It's just the smart thing to do
Recently a desperate arms race has broken out in Japan, triggered by the opening up and promotion of iDeCo accounts to most of the population, and escalated by a race to lock in customers.
We have all benefited.
Because of this arms race between the institutional giants, the range of mutual funds in Japan is better than ever. Right now, unless you are a US citizen*, the best way to invest in Japan is probably through mutual funds.
*if you are a US citizen you need to stick to individual Japanese companies or invest in the US using existing accounts. Alternatively you can open an account with Interactive Brokers.
I used to buy US ETFs, which seemed like a reasonable option at the time. Now, it is clearly a suboptimal one.
So what is so good about mutual funds?
Well, a mutual fund is a pool of money gathered from investors to buy assets. See more information here.
The main advantages of mutual funds in Japan are low fees and convenience.
You can now get extremely cheap mutual funds with no purchase fees, no redemption fees (look for ノーロード 'no load' funds) and very low annual costs on pretty much every major trading platform.
You can also buy them in yen, which means no need to incur fees to change your money into dollars.
You can buy them any time (the orders are processed once a day), and in lots of 1 yen (as opposed to a stock or ETF, which will have a unit cost several thousand times that).
When you buy a fund, you can usually choose whether it will pay out dividends (受取型) or reinvest them (再投資型).
With many brokers, it is relatively easy to set up regular investments (積立) where the broker will take money from your money account or bank account to buy a set investment each month. This means you can set your account up and then forget about it. Come back in a couple of decades and find yourself much better off.
Compare this to buying US ETFs (like the Vanguard ones recommended by US authors or bloggers):
- First you need to convert your yen into dollars (incurring costs and losing money on the exchange rate spread). You also lose a couple of days.
- Then you need to buy the ETFs, potentially paying a fee to do so. You will need to buy whole shares, which means it is unlikely that you will be able to buy the exact amount you want. This will also take a few days.
- You will pay US withholding taxes on any dividends, which you can claim back in a taxable account but not in a NISA account.
- If you sell you will end up with dollars. Selling also takes a few days.
- Finally if you want to spend your money in Japan you will need to change back into yen, incurring fees and paying the exchange rate spread. This also takes a few days.
- There is also a potential issue of being exposed to US inheritance taxes, although I believe this is not a problem for people living in Japan (due to the tax treaty)
What kind of mutual funds are available?
Pretty much anything you want. I recommend no-load, index-based mutual funds with low annual fees.
Most brokers will have a mutual fund (投資信託 toushi shintaku) section with tools to search and screen. I usually screen for ノーロード funds then look for the type I want (all-world equities, Japanese bonds, developed world equities, emerging market bonds, etc.).
One thing to keep in mind is that most 'world' funds will be ex-Japan (they don't include Japanese assets). As Japan makes up about 10% of the world stock market, if you want to mirror the world exactly you will need to have about 10% of your portfolio in Japanese assets.
Here is an example from Rakuten:
You can further narrow things down by choosing options on the left-hand column.
You can check the annual fees by selecting the second column (手数料等) and then sort from lowest to highest using the arrows. These are the three cheapest emerging market equity funds on Rakuten, all charging about 0.2% a year in fees with no purchase or redemption fees.
Mutual funds are available in taxable, iDeCo, and NISA accounts. They are the only option in iDeCo and Tsumitate NISA accounts.
Most people should be able to use mutual funds to make simple, low-cost portfolios for themselves. Invest regularly over the long term and you should do pretty well for yourself.
How about you? Are you investing in mutual funds? Anything to add?