NISA & iDECO for dependent spouse?

[Biketokyo]

Thank you gulliver. My wife is in her early 30s and the goal is saving for retirement. I’m in my early 40s and hope to continue working for another 20 years because I really enjoy teaching and research but should have enough savings to get by doing a very frugal coast FIRE in another 5 to 6 years just in case things don’t go as planned.

[Gulliver]

Thank you gulliver. My wife is in her early 30s and the goal is saving for retirement. I’m in my early 40s and hope to continue working for another 20 years because I really enjoy teaching and research but should have enough savings to get by doing a very frugal coast FIRE in another 5 to 6 years just in case things don’t go as planned.

In that case, definitely go for NISA. If she puts her money in iDeCo will be unaccessible until she’s 60. You can withdraw that NISA money anytime you want (ie. you need it for early retirement, as you mentioned above).

I would stay away from any kind of “International All-Country type fund.” Your main fund should be an S&P 500 index such as “ｅＭＡＸＩＳ　Ｓｌｉｍ　米国株式（Ｓ＆Ｐ５００” because:

1. Over the medium and long-term the S&P 500 ALWAYS out-performs International global funds.

2. All-world money markets directly benefit your choice of dubious dictators and despots.

(Yes, I know US multinationals also do business with dictators but the supply chains are more transparent and they are held to higher institutional and investor ethical standards).

I can recommend Shinsei bank which is linked to Monex. There’s a seamless Interface and the fund has industry low expense ratios. Shinsei also allows for foreign currency deposits and has English support. Your only downside is that you have to keep a certain amount in the account to get free ATM withdrawals.

[RetireJapan]

1. Over the medium and long-term the S&P 500 ALWAYS out-performs International global funds.

Past performance is no guarantee of future results though. And the S&P500 is far less diversified.

Will it continue to outperform? Perhaps.

60% or so of a global fund will be made up of US stocks, but medium and smaller companies too, not just the giants.

[adamu]

I do feel a bit like telling someone to invest 100% in the US is like telling someone to invest in Rome during the dying days of the Roman empire (or the British one, for that matter ). There might still be a lifetime in it though, so you could be ok. The US recently had a wannabe despot as its leader too, so that doesn't avoid the despots either.

[TBS]

1. Over the medium and long-term the S&P 500 ALWAYS out-performs International global funds.

I guess it depends on what you call the medium term, but this is not actually true. Between 1971 and 1989 global funds outpaced the S&P500 (in part due to the meteoric rise of Japan). And again between between the dotcom bust in 2002 and the Lehman crash in 2008, that time thanks to China, Europe & emerging markets.

You can see those periods here*: https://www.longtermtrends.net/msci-usa-vs-the-world/
When the graph is rising, US is outperforming the World. When it is falling, US is underperforming.

Another thing to consider is the FX risk. Many posters on here have been caught surprised by the fall in the yen this year. USD falls are conceivable in future, and diversification may offer some protection if the $ does take a nose-dive.

Note, Gulliver, I'm not saying your wrong to raise this point. Investing in the S&P500 vs the world is something I grapple with myself. However the situation is more complicated than your post makes out.

* The graph is not an ideal comparison as it doesn't include dividends and it's all-US not S&P500. However I've made other graphs in the past accounting for these where I can and the story doesn't change.

[TokyoBoglehead]

I do feel a bit like telling someone to invest 100% in the US is like telling someone to invest in Rome during the dying days of the Roman empire (or the British one, for that matter ). There might still be a lifetime in it though, so you could be ok. The US recently had a wannabe despot as its leader too, so that doesn't avoid the despots either.

There's no reason to mention politics.

I think a far simpler explanation is you invest in global equities because we don't know the future, and no one does. Period.

In many ways the future has never been more uncertain.

[Gulliver]

Past performance is no guarantee of future results though. And the S&P500 is far less diversified.

I agree diversification is important (the S&P 500 is already very diversified both domestically and globally), but there can be a point where you become over-diversified. All country world indexes have exposure to some very volatile areas of the world. In a world that is already facing so much uncertainty why would you expose yourself to that extra risk?

If you were looking for more diversification, bonds would be the more logical choice. ｅＭＡＸＩＳ　Ｓｌｉｍ　先進国債券インデックス, for example, would diversify your portfolio both market-wide and globally. It would also serve as a hedge against loss during global market downturns much more effectively (all country world indexes become very volatile in these situations).

