NISA and IDeCo - best investment fund choices

[JimmyK]

Hi all
No doubt this question has been answered before somewhere, so my apologies in advance.
I’ve finally opened a brokerage account with Rakuten and I’m ready to start utilizing the NISA and iDeCo investment plans. I have some spare change to dump into the NISA lump sum plan (hoping to max out before year end), which I want to get onto first as it’s not doing much otherwise at the moment. I also want to set up the monthly IDeCo contributions (my limit is JPY23k), before finishing off by setting up the NISA tsumitate. So, it’s the old chestnut of what are currently considered the best funds in each case? I’m approaching 55yrs old, so I’m not looking for any high gain/high risk strategy. Just something steady. That should also help avoid steep peaks and troughs that are an issue with the timing of lump sum investing. World fund developed countries seems to come up a lot. Still good? What about Japanese stocks? Japan markets have had a good run, but are they going to run out of steam soon? I read somewhere that with bigger companies listed on the Nikkei 225 that could be the case, but there’s still room for growth with small and mid caps. Not expecting professional investment advice here, just some guidance and insight in what those of you who are already investing in NISA and iDeCo are doing. Thanks!

[beanhead]

I don't think anyone here is qualified to give you advice on what funds to invest in. If you read around the forum you can see which funds are commonly purchased.
There are also awards for these things in Japan. The eMaxis Slim series wins a fair share of these prizes.

I also use Rakuten for iDeCo. The eMaxis Slim series is not available. There is a new Rakuten worldwide/all-country equity fund, along with the developed country equity fund which is popular. Both are low-cost.

Japan is included in both All-Country funds (which include 'developing markets' ) and the developed country funds. If you want simplicity just buying these funds gives you Japan exposure. Buying Japan-specific funds is fine, too, if you believe that Japan will outperform other countries.

[Seasider4374]

I'm maybe a couple of months ahead in the process to yourself, having opened my Rakuten account in December last year, so perhaps my experience will help.

Setting up a Rakuten brokerage account was really easy. As was setting up NISA and T-NISA on their portal.

Though I had real issues setting up an IDECO account on Rakuten. The brokerage account, and NISAs didn't have an issue with foreign middle names, nor if any kana names had hyphens in them.

On my Rakuten IDECO application however both of these caused real issues. The online application auto-filled my surname and given name but left my middle name omitted, causing my designated deposit account (Yucho) to not be able to link with Rakuten as "my kana name didn't match".

Rakuten support suggested I try applying again but witout logging into my brokerage account so I could fill the details in manually (and combining my given and middle names together) but then a "we don't recognise hyphens in names" error occured.

So if you only have given and surname, or none of your kana names contain hyphens, then maybe Rakuten will be fine for your IDECO. But in my experience using Monex for IDECO went completely smoothly (it auto-completed surname, given name, and middle name WITH hyphens with no problems).

SBI (or other brokerages) may be fine with middle names/hyphens but their paper application form (or my poor Japanese reading of it) seemed to suggest they were forcing NISA onto me at the same time as brokerage account application so I didn't end up applying for an account with them, wanting to leave which brokerage I used for NISA up to me.

If you think your name in kana may cause similar issues to those I faced I'd recommend opening a Monex account alongside your Rakuten asap. The process takes longer as it's initially an online, then wait for postal documents affair. Unlike Rakuten's all online system. Plus the IDECO application itself is longer than NISAs' taking about 1-2 months. I'm happy to say thought that my very first IDECO deposit was withdrawn from my Yucho account today thanks to Monex!

Good luck

[Chizakura]

It depends a bit. Do you absolutely rely on this money to pay your rent etc. after you retire? If not, then you can take a bit of risk.
I'd recommend either a very diversified, accumulating all-world ETF such as "emaxis slim all country" or a very domestically diversified ETF such as TOPIX (国内株式) tracking ETFs, such as the one from emaxis. Which one you choose depends a bit on you. You can also mix them and use one in NISA and one in ideco. (better to use topix in ideco and all-world in nisa)

The all-world etfs have a currency risk. If the yen grows strong then you will lose purchase power. The topix etfs on the other hand are more volatile. If a big earthquake/tsunami hits Japan than topix might go down a lot, whereas an all-world etf won't change much.

