RetireJapan

Hi there. I managed to open and set up my NISA account just before the end of the year limit reset. Funds are already transferred to my Rakuten Securities account and I'm gonna invest 1,2mil this weekend.

I'm thinking of approaching this like that:

1. All in on emaxis slim all countries
2. 70/30 emaxis slim all countries and emaxis slim s&p500
2. 50/50 emaxis slim all countries and emaxis slim s&p500

Looks like this community favors all countries fund since it's even more diversified and balanced. On the other hand, historically, you couldn't go wrong with s&p500 from what I've read, it's been going up quite aggressively these days, but that could be used as a counterargument too, as this growth might not be sustainable. Do my thoughts make sense? Which option would you choose?

hitsuji182 wrote: ↑Sat Dec 04, 2021 4:52 am Hi there. I managed to open and set up my NISA account just before the end of the year limit reset. Funds are already transferred to my Rakuten Securities account and I'm gonna invest 1,2mil this weekend.

I'm thinking of approaching this like that:

1. All in on emaxis slim all countries
2. 70/30 emaxis slim all countries and emaxis slim s&p500
2. 50/50 emaxis slim all countries and emaxis slim s&p500

Looks like this community favors all countries index since it's even more diversified and balanced. On the other hand, historically, you couldn't go wrong with s&p500 from what I've read, it's been going up quite aggressively these days, but that could be used as a counterargument too, as this growth might not be sustainable. Do my thoughts make sense? Which option would you choose?

Welcome and congrats on getting started.

The eMaxis Slim All-country fund is approximately 60% US stock market already.

The only reason to add more US exposure is if you have reason to believe the US is going to continue to outperform.

The argument against is that it seems overvalued and thus may revert to the mean and underperform in the future.

They argument in favour is that the big US tech companies represent a new paradigm and will continue to grow their market share and profits.

I don't know which is true so I just stick to the plain All-country fund

Yeah, I'm leaning towards all in or 70/30 split. Thanks!

Lots of US-based investors have happily and successfully invested only in the S&P500 in the past, so it is not a particularly risky choice. But as Ben says, it does place a bet on US-listed companies continuing to out-perform those in Europe, Japan, etc. None of us know the answer but since most of the largest American companies are global, even if something happens in the U.S., the impact on the Apples and J&Js of the world may be minimal.

All-Country is simplest and most conservative, for equities.
I have a little bit of FOMO, so have gradually increased my ratio of S&P to All-Country. It is about 70/30, All-Country to S&P500 now (originally was 90/10).

When the next boom happens in an industry not based in the US, nobody is going to see it coming, and everyone with US-bias is going to regret it. Or so says my crystal ball

There is a beautiful chart at the end of this this article showing the ebb and flow of world stock markets since 1900.

Anyone betting on USA from the 60s, which was then the world's largest equity market, will have missed the phenomenal growth of Japan.
Anyone betting on Japan from the late 80s, which had become the largest equity market, may have regretted it.

On the flipside, there are many periods where the largest equity market of the day went on to grow further and increase its domination.

Betting is fine of course, if you only bet what you can afford to lose.

TBS wrote: ↑Sun Dec 05, 2021 9:03 am There is a beautiful chart at the end of this this article showing the ebb and flow of world stock markets since 1900.

Anyone betting on USA from the 60s, which was then the world's largest equity market, will have missed the phenomenal growth of Japan.
Anyone betting on Japan from the late 80s, which had become the largest equity market, may have regretted it.

On the flipside, there are many periods where the largest equity market of the day went on to grow further and increase its domination.

Betting is fine of course, if you only bet what you can afford to lose.

All good information.
If my maths are correct, a 70/30 split of All-Country to S&P500 increases the US percentage from roughly 60% to just over 70% (72%).
This may prove to be a good strategy, it may not. As your Japan example shows, doing something similar in the past could have led to under-performance.

I am not sure this amounts to 'betting', in the same way that buying Tesla stocks (for example) or crypto does.

On the other hand, if there was a true shift away from the US as the dominant country, the current indices are not really going to be up to scratch, so even index fund zealots would have to do some active trading to keep up. If it was an emerging market country that took off, somebody would have to quickly think up an "emerged market" fund, and also maybe a "declining market" fund

beanhead wrote: ↑Mon Dec 06, 2021 8:34 am All good information.
If my maths are correct, a 70/30 split of All-Country to S&P500 increases the US percentage from roughly 60% to just over 70% (72%).
This may prove to be a good strategy, it may not. As your Japan example shows, doing something similar in the past could have led to under-performance.

I am not sure this amounts to 'betting', in the same way that buying Tesla stocks (for example) or crypto does.

Agreed 'betting' was a strong term for it given the usual sense of the word. Subconsciously I guess I was just mirroring the way it is often discussed on here.

One thing to be aware of if higher weighting the US in these times is the potential diminishing returns of this strategy. At 60% weight the US is already at historically quite a high level. If the US continues to grow faster, the amount that the All Country will tend to lag the S&P500 will decrease anyway, because the ACWI will become increasing US equities as it re-balances.

Correspondingly the downsides of the converse scenario are higher. You risk sticking with a larger amount of poorer performing investments because you are too busy or too emotionally invested in to re-balance. Or if you do re-balance yourself, this could could incur early capital gains taxes or lose you some NISA allowance (i.e. tax inefficient).

This is why All Country investing is so great. You accept that there it won't grow as fast as the fasted growing economies of the day. But it is sure to do better than the worse performing economies. It is set and forget. No need to care about the world news or what's happening in the markets. All the re-balancing is done for you, no input needed, in a tax efficient way.

adamu wrote: ↑Mon Dec 06, 2021 9:36 am On the other hand, if there was a true shift away from the US as the dominant country, the current indices are not really going to be up to scratch, so even index fund zealots would have to do some active trading to keep up.

Could please you elaborate on your thinking here? All country will re-balance accordingly... or are you envisaging a world where equities are no longer are safe way to maintain wealth because something else grows in value much faster(e.g. land, crypto, or the next fintech phenomenon)? Or maybe equities are too volatile for index funds to track reliably (scary thought )?

TBS wrote: ↑Tue Dec 07, 2021 12:38 pm

adamu wrote: ↑Mon Dec 06, 2021 9:36 am On the other hand, if there was a true shift away from the US as the dominant country, the current indices are not really going to be up to scratch, so even index fund zealots would have to do some active trading to keep up.

Could please you elaborate on your thinking here? All country will re-balance accordingly... or are you envisaging a world where equities are no longer are safe way to maintain wealth because something else grows in value much faster(e.g. land, crypto, or the next fintech phenomenon)? Or maybe equities are too volatile for index funds to track reliably (scary thought )?

I was thinking that the indices such as FTSE All Cap and MSCI are invented by the west and are usually in categories such as "developed world", "emerging markets", etc. If there is a huge shift, say an emerging market country takes off, that is not going to be accounted for in a lot of the indices. I'm not sure how the balance between developed/emerging is handled in an index like MSCI ACWI. Would it be updated quickly enough? Or, people that thought they were making a safe bet on "developed world" or worse S&P 500 without emerging markets will completely miss out. Conversely, if something like democracy failing in the west happens, the institutions that run the indices might not be in a position to continue. So All Country will be fine, but it might have to find a new index.

Sorry, not very mature thoughts, just musing.