Hi everyone, would like to thank you in advance for reading the post and chiming in with your advice. Here is a bit of my situation:
Gender: Male
Age: 33
Status: Married (almost 10 years to a Japanese national.)
Children : 4 ( 2-8years old)
Debt Free
No car.
Steady Monthly Income ¥350,000 pretax.
Part time job ¥100,000~200,000 monthly.
Emergency fund ¥3million.
I pay ¥30,000 a month ( Aflac live, heath, cancer, disability insurance Covering all my family.)
Total Monthly expenses ¥350,000.
I moved to Japan about 3 years ago. Started paying in the national health insurance system within the first few months moving here. The company I am working for was new and small and didn’t pay the contribution for me. So the first 2 years working here I didn’t contribute on the national pension. I know I should have paid them myself but couldn’t/didn’t.
Beginning of 2017, they changed the contract so the work handles all my health and social contribution. ( I have contributed on the national pension for 1 year now.)
After all my expenses I am left with ¥50,000~100,000 a month.
I just open an investing account with SBI.
My Japanese is very limited and the website looks overwhelming and intimidating.
What shall I do with the extra spare money? Where should I invest. I read almost all the topics on this forum and am binge reading the RetireJapan blog as well.
I am planning to retire in Japan. Am tolerant to risk ( would go 70/30 or 80/20). I am prioritizing the iDeco and planning to max it out as soon as possible.
What would be the best funds, stocks, bonds to keep on my iDeco. And what are the best option to keep on a NISA our taxable account. I am planning to leave the money for 10,20 or until I retire on those account.
I am also planning to buy a house ¥35-45 million. No down payment for 30-35 years. I already pay 80,000 rent a month so at least to have a piece of land ( even if the building itself gets depriciated) when I retire than nothing. Correct me if I am wrong.
Any advice is welcomed. Especially with that stocks, index funds, mutual funds to use. I am not a U.S citizens so to issues on duble taxation and such. Thank you.
Novice Investor. Guidance needed. Building a portfolio.
Novice Investor. Guidance needed. Building a portfolio.
Last edited by Ditto on Sat Mar 17, 2018 5:56 am, edited 1 time in total.
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Re: Novice Investor. Guidance needed. Building a portfolio.
Hi Ditto
Welcome! Sounds like you are in good shape.
As you are planning, maxing out iDeCo is a no-brainer. After that consider using NISA accounts to minimize taxes on your investments. You can open these for each family member so probably won't run out of allowance
One question is whether to open tsumitate NISA for your and your wife and invest 800,000 yen a year for 20 years tax free, or go with ordinary NISA and get up to 2.4m a year for five years.
Choosing funds is relatively easy once you have a target asset allocation. As you are in your 30s both 80-20 and 70-30 seem reasonable, especially as you have a decent emergency fund. Assuming your income/employment is fairly stable, you might be able to invest in more stocks and fewer bonds. Then you have to think about how to allocate the stocks/bonds/other:
Stocks:
Developed world -ex Japan
Japan
Emerging markets
Bonds:
Japan
other (exchange rate risk?)
Other
REITs
commodities
Once you have an idea post it here and we can help you think about specific products as well as where to put them. Good luck
Welcome! Sounds like you are in good shape.
As you are planning, maxing out iDeCo is a no-brainer. After that consider using NISA accounts to minimize taxes on your investments. You can open these for each family member so probably won't run out of allowance
One question is whether to open tsumitate NISA for your and your wife and invest 800,000 yen a year for 20 years tax free, or go with ordinary NISA and get up to 2.4m a year for five years.
Choosing funds is relatively easy once you have a target asset allocation. As you are in your 30s both 80-20 and 70-30 seem reasonable, especially as you have a decent emergency fund. Assuming your income/employment is fairly stable, you might be able to invest in more stocks and fewer bonds. Then you have to think about how to allocate the stocks/bonds/other:
Stocks:
Developed world -ex Japan
Japan
Emerging markets
Bonds:
Japan
other (exchange rate risk?)
Other
REITs
commodities
Once you have an idea post it here and we can help you think about specific products as well as where to put them. Good luck
English teacher and writer. RetireJapan founder. Avid reader.
eMaxis Slim Shady
eMaxis Slim Shady
Re: Novice Investor. Guidance needed. Building a portfolio.
Thank you so much for the quick reply. Very uplifting and encouraging response. Will do some research as I am really uneducated on the matter and get back here for more advice.
Cheers,
Ditto
Cheers,
Ditto
Re: Novice Investor. Guidance needed. Building a portfolio.