Simply diversifying for diversification’s sake is a poor investment strategy.

I do feel a bit like telling someone to invest 100% in the US is like telling someone to invest in Rome during the dying days of the Roman empire (or the British one, for that matter ). There might still be a lifetime in it though, so you could be ok. The US recently had a wannabe despot as its leader too, so that doesn't avoid the despots either.

I was trying my hardest not to go there but, since the cat’s out of the bag, you are correct. I fear the days of “invest and forget it” are over. Unfortunately, at this point in history, a more vigilant approach is needed. (Beginner investors- do not try this at home ).

Also, I did not advise the OP to invest 100% in the US but that the S&P 500 should their MAIN fund.

[TokyoBoglehead]

Past performance is no guarantee of future results though. And the S&P500 is far less diversified.

I agree diversification is important (the S&P 500 is already very diversified both domestically and globally), but there can be a point where you become over-diversified. All country world indexes have exposure to some very volatile areas of the world. In a world that is already facing so much uncertainty why would you expose yourself to that extra risk?

If you were looking for more diversification, bonds would be the more logical choice. ｅＭＡＸＩＳ　Ｓｌｉｍ　先進国債券インデックス, for example, would diversify your portfolio both market-wide and globally. It would also serve as a hedge against loss during global market downturns much more effectively (all country world indexes become very volatile in these situations).

Simply diversifying for diversification’s sake is a poor investment strategy.

I do feel a bit like telling someone to invest 100% in the US is like telling someone to invest in Rome during the dying days of the Roman empire (or the British one, for that matter ). There might still be a lifetime in it though, so you could be ok. The US recently had a wannabe despot as its leader too, so that doesn't avoid the despots either.

I was trying my hardest not to go there but, since the cat’s out of the bag, you are correct. I fear the days of “invest and forget it” are over. Unfortunately, at this point in history, a more vigilant approach is needed. (Beginner investors- do not try this at home ).

Also, I did not advise the OP to invest 100% in the US but that the S&P 500 should their MAIN fund.

I find it interesting that you are happy to use past performance as a guide for US equities, but not for bonds. Which have done quite horribly in recent decades. You also ignore the currency risk issue that are a huge concern for bond investments.

The old refrain that the S&P500 has international exposure is a bit funny because of course the opposite is true. (TMSC and Nestle for example).

Finally you clearly and explicitly told the poster to "stay away" from global index funds.

[TBS]

I agree diversification is important (the S&P 500 is already very diversified both domestically and globally), but there can be a point where you become over-diversified. All country world indexes have exposure to some very volatile areas of the world. In a world that is already facing so much uncertainty why would you expose yourself to that extra risk?

If you were looking for more diversification, bonds would be the more logical choice. ｅＭＡＸＩＳ　Ｓｌｉｍ　先進国債券インデックス, for example, would diversify your portfolio both market-wide and globally. It would also serve as a hedge against loss during global market downturns much more effectively (all country world indexes become very volatile in these situations).

There are two aspects that should be distinguished here. 1 is diversification across multiple markets/countries because we don't know which will be the winner (& contrary to what you said, historically the US has not always been the winner).

2 is whether the diversification of global index funds increases the volatility/risk of the profile.

1 is the point that I think the other posters were making, but 2 is what you responded about. Again contrary to what you said, some measures of risk show the MSCI ACWI was less volatile than S&P 500 over the past 30 years (see e.g. here & here). However the difference is not so great that I'd say either is a clear winner.

Unfortunately because data for the MSCI ACWI and FTSE All World indexes only starts in the late 1980s, most of the information out there only covers this period. As it is a period where the S&P500 outperformed, this seems to fuel a myth that the US always wins. It is basically a recency bias.

[Biketokyo]

Thank you for good points about S&P500 vs global index funds. My thought is since most of our savings in my name are in an S&P index fund with my broker in the US it might make the most sense for my wife’s NISA and iDECO to focus on global index funds. My feeling is that it’s ok if they don’t outperform the S&P500 as long as they are still performing reasonably well and give us (me mostly) a bit of a psychological cushion when worrying about the US. My understanding is that US companies still make up a significant portion of global index funds as well.

Besides concerns that a global index fund might slightly underperform an S&P500 one, is there any other argument against a global index fund since we already have a lot of savings in an S&P500 index fund?