Index funds & (compound) interest / how they build up over time?

[Tkydon]

Thank you very much for the kind explanation.
That all makes sense.

I suppose my remaining question is (and perhaps let's take that e Maxis slim All country as an example, with no dividend):

At what point does this "the Fund Manager retains and reinvests those funds internally" happen?
When that does happen, am I aware of it (am I informed, etc?), or is it all in effect 'invisible' to me?

Thank you!

That happens when each company held in the fund pays its dividend to its shareholders (the fund). You would need to find out which actual shares are held in the fund, and check the Investor's Information on each company's website to see when they are due to pay their next dividend.

It will be 'invisible' to you, as there is no reason for the fund to inform you, as there is no taxable event on you. You will just see the Unit Price growing on a daily basis.

[Mrblobby]

That makes sense too.

I feel much better informed now.

Thank you!

[Mrblobby]

I have another related (dumb) question that I'd like to get my head around.

For example, with 10,000,000 yen available to invest now, which would, in theory, be most beneficial (as a long term investment, over 10+ years).

(All other things being equal, which of course is not reality but...)

- invest it all now, get the money in the system
- only invest part of it now, and then drip feed the rest of it over a period of time (months/years).

I'm presuming getting it all in the system now is probably best.

Which would you do?

Thanks again!

[northSaver]

I have another related (dumb) question that I'd like to get my head around.

For example, with 10,000,000 yen available to invest now, which would, in theory, be most beneficial (as a long term investment, over 10+ years).

(All other things being equal, which of course is not reality but...)

- invest it all now, get the money in the system
- only invest part of it now, and then drip feed the rest of it over a period of time (months/years).

I'm presuming getting it all in the system now is probably best.

Which would you do?

Thanks again!

This question has been discussed several times on this forum and many times on the internet (search for "lump sum vs dca").

The most recent discussion on here was particularly interesting as it approached it from the perspective of a yen investor:
viewtopic.php?t=3063

[Mrblobby]

Thank you.

(I had seen various discussions elsewhere... I was just wondering what people on here thought).

[northSaver]

As for what I would do... right now I would DCA. That's just my opinion. It boils down to what you would feel most comfortable with.

[Tkydon]

I have another related (dumb) question that I'd like to get my head around.

For example, with 10,000,000 yen available to invest now, which would, in theory, be most beneficial (as a long term investment, over 10+ years).

(All other things being equal, which of course is not reality but...)

- invest it all now, get the money in the system
- only invest part of it now, and then drip feed the rest of it over a period of time (months/years).

I'm presuming getting it all in the system now is probably best.

Which would you do?

Thanks again!

If you are a US citizen, then ignore most of the information below...

Other than the discussion of the merits of Lump Sum vs Dollar Cost Averaging, which I am not adressing here...

You do have the opportunity to leverage Tax Advantaged investment instruments,

You could choose to:

Investing now in Tokutei Kouza, then selling bit by bit and re-investing in tax advantaged accounts as and when they become available, is a higher expected returns strategy.

Or Dollar Cost Average in...

If you are not doing so already:
Open a NISA now. This is the last year of the old system.
You can put in a lump sum of Y1,200,000 before the end of this year.
You can invest that in whatever Index Funds or other instruments are offered by your NISA Provider and can stay in there for 5 years and pay out tax free.

Then wait until the new year...

Open (or continue to) a New NISA at the start of next year. This is the first year of the New NISA system.
You can put in a lump sum of Y2,400,000 per year.
You can invest that in whatever Index Funds or other instruments are offered by your NISA Provider.
You can also input Monthly Installments and Bonus Payments in the Tsumitate Portion up to the limit of Y1,200,000 before the end of next year.
You can invest that in whatever Index Funds or other instruments are offered by your NISA Provider.
Someone suggested that you may be able to set the Minimum monthly Tsumitate Installment Payment, and then drop the balance (1.2M - 12xTsumitate) in as a Bonus Payment(s) at the beginning of the year, or throughout the year, whenever you like...

That would account for 1.2M + 2.4M + 1.2M = Y4,800,000

about half in short order, and completely Tax Free when you withdraw the funds...
The funds you put in to NISA are already post-tax. You can withdraw the money any time. No penalties, Tax Free.

If you are not doing so, you can also look at iDECO. Depending on your situation, you can also pay monthly installments into the iDECO, the benefit being that you get a tax rebate on iDECO contributions, so depending on your Marginal Income Tax Rate, the government pays 30% or 40% of the contributions by reducing your taxes; either through refunds or just reducing the tax bill...
You cannot withdraw the money until retirement, and the money will be taxed at your marginal tax rate in retirement.
You can invest that in whatever Index Funds or other instruments are offered by your iDECO Provider.

Depending on your circumstances that could account for 12x23,000 = 276,000 or 12x68,000 = 816,000 over the year.

And the remaining approx. Y5M or Y4.6M after iDECO tax rebate, you can put into a Regular Trading Account whenever you like, and invest whenever you like; Lump Sum or DCA, and invest it in whatever Index Funds or other instruments offered by your Broker Provider. Within that Trading Account:
If you make those purchases under a Tokutei Account, then the Broker will handle all the taxes for you, and you won't need to worry about filing tax returns.
If you make those purchases under the Regular Account, then the Broker will not handle the taxes for you, and you will have to do the tax return filings for yourself.

[Mrblobby]

Thank you!

Yes I am in NISA and in the process of opening ideco.

Someone suggested that you may be able to set the Minimum monthly Tsumitate Installment Payment, and then drop the balance (1.2M - 12xTsumitate) in as a Bonus Payment(s) at the beginning of the year, or throughout the year, whenever you like...

That would account for 1.2M + 2.4M + 1.2M = Y4,800,000

I knew it was up to 3.6 million...
That extra 1.2 million thing is the first I have heard about that. It sounds good though!

Thanks again.

[Tkydon]

Thank you!

Yes I am in NISA and in the process of opening ideco.

Someone suggested that you may be able to set the Minimum monthly Tsumitate Installment Payment, and then drop the balance (1.2M - 12xTsumitate) in as a Bonus Payment(s) at the beginning of the year, or throughout the year, whenever you like...

That would account for 1.2M + 2.4M + 1.2M = Y4,800,000

I knew it was up to 3.6 million...
That extra 1.2 million thing is the first I have heard about that. It sounds good though!

Thanks again.

That is:

Y1.2M 2023 NISA - This Year before End December 2023

Y2.4M 2024 New NISA Investment Portion
Y1.2M 2024 New NISA Tsumitate Portion

But if you are in NISA already, and have used up your 2023 allowance, then you can knock that out of the list. You can't invest it twice...

How much have they told you you are entitled to put into iDECO?

If you can get it started this month, you (may) have 3 months this year and 12 months next year, so you can up the number I gave from 12x to 15x...
If 68,000 per month, then 68,000 x 15 = 1,020,000 by the end of 2024...

But you'll get some tax refunded/reduced. You'll need to find a home for for the rest...

[TBS]

You do have the opportunity to leverage Tax Advantaged investment instruments, which would force a bit of DCA, like this:

...

This is a misnomer - leveraging tax advantaged accounts doesn't force DCA at all

Investing now in Tokutei Kouza, then selling bit by bit and re-investing in tax advantaged accounts as and when they become available, is a higher expected returns strategy.