The old (archived) Retire Japan forum has quite a few good threads about choosing funds for a NISA etc. Might be worth a look:
http://www.retirejapan.info/old-forum-a ... investing/
http://www.retirejapan.info/old-forum-a ... investing/
Re: Novice Investor. Guidance needed. Building a portfolio.
It seems you know more or less what you're doing as far as stock/bond allocations and keeping costs low.
Went through a bunch of stuff on taxes in another thread( viewtopic.php?f=11&t=184 if you care to read the full thing but I'll try to summarize:
http://shintaro-money.com/index-cost/ has a good listing of stock/bond funds with their real costs(management + hidden costs).
You should be aware of a couple of things regarding taxes:
a) foreign dividends in a nisa/ideco will still be taxed outside japan and you cannot reclaim those foreign taxes.
b) the non-us part of US-domiciled ETF's will be triple-taxed: once at the originating country, once for dividends generated by the etf itself, and finally once in japan(unless in a nisa/ideco)
c) you probably won't get the full 10% tax return on us taxes(plan for maybe 5%?)
d) many japanese funds will re-invest dividends internally, producing 0 dividends and adding to the value of the fund shares. Effectively this allows you to defer all gains as capital gains. This also allows you to effectively "expand" your nisa/ideco tax free allocation(if you wanted to reinvest etf dividends you'd have to consume your tax-free bracket).
What this means(and this is just my personal opinion, you should math it out or consult with a professional rather than just trusting people on the internet, however well-meaning they may be):
- For any nikkei/topix, get a japanese ETF or fund. Inside a NISA/iDeco I'd go with a fund as it allows you to defer everything to later and expand your tax free bracket. Outside, an ETF like 1348 would be ok too. Deferring taxes = more compounding! eMaxis/nissei/tawara all offer good low cost funds domestically.
- For a pure US fund (VTI for example) the tax results are the same whether you buy in japan or the US(you get taxed once each). Vanguard offers extremely low costs while using a japanese fund that does the same would allow you to defer the dividends as capital gains(but only after the US took its share). Overall due to the extremely low costs buying VTI and reinvesting the gains looks cheaper in most scenarios. Another interesting option is going for a US growth fund(which generates less dividends thus more deferred taxation) like VUG.
- For an emerging markets fund, using a vanguard ETF will get you triple taxed. Going with a japanese fund with double taxing and deferred japanese dividends will come out better. eMaxis slim has a pretty good offering if you want emerging markets.
- For developed world funds, it's pretty close. My calculations put a cheap japanese fund (eMaxis/nissei/tawara) as marginally cheaper than VT for buy and hold, even if you apply and get the tax rebate. Just watch out for SBI's I-exe: while it is cheap it is actually a fund of funds which contains US etfs and is thus triple-taxed while beaten out.
Myself I have my stocks/bonds as a split of 2:5:1:2 japan(nissei nikkei)/developed-japan(eMaxis)/emerging(eMaxis)/bonds. I initially made some sub-optimal decisions such as sticking 1550 into my NISA, but it's not too bad. I am currently considering revising this however and might at a later date switch to japan/us/emerging just because a) the US companies are global already and strongly interlinked to other developed nations and b) the low cost advantage of vanguard becoming usable when you only get taxed twice.
I feel like the biggest risk in my portfolio is in currency. But I just couldn't stomach putting more that 20% into the japanese economy which I simply don't see making the same returns as most of the rest of the world.
Went through a bunch of stuff on taxes in another thread( viewtopic.php?f=11&t=184 if you care to read the full thing but I'll try to summarize:
http://shintaro-money.com/index-cost/ has a good listing of stock/bond funds with their real costs(management + hidden costs).
You should be aware of a couple of things regarding taxes:
a) foreign dividends in a nisa/ideco will still be taxed outside japan and you cannot reclaim those foreign taxes.
b) the non-us part of US-domiciled ETF's will be triple-taxed: once at the originating country, once for dividends generated by the etf itself, and finally once in japan(unless in a nisa/ideco)
c) you probably won't get the full 10% tax return on us taxes(plan for maybe 5%?)
d) many japanese funds will re-invest dividends internally, producing 0 dividends and adding to the value of the fund shares. Effectively this allows you to defer all gains as capital gains. This also allows you to effectively "expand" your nisa/ideco tax free allocation(if you wanted to reinvest etf dividends you'd have to consume your tax-free bracket).
