RetireJapan

I'm planning to set up an iDeCo account at Monex. The portfolio that their Robo Advisor suggested for a low risk tolerance person (risk level 2 which is second from the most low risk) was this one with an expense ratio of 0.1366% incl VAT. Any good? One thing that worries me about this suggested portfolio is the 58% allocated to Japanese bonds. When BOJ starts increasing interest rates to stop further weakening of the yen and the price of the bond funds go south, should I look at that as a bad thing or think that the monthly iDeCo contributions will buy more of these funds for the same amount of yen which should be a good thing in the long run?

Stocks Index funds:
1. Japan (One DC Domestic Stocks Index Fund): 16.8%
2. Developed Markets (eMAXIS Slim Developed Markets Stocks Index): 14.9%
3. Emerging Markets (eMAXIS Slim Emerging Markets stocks Index): 2.7%

Bond funds:
4. Japan (MUFJ Domestic Bonds Index Fund - DC Pension type): 58%
5. Developed Markets (eMAXIS Slim Developed Markets Bonds Index): 2.6%
6. Emerging Markets (iFree Emerging Markets Index): 1%

REIT funds:
7. Japan (DC Nissay J-REIT Index Fund A): 2.7%
8. World ex-Japan (Mitsui Sumitomo DC Foreign REIT Index Fund): 1.3%

Depends on your preference, investment time horizon etc. but that looks pretty unlikely to grow much. Seems a waste of a tax advantaged account.

I recommend thinking about your portfolio as a whole, not separately in each different account. So even if you want to own that many bonds, put them in your taxable account and put stock index funds or similar in NISA and iDeCo.

An iDeco will be locked away until your 60, and you can rebalance cost free at anytime.

This allocation is very very conservative....

I will be 100% developed equities (single fund) for the next twenty years +

These "low risk" portfolio recommendations are generated mainly to address volatility rather than the risk of permanent loss and the glaring weakness in that allocation is that it is overly concentrated in Japan for its fixed income proportion and would provide almost no inflation protection while also not offering much upside potential. It is also very dependent on how the yen performs as it has only around 20% of assets in non-Japanese assets. I would go back and see what the highest risk setting gives as its model portfolio. Keep in mind that the studies on stable withdrawal rates (SWR) for retirement portfolios found the highest SWR were for portfolios with a 50-60% equity allocation which was constant throughout the 30 year periods studied. Neither the original Bengen study nor the Trinity study decreased the equity allocation over time.

ChapInTokyo wrote: ↑Tue Apr 23, 2024 7:18 am I'm planning to set up an iDeCo account at Monex. The portfolio that their Robo Advisor suggested for a low risk tolerance person (risk level 2 which is second from the most low risk) was this one with an expense ratio of 0.1366% incl VAT. Any good? One thing that worries me about this suggested portfolio is the 58% allocated to Japanese bonds.

I think the problem with these Robo Advisors is that they assume you are a risk averse Japanese citizen, rather than a risk averse foreigner resident in Japan.

I too have a very skeptical view of JGBs as low risk, due to the concentration of yen currency risk. Monex is always telling me that my risk is too high and I must buy more Japanese assets to reduce it. Ignored it for years and feel fine about it.

Fine to look at these Robo Advisors as suggestions, but just ignore it and go with an asset allocation that makes sense to you.

After all there are some Japanese financial advisors who recommend going heavy into foreign assets too, and it’s not like they are crazy risk taking nutters, but I guess the typical Japanese customer persona has a very heavy home bias and those models are tailored to it.

TokyoWart wrote: ↑Tue Apr 23, 2024 12:03 pm These "low risk" portfolio recommendations are generated mainly to address volatility rather than the risk of permanent loss and the glaring weakness in that allocation is that it is overly concentrated in Japan for its fixed income proportion and would provide almost no inflation protection while also not offering much upside potential. It is also very dependent on how the yen performs as it has only around 20% of assets in non-Japanese assets. I would go back and see what the highest risk setting gives as its model portfolio. Keep in mind that the studies on stable withdrawal rates (SWR) for retirement portfolios found the highest SWR were for portfolios with a 50-60% equity allocation which was constant throughout the 30 year periods studied. Neither the original Bengen study nor the Trinity study decreased the equity allocation over time.

