bond fund recommendation here, and elsewhere, seems to be Exmaxis slim Government Advanced (Or the Nissei or Tawara alternatives)

ｅＭＡＸＩＳ Ｓｌｉｍ 先進国債券インデックス

Link-> https://www.rakuten-sec.co.jp/web/fund/ ... 90C000END3

Real cost -> 0.170%