iDeCo Robo Advisor Portfolio at MONEX...yay or nay?

[ChapInTokyo]

I hear what you're saying. However I am thinking of simplifying my portfolio with VT, VPLS and BNDX ETFs (these will be in the taxable part of my portfolio). If I go with that, Japanese bonds of which a good chunk is JGB do constitute a substantial percentage of the index so unless I want to 'time the market' by underweighting JGBs, and perhaps incurring higher expense ratios by not being able to utilize a world except USA bond ETF, it stands to reason that JGBs will be in there according to their market weighting.

Vanguard Total International Bond Index Fund ETF
Fund Allocation (as of October 31, 2023)
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Japan 13.5%
France 12.4
Germany 11.3
Italy 7.6
United Kingdom 6.8
Canada 6.6
Spain 5.6
Supranational 4.3
Australia 3.5
United States 3.1
South Korea 3.0
Netherlands 2.8
Belgium 2.2
Switzerland 1.7
Austria 1.4
Sweden 1.3
China 1.2
Indonesia 1.1
Other 10.6
---

[ChapInTokyo]

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 RoboAdvisor-suggested allocations while keeping portfolio volatility lower than an All Country one fund portfolio. Is this stupid?

I tested the above 'aggresive' Robo Advisor generated portfolio (for someone in their 60s) into the portfolio analyzer at https://myindex.jp. Backtesting on the data from the past 30 years, the portfolio returned an average of 4.9% per year, with a standard deviation of 7.3%, and a sharpe ratio of 0.67. Based on the data from the past 10 years, the return per year was 5.9%, the standard deviation 6.6%, and the sharpe ratio 0.89. Based on the data from just the past 5 years, the average return was 6.6% per year, the standard deviation 7.0%, and the sharpe ratio 0.94.

Compared to the Saison Global Balance Fund (in Japan Post Bank's iDeCo fund selection) which has a 10 year performance of 7.94% per year, with a standard deviation of 9.88% and sharpe ratio of 0.81, and a 5 year performance of 11.15% with a standard deviation of 9.64 and a sharpe ratio of 1.16, the portfolio suggested by Monex Robo Advisor is a lower risk and lower return option which has a higher weighting for Japanese stocks and bonds, to reduce exchange rate risk.

Considering I'd need to cash out of iDeCo in the few years leading up to when I reach 75 years old (in a little over 10 years from now), it seems I need to decide to shoot for a lower risk with lower expected return or a higher expected return but with higher risk.

The interesting thing that the myindex.jp analysis showed me was that a gold fund might actually be an interesting thing to put in an iDeCo account, seeing as the downside of gold is comparable to that of the portfolio suggested by RoboAdvisor, but a higher upside, plus I assume a good expectation of inflation protection. Any thoughts?

[sutebayashi]

I have some BNDX and not happy about the JGBs in there but it’s small enough in the bigger scheme of my portfolio that I overlook it.

I also looked at myindex.jp and yes believe the data presented suggests one ought to have some gold. I think the top portfolios there (from my perspective) had like 20% in gold, or was it even more… anyway, I am trying to increase my gold through the GLDM ETF which is apparently better suited for buy-and-hold types, which is my plan for my gold.

I also buy gold (and platinum) via Japanese futures from time to time, but it’s a more maintenance that way.

[ChapInTokyo]

GLDM with an expense ratio of 0.1% seems ideal for having in my NISA Growth quota as inflation protection.