Good point about the huge weighting in Japanese fixed income providing almost no inflation protection while also not offering much upside potential. I followed your advice and got the Robo Advisor to give me the highest risk setting portfolio but it didn't really change all that much.

Stocks Index funds:
1. Japan (One DC Domestic Stocks Index Fund): 16.8% ---> 20.1%
2. Developed Markets (eMAXIS Slim Developed Markets Stocks Index): 14.9% --->17.5%
3. Emerging Markets (eMAXIS Slim Emerging Markets stocks Index): 2.7% ---> 3.4%

Bond funds:
4. Japan (MUFJ Domestic Bonds Index Fund - DC Pension type): 58% ----> 51.6%
5. Developed Markets (eMAXIS Slim Developed Markets Bonds Index): 2.6% --->2%
6. Emerging Markets (iFree Emerging Markets Index): 1%--->1%

REIT funds:
7. Japan (DC Nissay J-REIT Index Fund A): 2.7% --->2.8%
8. World ex-Japan (Mitsui Sumitomo DC Foreign REIT Index Fund): 1.3%--->1.6%

I guess it's algorithm can only allow so much variance in the portfolio because of my shortish time horizon (I'm going to start drawing my pension in a couple of years time

I think I'll take Ben's advice and look at this ideco as simply one bucket into which I'll put something which has more upside potential (but with mitigated risk) like the eMAXIS Slim 8 asset equally weighted fund. I know everyone here hates it for its huge skew to EM and REITS as well as Japanese assets, but as a contrarian play in a tax free account, I am guessing it might perform somewhat better than the Robo Advisor suggested allocations while keeping portfolio volatility lower than an All Country one fund portfolio. Is this stupid?

I guess it's algorithm can only allow so much variance in the portfolio because of my shortish time horizon (I'm going to start drawing my pension in a couple of years time

I think I'll take Ben's advice and look at this ideco as simply one bucket into which I'll put something which has more upside potential (but with mitigated risk) like the eMAXIS Slim 8 asset equally weighted fund. I know everyone here hates it for its huge skew to EM and REITS as well as Japanese assets, but as a contrarian play in a tax free account, I am guessing it might perform somewhat better than

I am surprized at how little that change in the risk tolerance setting did for the asset allocations. I think this is a great example of why it is important to be careful about these roboadvisors. I also agree with Ben's advice here. Good for you in checking this out carefully before jumping in.

TokyoWart wrote: ↑Wed Apr 24, 2024 2:08 am

I guess it's algorithm can only allow so much variance in the portfolio because of my shortish time horizon (I'm going to start drawing my pension in a couple of years time

I think I'll take Ben's advice and look at this ideco as simply one bucket into which I'll put something which has more upside potential (but with mitigated risk) like the eMAXIS Slim 8 asset equally weighted fund. I know everyone here hates it for its huge skew to EM and REITS as well as Japanese assets, but as a contrarian play in a tax free account, I am guessing it might perform somewhat better than

I am surprized at how little that change in the risk tolerance setting did for the asset allocations. I think this is a great example of why it is important to be careful about these roboadvisors. I also agree with Ben's advice here. Good for you in checking this out carefully before jumping in.

The Robo Advisor seems to adjust the target volatility of its suggested portfolio depending on the customer's age, which you also input along with the various risk profiling questions. So I got it to suggest a portfolio at the highest risk tolerance portfolio again but this time for someone 20 years younger than me, and it came up with this:

Stocks Index funds:
1. Japan (One DC Domestic Stocks Index Fund): 16.8% ---> 20.1%--->32%
2. Developed Markets (eMAXIS Slim Developed Markets Stocks Index): 14.9% --->17.5%--->26.8%
3. Emerging Markets (eMAXIS Slim Emerging Markets stocks Index): 2.7% ---> 3.4%--->5.7%

Bond funds:
4. Japan (MUFJ Domestic Bonds Index Fund - DC Pension type): 58% ----> 51.6%--->27.2%
5. Developed Markets (eMAXIS Slim Developed Markets Bonds Index): 2.6% --->2%--->1%
6. Emerging Markets (iFree Emerging Markets Index): 1%--->1%--->1.5%

REIT funds:
7. Japan (DC Nissay J-REIT Index Fund A): 2.7% --->2.8%--->3.3%
8. World ex-Japan (Mitsui Sumitomo DC Foreign REIT Index Fund): 1.3%--->1.6%--->2.5%

Now this one looks as though it'll have more upside, although again, the overweighting of domestic stocks and bonds over international in cap weighted terms seems to be a built-in feature. The over weighting of yen is definitely a worry with all the carry trade going on these days between the dollar and the yen, but there again with Trump making noises about the strong dollar hurting US export businesses, this could turn out to be a good play over the short term if Trump gets back in the White House...

