RetireJapan

What do you think of having 100% Rakuten Index Balance Fund (Equity overweight type) in the NISA account of someone who's recently retired? The fund rebalances itself which seems to me to be a nice risk hedge for when you're in your 70s and the 80s and perhaps have reduced faculties, and the 30% global bonds allocation courtesy of the yen-hedged BNDW will likely ensure that the drawdowns are tempered somewhat compared to something like a 100% eMAXIS Slim All Country NISA account.

The expense ratio, at 0.211% is higher than the 0.05775% of the All Country, or the 0.07% and 0.05% of the underlying VT and BNDW ETFs but it doesn't seem all that bad considering the one fund portfolio will continually rebalance itself back to the market capped allocation within the stocks and the bonds classes.

Is is idea a yay, or a nay?

Having the two asset classes mixed in the fund kind of misses the point IMO: I'd want to be selling bonds after a stock crash etc

Sounds like a domestic copy of the Vanguard LifeStrategy funds
https://investor.vanguard.com/investmen ... tegy-funds

RetireJapan wrote: ↑Mon May 20, 2024 6:46 am Having the two asset classes mixed in the fund kind of misses the point IMO: I'd want to be selling bonds after a stock crash etc

Since the fund maintains the 70:30 stock to bond allocation I think that it sells the BNDW to buy the VT after a crash - all on auto-pilot. That’s why I thought it would kind of dollar cost average within the VT and BNDW as well as between VT and BNDW without any input from me.

adamu wrote: ↑Mon May 20, 2024 7:27 am Sounds like a domestic copy of the Vanguard LifeStrategy funds
https://investor.vanguard.com/investmen ... tegy-funds

Yes it looks quite similar to those. A similar idea also to the venerable Saison Global Balance Fund except the Rakuten has currency hedging on the bond side, and of course the Rakuten has a more aggressive stock:bond allocation in this instance and the expense ratio is almost 1/3 the expense ratio of the Saison fund.

So something for the lazy retiree…. Or for the wife’s NISA account so everything stays on steady as she goes even after you’ve gone…

It might be quite tax-inefficient, especially in a NISA due to not being able to claim the foreign dividend deduction on the US tax.

https://retirewiki.jp/wiki/Japanese_glo ... th_US_ETFs

adamu wrote: ↑Mon May 20, 2024 8:52 am It might be quite tax-inefficient, especially in a NISA due to not being able to claim the foreign dividend deduction on the US tax.

https://retirewiki.jp/wiki/Japanese_glo ... th_US_ETFs

That's true. Might be something to be said for a balanced fund which overweights Japanese stocks and bonds like the Nissay Index Balanced Fund (equally weighted 4 asset classes type) with an expense ratio of 0.154%? That one buys foreign stocks direct rather than via a US ETF, and so in a NISA account it is only subject to the tax withheld by the originating country, rather than that plus the tax withheld by the US. Also, because 50% of the stocks and bonds held by the fund is from Japan, that also means that foreign tax is only applicable to half of its holdings.

ChapInTokyo wrote: ↑Mon May 20, 2024 12:11 pm

adamu wrote: ↑Mon May 20, 2024 8:52 am It might be quite tax-inefficient, especially in a NISA due to not being able to claim the foreign dividend deduction on the US tax.

https://retirewiki.jp/wiki/Japanese_glo ... th_US_ETFs

That's true. Might be something to be said for a balanced fund which overweights Japanese stocks and bonds like the Nissay Index Balanced Fund (equally weighted 4 asset classes type) with an expense ratio of 0.154%? That one buys foreign stocks direct rather than via a US ETF, and so in a NISA account it is only subject to the tax withheld by the originating country, rather than that plus the tax withheld by the US. Also, because 50% of the stocks and bonds held by the fund is from Japan, that also means that foreign tax is only applicable to half of its holdings.

Would that Nissay Index Balanced Fund be the core of your portfolio?
This one, I guess: https://www.nam.co.jp/report/pdf/mo121534-1.pdf
It would be massively overweight Japan, given that Japan only accounts for about 5% or 6% of global market cap (and therefore the All Country fund)
https://www.statista.com/statistics/710 ... y-country/

You are sacrificing global diversification for the sake of yen hedging.
I dunno, but I'd say the risk of you putting 50% of your eggs in the Japan basket and then Japanese stocks and government bonds doing badly is greater than the yen strengthening substantially over the long term against the US and every other currency and economy in your portfolio.
Depends on your age, I might increase my holdings of cash and maybe a JGBi fund closer to retirement to minimize the hit from temporary rises in the yen when cashing in my investments.