What this means(and this is just my personal opinion, you should math it out or consult with a professional rather than just trusting people on the internet, however well-meaning they may be):
- For any nikkei/topix, get a japanese ETF or fund. Inside a NISA/iDeco I'd go with a fund as it allows you to defer everything to later and expand your tax free bracket. Outside, an ETF like 1348 would be ok too. Deferring taxes = more compounding! eMaxis/nissei/tawara all offer good low cost funds domestically.
- For a pure US fund (VTI for example) the tax results are the same whether you buy in japan or the US(you get taxed once each). Vanguard offers extremely low costs while using a japanese fund that does the same would allow you to defer the dividends as capital gains(but only after the US took its share). Overall due to the extremely low costs buying VTI and reinvesting the gains looks cheaper in most scenarios. Another interesting option is going for a US growth fund(which generates less dividends thus more deferred taxation) like VUG.
- For an emerging markets fund, using a vanguard ETF will get you triple taxed. Going with a japanese fund with double taxing and deferred japanese dividends will come out better. eMaxis slim has a pretty good offering if you want emerging markets.
- For developed world funds, it's pretty close. My calculations put a cheap japanese fund (eMaxis/nissei/tawara) as marginally cheaper than VT for buy and hold, even if you apply and get the tax rebate. Just watch out for SBI's I-exe: while it is cheap it is actually a fund of funds which contains US etfs and is thus triple-taxed while beaten out.
Myself I have my stocks/bonds as a split of 2:5:1:2 japan(nissei nikkei)/developed-japan(eMaxis)/emerging(eMaxis)/bonds. I initially made some sub-optimal decisions such as sticking 1550 into my NISA, but it's not too bad. I am currently considering revising this however and might at a later date switch to japan/us/emerging just because a) the US companies are global already and strongly interlinked to other developed nations and b) the low cost advantage of vanguard becoming usable when you only get taxed twice.
I feel like the biggest risk in my portfolio is in currency. But I just couldn't stomach putting more that 20% into the japanese economy which I simply don't see making the same returns as most of the rest of the world.
Re: Novice Investor. Guidance needed. Building a portfolio.
1550 is popular and it's certainly not a bad choice. In fact it's a very solid choice with low costs.
The main reason you would use a fund instead of 1550 in your nisa is that the fund will internally reinvest dividends bringing up the base price of each unit of stock.
Since the dividends don't get released, they are still inside the nisa, effectively "expanding" your limited tax-free bracket. If you use an ETF like 1550 once it generates dividends if you want to reinvest them you have to use more of your nisa bracket, or if you have none left you have to put it in a taxable account.
One other small issue is whether you're buying at a discount or premium. Since the price of ETF's are decided by the bid-ask spread(the difference between what people will buy and sell for) it may be higher or lower than the net asset value of the underlying stocks.
But really, it's a small issue. In the end of the day you got a low-cost well diversified fund so you're off to a great start(and I made the exact same error)
Re: Novice Investor. Guidance needed. Building a portfolio.
Hi Ditto – welcome to the Forums!
(Edit: Sorry, this got really long….)
First – you’ve got a great foundation, as you’re debt-free and already have a solid emergency fund in place. Well done.
Just my $0.02 looking over your whole situation.
I’m ball-parking your annual income at around Y6 million.
First –Y30,000 a month for insurance for someone your age is *really* high.
You do have young kids, so let’s assume something happened to you right now.
If your youngest child is 2, you have 18 years until she’s 20. Let’s assume you they would want to maintain a lifestyle equivalent to 70% of your current monthly expenses until she’s 20.
Assuming your wife is the same age as you, she’d be 51 when your youngest is 20. Let’s assume she’d live another 30 years, until she’s 80, and she’d live on 50% of your current monthly outlay.
The numbers change a bit depending on if your wife has paid in to the National Pension System or not.
But we’re being conservative – we assume your wife never takes a part-time job, never remarries, the life insurance money is never invested etc.
My spreadsheet suggests the max you’d need if you got hit by a bus tomorrow is Y80-90 million.
You could go out right now and get a 10-year term life insurance that pays out Y100 million* for Y13,000 a month.
That’s less than half what you’re paying. The difference is almost your monthly iDeCo contribution.
In 10 years, you can get a new 10-year term policy with reduced coverage – your kids/wife are 10 years older and you’ll have saved up more.
Cancer insurance is a rip-off. It’s expensive and unless you literally get cancer right away, you will pay out far, far more than the out-of-pocket expense will be.
The average out-of-pocket expense for the first year you get diagnosed with cancer is about Y250,000-300,000. Not a month, for the entire year.
Average cost is less than Y100,000 a year for years 2 and 3, as it’s mostly just check-ups and stuff. And that’s with far longer hospital stays than in the US/UK.