ChapInTokyo wrote: ↑Wed Apr 24, 2024 2:58 am

TokyoWart wrote: ↑Wed Apr 24, 2024 2:08 am

I guess it's algorithm can only allow so much variance in the portfolio because of my shortish time horizon (I'm going to start drawing my pension in a couple of years time

I think I'll take Ben's advice and look at this ideco as simply one bucket into which I'll put something which has more upside potential (but with mitigated risk) like the eMAXIS Slim 8 asset equally weighted fund. I know everyone here hates it for its huge skew to EM and REITS as well as Japanese assets, but as a contrarian play in a tax free account, I am guessing it might perform somewhat better than

I am surprized at how little that change in the risk tolerance setting did for the asset allocations. I think this is a great example of why it is important to be careful about these roboadvisors. I also agree with Ben's advice here. Good for you in checking this out carefully before jumping in.

The Robo Advisor seems to adjust the target volatility of its suggested portfolio depending on the customer's age, which you also input along with the various risk profiling questions. So I got it to suggest a portfolio at the highest risk tolerance portfolio again but this time for someone 20 years younger than me, and it came up with this:

Stocks Index funds:
1. Japan (One DC Domestic Stocks Index Fund): 16.8% ---> 20.1%--->32%
2. Developed Markets (eMAXIS Slim Developed Markets Stocks Index): 14.9% --->17.5%--->26.8%
3. Emerging Markets (eMAXIS Slim Emerging Markets stocks Index): 2.7% ---> 3.4%--->5.7%

Bond funds:
4. Japan (MUFJ Domestic Bonds Index Fund - DC Pension type): 58% ----> 51.6%--->27.2%
5. Developed Markets (eMAXIS Slim Developed Markets Bonds Index): 2.6% --->2%--->1%
6. Emerging Markets (iFree Emerging Markets Index): 1%--->1%--->1.5%

REIT funds:
7. Japan (DC Nissay J-REIT Index Fund A): 2.7% --->2.8%--->3.3%
8. World ex-Japan (Mitsui Sumitomo DC Foreign REIT Index Fund): 1.3%--->1.6%--->2.5%

Now this one looks as though it'll have more upside, although again, the overweighting of domestic stocks and bonds over international in cap weighted terms seems to be a built-in feature. The over weighting of yen is definitely a worry with all the carry trade going on these days between the dollar and the yen, but there again with Trump making noises about the strong dollar hurting US export businesses, this could turn out to be a good play over the short term if Trump gets back in the White House...

If you are making your future asset decisions based off the current state of American politics, you need to seriously reconsider your investment style.

Are you familiar with Jack Bogle? You need to ignore the news, and stop trying to time the market.

Live below your means
Invest early and often
Never bear too much or too little risk
Diversify
Never try to time the market
Use index funds
Keep costs low
Minimise taxes
Invest with simplicity
Stay the course

https://www.bogleheads.org/wiki/Boglehe ... _investors

ChapInTokyo wrote: ↑Wed Apr 24, 2024 1:23 am I think I'll take Ben's advice and look at this ideco as simply one bucket into which I'll put something which has more upside potential (but with mitigated risk) like the eMAXIS Slim 8 asset equally weighted fund. I know everyone here hates it for its huge skew to EM and REITS as well as Japanese assets, but as a contrarian play in a tax free account, I am guessing it might perform somewhat better than the Robo Advisor suggested allocations while keeping portfolio volatility lower than an All Country one fund portfolio. Is this stupid?

Remember that you can pay into iDeCo until 65 (as long as you are paying nenkin in some form) but you don't need to cash out until 75 (current rules, will likely be extended at some point).

This could give you a longer investment horizon and therefore allow you to do something more productive with the funds.

If you are nearing retirement, be sure to calculate the value of any pensions etc. to see what your situation is going to be like. You might want to accumulate more cash to give you a buffer (this can substitute for bonds).