What to invest USD in?

[Ori]

Relatively big part of my savings is in USD (I'm not US citizen) and I'm having trouble deciding what to do with it.
Some of it I invested in bonds ETF (AGG) because I couldn't find any good Japanese total bond MF, some - in gold ETF (because there is no dividends), but I cannot decide what to do with the rest.
Investments in US ETF have big disadvantages comparing to Japanese MF because of the dividends being paid out and therefore taxed (unless inside NISA), then those dividend just lay as dead weight on the account, because purchasing fees are too high to reinvest some tens of bucks every month, and buying those ETF is expensive - $25 per order (unless inside NISA).
Therefore I'm reluctant to buy the usual stuff I buy in Japan - developed&emerging stocks, japanese&foreign reits. And I already have enough of bonds and gold for my portfolio at the moment.

I have one year NISA allocation worth of USD savings left, so I'm considering to put them in the next year NISA to avoid taxation and fees issues, but what to buy?

Any suggestions? Are there any good investments vehicles for USD?

[RetireJapan]

Change them to yen, buy mutual funds? Or are the funds overseas?

[adamu]

(unless inside NISA)

Even inside NISA they are still subject to 10% US witholding tax.

I agree with RetireJapan. Convert to Yen and buy Japanese funds (which can invest internationally). I'm actually planning on moving all of my non-NISA US ETF investments (which is the majority) over to eMaxis Slim funds later this year*. I'll also sell the NISA portions just before they expire (wasting the allowance early seems silly, and sell it at the end while it's still eligible for the free trade). If you are re-investing in a similar asset class, there should be little currency risk because you'll be buying back the same stuff you just sold. At least that's what I'm telling myself...

*not market timing - decided I want a larger emergency fund so am focusing on beefing that up in the short term.

[Ori]

Change them to yen, buy mutual funds? Or are the funds overseas?

I don't want to. I prefer to keep my currency diversified because I hope to leave Japan in the next 10 years (not optimistic about its future at all).

[Ori]

Even inside NISA they are still subject to 10% US witholding tax.

I know. But this tax is unavoidable for any US originated securities anyway, even if they inside Japanese mutual fund with dividend reinvesting.

I agree with RetireJapan. Convert to Yen and buy Japanese funds (which can invest internationally).

I don't want to. I prefer to keep my currency diversified because I hope to leave Japan in the next 10 years (not optimistic about it's future at all).

I'm actually planning on moving all of my non-NISA US ETF investments (which is the majority) over to eMaxis Slim funds later this year*. I'll also sell the NISA portions just before they expire (wasting the allowance early seems silly, and sell it at the end while it's still eligible for the free trade). If you are re-investing in a similar asset class, there should be little currency risk because you'll be buying back the same stuff you just sold. At least that's what I'm telling myself...

*not market timing - decided I want a larger emergency fund so am focusing on beefing that up in the short term.

That is wise choice provided you plan to retire in Japan.

[adamu]

I'm sorry I don't understand your question.

• You don't want to invest in your normal US investments in Japan because investing in US investments in Japan is a bad deal because of witholding tax.
• You don't want to convert to yen because you will not be in Japan long term.

So, are you asking for US ETFs ("developed&emerging stocks, japanese&foreign reits") that do not pay out dividends?

Also, if you invest in a Japanese fund that invests in global stocks denominated in yen, I don't see it as too much of a currency risk because of the underlying assets. E.g. for a a Japanese S&P fund, you could cash out and convert to USD and the exchange process should be relatively transparent? But I can understand if you would want to avoid it as an intermediary currency totally. Do you currently deposit USD directly to buy your current investments?

[RetireJapan]

Also, if you invest in a Japanese fund that invests in global stocks denominated in yen, I don't see it as too much of a currency risk because of the underlying assets. E.g. for a a Japanese S&P fund, you could cash out and convert to USD and the exchange process should be relatively transparent?

This.

If you invest in global stocks, for example, the only currency risk is the couple of days it would take to sell the funds and convert the proceeds to dollars.

[Ori]

If you invest in global stocks, for example, the only currency risk is the couple of days it would take to sell the funds and convert the proceeds to dollars.

Sorry for the late reply. Work, work...

I think the currency risk would be offset only if I invested in US securities only. If other currencies come into play (e.g. European stocks and euro goes down), then I won't be able to get back same amount of USD back. And there are only 50% US stock is MSCI developed, for example.

So I did some calculations to compare investing in US only stock in USD (i.e. US ETFs) and in Japanese MF holding US stocks only.

The two cheapest JP MFs are 1-year old 楽天・全米株式インデックス・ファンド (wrapper for Vangard VTI) and 2-month old ｅＭＡＸＩＳ Ｓｌｉｍ 米国株式（Ｓ＆Ｐ５００）(can be compared to VOO). They have almost equal declared ER and performance, same VTI and VOO do, so for comparison I will select Rakuten wrapper for VTI and VTI itself.

Rakuten vs VTI:
1) -0.05% (one-time)
Loss on USD->JPY->USD currency conversion
2) ER: -0.13%
Rakuten is roughly 0.17 vs VTI - 0.04.
3) Dividend tax: from 0 to +0.39%
Rakuten seem to reinvest dividends internally, while average dividend yield for VTI is 1.7%.
If investing outside of NISA, there will be 23% dividend tax, 10% of which can probably be returned (since US already withholds 10%), but realistically I, probably, will never bother. So 23% or 13% of 1.7% is 0.39-0.22%.
If in NISA - no difference.
4) Purchasing cost: -$25 (cost of buying foreign ETF). One-time. In NISA - 0.
5) Opportunity cost
VTI dividends will be in USD, so they will be too expensive to reinvest monthly (cost of buying foreign ETF is ~$25).
However, they can be converted to yen and reinvested in some JP MF, but a little mendokusai to do it monthly. So Rakuten wins here, but difficult to say by how much.

Conclusion:
In my case we are talking about $10,000, what is roughly equal one year NISA allowance, so if I wait 3 more months until next year NISA I can get rid of losses in 3) and 4). And without them VTI definitely wins over Rakuten.

So this is probably what I'm going to do, unless you find a flaw in my reasoning.

Ah, another possible advantage of VTI (or foreign ETF), is that if I move abroad I might be able to move it to another broker (using Interactive Brokers) without selling. I'm not 100% sure about this one, though.

[Ori]

I found the flaw myself - the opportunity cost of those 3 months of waiting until the next year NISA. If the growth stays at the current rate, it's ~4.25% loss (ok, 4.25 - 0.06 = 4.19% if I put them into savings account ).
I guess, I can sell USD, buy JP MF, then in 3 month sell and buy USD back. I would have to pay capital gain taxes then, so opportunity costs decreases to 3.22 - 0.05% exchange cost = 3.17%.

If the market crashes in the meantime, I think I will lose only on currency conversions (i.e. I will end up with the same number of shares anyway)?

Hmmm...