When in Rome...
Japan has the second-largest stock market in the world, after the USA. It makes up around 9% of the world market.
We wrote a post about buying stocks in Japan earlier in the year. This post is going to build on that one and go a little deeper into buying Japanese equities.
For people in Japan, it may make sense to own the local market. Some people may even choose to be overweight. Bear in mind that if you buy a world index fund in Japan, it will probably not include any Japanese assets.
For most people the best option is probably index funds. Recently in Japan mutual funds (投資信託 -toushi shintaku) have become extremely customer friendly. Companies have rushed into the sector and competition has driven costs very low indeed.
You can buy mutual funds in iDeCo, NISA, Tsumitate NISA, and ordinary investing accounts. When looking for funds search for 'no load' and then look for low annual fees (you can usually sort by 手数料 and choose one of the cheapest ones). Some current standouts include the eMaxis Slim series of funds, but new funds are coming out all the time so it is worth looking around from time to time.
You can also buy individual companies. This seems to be one of the only options for Americans in Japan. According to this article, from this week domestic equities can only be bought and sold in lots of 100 (this was already the case for most stocks, but there were some exceptions). With cheaper stocks this is not too bad, but some of the expensive ones basically become impossible to buy (for example, Nintendo stock is over 40,000 yen now, so to buy any you would need at least four million yen).
Having your portfolio concentrated in just a few stocks exposes you to quite a bit of risk. If you don't have hundreds of millions of yen to invest, a better solution might be to buy an index fund.
There are broadly speaking two types of Japanese equity index funds: ones that track the Nikkei 225 and ones that track the TOPIX. The Nikkei 225 is a list of 225 blue-chip companies listed on the Tokyo Stock Exchange. The TOPIX is a lits of just under 1700 companies also listed on the TSE. Generally speaking the TOPIX gives better exposure to the Japanese economy as a whole.
You could also combine the two approaches, ie buy a couple of individual stocks you like the look of, and combine them with some mutual funds tracking the TOPIX (or the Nikkei 225, but the TOPIX seems preferable to me).
How about you? Are you buying Japanese equities in your portfolio? Any questions?