Also, your future earnings and your Japanese pension are "yen hedges" in a way, as that part of your future income is all yen-denominated, not to mention your Japanese bank account.
If you don't want to leave your spare cash in a bank account, there are JGBi funds, which roll over inflation-linked Japanese government bonds. Unlike your bank account the fund doesn't have the 10 million yen deposit protection, of course.
It yielded 2-3% returns from 2021 to 2023 but was negative in 2013 to 2020.
https://www.am.mufg.jp/pdf/koumokuromi/ ... 231026.pdf
Discussed here, from part way down
https://www.retirejapan.com/forum/viewtopic.php?t=3692

ToushiTime wrote: ↑Tue May 21, 2024 8:56 am
Also, your future earnings and your Japanese pension are "yen hedges" in a way, as that part of your future income is all yen-denominated, not to mention your Japanese bank account.
If you don't want to leave your spare cash in a bank account, there are JGBi funds, which roll over inflation-linked Japanese government bonds. Unlike your bank account the fund doesn't have the 10 million yen deposit protection, of course.
It yielded 2-3% returns from 2021 to 2023 but was negative in 2013 to 2020.
https://www.am.mufg.jp/pdf/koumokuromi/ ... 231026.pdf
Discussed here, from part way down
https://www.retirejapan.com/forum/viewtopic.php?t=3692

This user said someone who's recently retired at the top of the thread.

ToushiTime wrote: ↑Tue May 21, 2024 8:56 am

ChapInTokyo wrote: ↑Mon May 20, 2024 12:11 pm

adamu wrote: ↑Mon May 20, 2024 8:52 am It might be quite tax-inefficient, especially in a NISA due to not being able to claim the foreign dividend deduction on the US tax.

https://retirewiki.jp/wiki/Japanese_glo ... th_US_ETFs

That's true. Might be something to be said for a balanced fund which overweights Japanese stocks and bonds like the Nissay Index Balanced Fund (equally weighted 4 asset classes type) with an expense ratio of 0.154%? That one buys foreign stocks direct rather than via a US ETF, and so in a NISA account it is only subject to the tax withheld by the originating country, rather than that plus the tax withheld by the US. Also, because 50% of the stocks and bonds held by the fund is from Japan, that also means that foreign tax is only applicable to half of its holdings.

Would that Nissay Index Balanced Fund be the core of your portfolio?
This one, I guess: https://www.nam.co.jp/report/pdf/mo121534-1.pdf
It would be massively overweight Japan, given that Japan only accounts for about 5% or 6% of global market cap (and therefore the All Country fund)
https://www.statista.com/statistics/710 ... y-country/

You are sacrificing global diversification for the sake of yen hedging.

This would just be for the NISA part. I'm thinking of NISA as the last account that'll be cashed out, after all the money in my taxable account has been drawn down. Since this will be when I'm probably quite decrepit, I am thinking that something which doesn't need any looking after but will keep chugging along on auto pilot until the bitter end will be appropriate.

Your idea of the JGBi fund is also good. In the long term, who knows what'll come to pass?

Incidentally my original idea of the Rakuten Index Balance fund (70 VTI + 30 hedged BNDW) might not be so tax inefficient after all. According to Vanguard, the foreign tax paid by VXUS last year was 6.80% of its dividends and the foreign tax paid by BNDX (the international half of BNDW) last year was 0.26% of its dividends. Since VXUS comprises about half of VT, and the other half is VTI which is US total stock market, the triple taxation hit from taxes paid in the origin countries was actually less than 3.6% of its dividends, since the US half of BNDW (ie. BND) pays out dividends too and those dividends are not subject to 'foreign' withholding tax.

Now, when you consider that VT has 84.2% of the components of Small Cap ETF (VWO) and 85.8% of the components of FTSE All-World ex-US Small-Cap ETF (VSS) which would both be quite expensive to cover via a Japanese mutual fund, the triple taxation penalty of less than 3.6% of paid out dividends doesn't seem too prohibitive. That is, of course if you think small caps might outperform in the long run.

Foreign tax credit information for eligible Vanguard funds:
https://investor.vanguard.com/content/d ... s-2024.pdf