That being said, stocks always have some risk. Check the charts of all-world etfs during covid and see how much it can down. You should therefore also store parts of your assets in plan yen and make sure to stock up / buy high quality things before you retire, such as a low-maintenance car, a new washing mashine/dryer, a new AC (if you own your apartment) etc. if possible. This will reduce surprise-expenses.

[William]

You can also mix them and use one in NISA and one in ideco. (better to use topix in ideco and all-world in nisa)

May I ask your reasoning behind this?

If I had to guess, I'd say it's because you consider the Topix slightly riskier, so it's better to play it on long-term, hence the iDeco, whereas the Nisa gives you more flexibility to sell.

(For what it is worth, I'm one of those guys who just put everything in eMAxis All countries, both for my iDeco and NISA. And then just forget about it.)

[adamu]

ETF

Just a nit: you are saying ETF when you mean Mutual Fund.
https://www.investopedia.com/articles/e ... erence.asp

[Chizakura]

You can also mix them and use one in NISA and one in ideco. (better to use topix in ideco and all-world in nisa)

May I ask your reasoning behind this?

If I had to guess, I'd say it's because you consider the Topix slightly riskier, so it's better to play it on long-term, hence the iDeco, whereas the Nisa gives you more flexibility to sell.

No, it's not about the risk, it's about the currency. Ideco has a tax free allowance. There are then three cases: yen is getting 1) much stronger, 2) much weaker 3) stays the same, compared to the other currencies that impact your investment (which for an all-world ETF would be dominantly USD).

In case 3) it doesn't matter. In case 1) it doesn't matter either (you will lose out on purchase power, but the same would be true in your NISA account).
However case 2) is where it matters. Because if the yen gets weaker, that means you will more likely exceed your tax free allowance, and you cannot control the payout very well in terms of timing compared to NISA. Since ideco is taxed progressively (like income), you could lose more money compared to NISA where you would only pay capital gain tax (20%ish).

In short: because of the progress tax, you want to try to "flatten" out your returns in yen. And that is harder to if you deal with foreign currencies.

Also, in NISA, you can keep the money and have it growing if you don't need it immediately when you retire, so you can flatten it out in a more custom way.

(For what it is worth, I'm one of those guys who just put everything in eMAxis All countries, both for my iDeco and NISA. And then just forget about it.)

This is actually a totally fine approach. It just means that if Japan yen and economy grow strong, you will lose purchase power *relative to your neighbours and other people in Japan*. If you have to pay a high rent, this might be a problem. Some people want to reduce this risk. On the other hand, if Japan doesn't do well, then with TOPIX you would not lose out in comparison to your neighbours, but with All-world you would actually win out in comparison.

Also, if you travel a lot or spend money outside of Japan, then if Japan doesn't do well and you are invested in only TOPIX or similar, your purchase power would go down.

[Chizakura]

ETF

Just a nit: you are saying ETF when you mean Mutual Fund.
https://www.investopedia.com/articles/e ... erence.asp

That's correct, thanks. I'm lazy.

[Chizakura]

To add one more thing: optimally, a yen hedged eMaxis All countries would be the better option for ideco, whereas a regular eMaxis All countries would be the better option for NISA, since hedging has a small price. But I don't think such a hedged emaxis exists, at least not for nisa/ideco accounts.

[sutebayashi]

The all-world etfs have a currency risk. If the yen grows strong then you will lose purchase power.

In my view, Japanese assets have a currency risk too - the yen itself. If the yen continues to weaken, then purchasing power may be lost (depending on whether Japanese stocks rise enough to compensate).

(I’m watching Kanda on TV now proclaiming that the yen’s 34 year low today is not in line with fundamentals… but I think he is full of hot air. The huge interest rate differential between the yen and foreign currency majors is obviously “fundamentals”.)

For the original question from JimmyK, I think the first question to ask is what average annual performance you hope to get from your portfolio, and then try to construct one that produces the return that is desired for a proportionate degree of risk (myindex.jp is one good site for that purpose.)