Nikkei 225 or TOPIX

[Jamo]

In your opinion which is the better investment choice? I've read that over time all-market indexes such as TOPIX slightly outperform indexes with less stocks, such as the Nikkei 225 or S&P500 etc. This makes sense I guess, because you have greater diversification. TOPIX ETFs also seem to have lower running costs (0.06% for the iShares ETF) compared to the cheapest 225 index I could find (0.13% - also iShares). Seems like a no-brainer...

[RetireJapan]

I haven't given it much thought, to be honest

Figure they are both diversified and low-cost enough for me.

Any opinions?

[TheDorian]

Looking at it, it seems Nikkei 225 and TOPIX are very correlated (I assume they largely hold the same shares)

Screen Shot 2017-09-27 at 1.45.05 PM.png (106.31 KiB) Viewed 1969 times

Screen Shot 2017-09-27 at 1.45.20 PM.png (105.99 KiB) Viewed 1969 times

(See attached image of Nikkei and TOPIX, they start at different times so if you check the year they actually look very similar)

I wonder thought if its really worth putting money there (I have) because if you compare them to indexes like the SPY or DAX they show exponential growth while TOPIX and Nikkei seem to be oscillating

Screen Shot 2017-09-27 at 1.44.53 PM.png (102.86 KiB) Viewed 1969 times

Edit: those images look huge, let me know if shortlinks to the google page are preferred

[fools_gold]

The TOPIX index is market cap weighted, whereas the Nikkei is price weighted. This means that the components of the TOPIX are weighted according to the size of the companies (the number of shares multiplied by the price), whereas the Nikkei components are weighted according to the price of the individual shares. This means that a company with a few, high priced shares could have a bigger weighting than a much larger company which happens to have more, lower-priced shares. The TOPIX is also more diversified as it includes all the shares in the 1st section of the TSE (about 1675 companies).

In the end, I put my money in the TOPIX because it's more diversified and supposed to be a better reflection of the Japanese stock market. I'm not sure how much of a difference it actually makes though...

[styxomaniac]

Hello,

Fast forward 7 years since this post was created, which one should we invest in today, TOPIX or Nikkei 225? With the Nikkei hitting its highest level since the bubble economy burst, it looks to me like TOPIX is the way to go. Any thoughts?"

[Tkydon]

Which did actually perform better?

Nikkei 225
27-Sep-2017 - 20,251.41
23-Jan-2023 - 36,920.27

Gain - 16,668.86
Gain - 82.3%
Annual Gain - 10% p.a.

TOPIX
27-Sep-2017 - 1,663.13
23-Jan-2023 - 2,563.65

Gain - 900.52
Gain - 54.15%
Annual Gain - 7.11% p.a.

S&P500 - SPY
USD
27-Sep-2017 - 249.08
23-Jan-2023 - 483.45

Gain - 234.37
Gain - 94.1%
Annual Gain - 11.1% p.a.

In JPY Terms
27-Sep-2017 @ Y110 - 27,398.8
23-Jan-2023 @ Y148.52 - 71,802

Gain - 44,403.1
Gain - 162%
Gain - 116.52%


These figures do not include dividends paid out or reinvested


Bear in mind the difference between the USD and JPY numbers is entirely due to the Yen Decline, which is due in large to the elevated interest rates overseas, and could disappear if overseas interest rates start to come down, as hinted by the Yen appreciation from Nov to Year-End when the markets got a hint of a whiff of an idea that the FED will think about starting to think out considering to cut interest rates..

[styxomaniac]

Based on the performance of the Nikkei and TOPIX indices (and S&P500), it appears that the Nikkei has performed better than the TOPIX. I know it is difficult to predict the direction of the market with certainty but some analysts believe that the Nikkei may be more likely to experience a decline in the near future, while the TOPIX may continue to climb that is why my noob conclusion is to invest in TOPIX instead (Growth NISA)??

[northSaver]

Be careful of buying ETFs in NISA for long-term growth. Many of them don't reinvest dividends internally. They distribute dividends rather than accumulate them, which is inefficient within a NISA. The iShares TOPIX ETF you mentioned (1475) is distributing.

As for TOPIX vs Nikkei, I can't add much to what has already been said. I personally choose TOPIX because it's more diversified. Its structure is similar to the S&P500 whereas the Nikkei is similar to the Dow. If you want more tech exposure then the Nikkei might be better. The eMAXIS Slim mutual funds have the same fee for each: 0.154%. You could buy half of each if you can't decide

[TokyoWart]

My understanding is that there are some reasons that the Bank of Japan's purchasing of Japanese equities through ETFs has favored the Nikkei over the TOPIX index.

This paper just discusses the general effect on the N225:
https://www.rieti.go.jp/jp/publications/dp/19e014.pdf

This news article argues that the practice favors the N225 over TOPIX
https://www.barrons.com/articles/how-th ... 1472271673

[sutebayashi]

some analysts believe that the Nikkei may be more likely to experience a decline in the near future, while the TOPIX may continue to climb

They are just guessing, even if they are well informed types.

Pick your poison and stick with it.

I was watching a video of a year-end markets TV show last night, and it was funny because we are only 3 weeks into the new year and yet a full half of the dozen or so analyst predictions for the year have already proven wrong
(Jan 2024, or the first 3 weeks at least, has been a great year for stocks.)