(We have first-hand experience with this; my wife was diagnosed some years ago, cancer free ever since knocking on wood).
Japan health care costs are far less than in the US/UK – and there is a ‘High-cost Medical Expenses program (I don’t know if there’s official English for it – in Japanese, it’s 高額療養費) that caps the max amount you need to pay out of pocket each month at around Y85,000 for someone in your situation. If you have an emergency fund, you don’t need cancer insurance. Ditto disability insurance, as it’s usually covered by life insurance (check the fine print tho).
If you in tend to stay in Japan long-term, go to your local city hall and say that you want to back-pay contributions you didn’t make for the first two years you were here.
I think you have up to 10 years (have to double-check that) to pay in for any periods you didn’t contribute, so don’t think you would need to make one lump-sum payment.
I STRONGLY advise against the ‘no down payment, 30-35 year loan’ idea. It’s a horrible, horrible idea. It means you end up buying too much house.
What happens if your side hustle dries up for six months? Or your wife gets sick so you need to spend more time at home etc?
(Yes, I know some on these boards are sick of me harping on it - but I really, really hate debt. And so should you).
A Y40 million loan for 35 years at 1.3% is Y120,000 a month. That’s Y40,000 more than you’re paying now.
You have four kids, so you’ll need a big-ish house, so yes, you may need to live a bit farther out.
I live outside of Shinjuku, I think it’s relatively big-ish by Japan standards, it’s a four-bedroom house with a big living room and such.
A bit of a walk to the station but schools and supermarket etc. right near by. Bought this last year for Y25 million.
If you put 5 million down you could buy a Y25 million house, a Y20 million loan if you insisted on paying it off over 30 years would be less than you’re paying now.
Now – if I woke up in your situation, and knowing that you want to buy a house, I would stop investing for a bit. I’d try to pile on the part-time work as much as possible and get 6 million saved up. Use 5 million for a down-payment and leave Y1 million as a mini-emergency fund. I’d re-do the life insurance situation. Once you’ve situated, then start saving / investing.
On the investing front – as long as you are focusing on low-cost options and are reasonably sensible about it, I think *what* you buy is less important than being consistent with it. Every month you need to be putting stuff away; ideally have it done automatically. You need to be on a budget so that you don’t have to stop this month because you had to re-do the roof or fix the car etc.
I would not really think about investing until you have your budget and house situation squared away. Waiting an extra year isn’t going to kill you; buying too much house and taking on too much debt will.
I do recommend buying, as it's something that you will own. But I also recommend being fairly conservative with your purchase.
Anyway – this got way longer than I intended so I’ll stop here
* Not even sure you could get a 100 million insurance policy making 6 million a year. 60 million would be reasonable, and is more in line with what you'd actually need in practical terms.
(Edit: Sorry, this got really long….)
First – you’ve got a great foundation, as you’re debt-free and already have a solid emergency fund in place. Well done.
Just my $0.02 looking over your whole situation.
I’m ball-parking your annual income at around Y6 million.
First –Y30,000 a month for insurance for someone your age is *really* high.
You do have young kids, so let’s assume something happened to you right now.
If your youngest child is 2, you have 18 years until she’s 20. Let’s assume you they would want to maintain a lifestyle equivalent to 70% of your current monthly expenses until she’s 20.
Assuming your wife is the same age as you, she’d be 51 when your youngest is 20. Let’s assume she’d live another 30 years, until she’s 80, and she’d live on 50% of your current monthly outlay.
The numbers change a bit depending on if your wife has paid in to the National Pension System or not.
But we’re being conservative – we assume your wife never takes a part-time job, never remarries, the life insurance money is never invested etc.
My spreadsheet suggests the max you’d need if you got hit by a bus tomorrow is Y80-90 million.
You could go out right now and get a 10-year term life insurance that pays out Y100 million* for Y13,000 a month.
That’s less than half what you’re paying. The difference is almost your monthly iDeCo contribution.
In 10 years, you can get a new 10-year term policy with reduced coverage – your kids/wife are 10 years older and you’ll have saved up more.
Cancer insurance is a rip-off. It’s expensive and unless you literally get cancer right away, you will pay out far, far more than the out-of-pocket expense will be.
The average out-of-pocket expense for the first year you get diagnosed with cancer is about Y250,000-300,000. Not a month, for the entire year.
Average cost is less than Y100,000 a year for years 2 and 3, as it’s mostly just check-ups and stuff. And that’s with far longer hospital stays than in the US/UK.
(We have first-hand experience with this; my wife was diagnosed some years ago, cancer free ever since knocking on wood).
Japan health care costs are far less than in the US/UK – and there is a ‘High-cost Medical Expenses program (I don’t know if there’s official English for it – in Japanese, it’s 高額療養費) that caps the max amount you need to pay out of pocket each month at around Y85,000 for someone in your situation. If you have an emergency fund, you don’t need cancer insurance. Ditto disability insurance, as it’s usually covered by life insurance (check the fine print tho).
If you in tend to stay in Japan long-term, go to your local city hall and say that you want to back-pay contributions you didn’t make for the first two years you were here.
I think you have up to 10 years (have to double-check that) to pay in for any periods you didn’t contribute, so don’t think you would need to make one lump-sum payment.
I STRONGLY advise against the ‘no down payment, 30-35 year loan’ idea. It’s a horrible, horrible idea. It means you end up buying too much house.
What happens if your side hustle dries up for six months? Or your wife gets sick so you need to spend more time at home etc?
(Yes, I know some on these boards are sick of me harping on it - but I really, really hate debt. And so should you).
A Y40 million loan for 35 years at 1.3% is Y120,000 a month. That’s Y40,000 more than you’re paying now.
You have four kids, so you’ll need a big-ish house, so yes, you may need to live a bit farther out.
I live outside of Shinjuku, I think it’s relatively big-ish by Japan standards, it’s a four-bedroom house with a big living room and such.
A bit of a walk to the station but schools and supermarket etc. right near by. Bought this last year for Y25 million.
If you put 5 million down you could buy a Y25 million house, a Y20 million loan if you insisted on paying it off over 30 years would be less than you’re paying now.
Now – if I woke up in your situation, and knowing that you want to buy a house, I would stop investing for a bit. I’d try to pile on the part-time work as much as possible and get 6 million saved up. Use 5 million for a down-payment and leave Y1 million as a mini-emergency fund. I’d re-do the life insurance situation. Once you’ve situated, then start saving / investing.
On the investing front – as long as you are focusing on low-cost options and are reasonably sensible about it, I think *what* you buy is less important than being consistent with it. Every month you need to be putting stuff away; ideally have it done automatically. You need to be on a budget so that you don’t have to stop this month because you had to re-do the roof or fix the car etc.
I would not really think about investing until you have your budget and house situation squared away. Waiting an extra year isn’t going to kill you; buying too much house and taking on too much debt will.
I do recommend buying, as it's something that you will own. But I also recommend being fairly conservative with your purchase.
Anyway – this got way longer than I intended so I’ll stop here
* Not even sure you could get a 100 million insurance policy making 6 million a year. 60 million would be reasonable, and is more in line with what you'd actually need in practical terms.
Re: Novice Investor. Guidance needed. Building a portfolio.
Gonna agree with dragonash on the insurance and on considering getting a cheaper house.
But with interest rates where they are now, I don't agree on saving for a down payment, if you can get a fixed 1.3% that's way cheaper than you should make on any long-term investments. Paying an up-front sum would just mean not being able to invest it at a higher rate.
But with interest rates where they are now, I don't agree on saving for a down payment, if you can get a fixed 1.3% that's way cheaper than you should make on any long-term investments. Paying an up-front sum would just mean not being able to invest it at a higher rate.
Re: Novice Investor. Guidance needed. Building a portfolio.
Hi Dragonash,
Thank you for your advice.
Wanted to clear that ¥30,000 Insurance is for the whole family not just me.
¥1500 each kid x 4 = ¥6000
¥13000 for me life, health, cancer and disability insurance
¥11000 my wife, life, health and cancer insurance.
I greatly appreciate your input and will reevaluate out insurance once again and see that can we cut or if we can find a better deal.
I will reconsider the whole house situation once again but I am a little bit more limited in choices as it needs to be within a walking distance from Nurseries, kindergarten and elementary schools and jr. high schools.
Thank you for the time and effort put on your advice. Read it a few times to make sure I didn’t miss anything.
Kind regards
Thank you for your advice.
Wanted to clear that ¥30,000 Insurance is for the whole family not just me.
¥1500 each kid x 4 = ¥6000
¥13000 for me life, health, cancer and disability insurance
¥11000 my wife, life, health and cancer insurance.
I greatly appreciate your input and will reevaluate out insurance once again and see that can we cut or if we can find a better deal.
I will reconsider the whole house situation once again but I am a little bit more limited in choices as it needs to be within a walking distance from Nurseries, kindergarten and elementary schools and jr. high schools.
Thank you for the time and effort put on your advice. Read it a few times to make sure I didn’t miss anything.
Kind regards