We received a nice email from a reader last month, and I agreed to answer their questions in a blog post (that's how desperate for content we are!) ;)
There was quite a bit of context to the questions, but we aren't going to run it in order to protect their privacy. Here are the questions:
- Did you and your wife ever consider moving to the UK?
- I'm not sure where I will live in the future, how should I invest? Should I worry about exchange rates?
- Should I pay off my student loan at 1-1.5% with savings, or invest/keep the cash to use in the medium-term?
These are good questions, and I don't think there are clear answers to them. Here are my thoughts:
1. My wife and I have considered moving to the UK, but will probably not do so. My wife's parents live here in Sendai and will need her help going forward. Our children live in Singapore, Sweden, and Sendai. I grew up in Spain and don't feel particularly attached to the UK. My immediate family now live in Spain, Sweden, and the UK. I can't imagine what I would do if I returned to the UK (work in a petrol station?) and the weather/climate doesn't agree with me. The UK government is currently actively hostile to immigrants, and even getting a spouse visa for my wife would be a rather involved process. If some or all of these were different we would consider it, but for now it seems we will remain based in Sendai and travel to other places as wanted/needed.
2. There are three main parts to this question: which company or country to invest through, what investments to buy, and what currency to use.
Unless you are from the US, investing here in Japan is a pretty good option. The online brokers are relatively easy to use, NISA and iDeCo provide tax-free investing, and you can use tax-reporting accounts to avoid paperwork. Another option is to invest outside of Japan (using Interactive Brokers, for instance). This has the benefit of being in English and allowing you to keep your accounts if you leave Japan, but doing your taxes becomes more work.
In terms of what investments to buy, I'm a fan of buying the world economy through low-cost index funds. There are other approaches though. You can learn more about asset allocation by reading some of the things on our further reading page.
Apart from bonds, it probably doesn't matter what currency your investments are denominated in. The value of the underlying assets should remain the same even if the currency moves. This is why I moved most of my remaining pounds into world stock index funds recently. I fear the value of the pound may fall in the future, but if I own real assets the value of those assets in pounds will rise accordingly. I'm not a fan of hedging (insuring against currency risk) due to the higher costs involved.
3. Whether it is better to pay off loans or invest is going to be a perennial discussion here. There is no right answer. It will depend on your personal preferences regarding debt and the return you might get on your investments (which you can't know in advance).
The rule of thumb is that the higher the interest rate the more attractive paying it off becomes. 1-1.5% is not particularly high, so that doesn't help us make the decision.
I think there is value in having an emergency fund, so it is probably worth keeping at least some of your savings liquid.
Whether you prefer the sure thing of reducing your debt or the uncertainty of making or losing money investing is going to ultimately decide this question for you.
Anyone else have advice for our reader? Divergent opinions most welcome!
Also, if you have more questions for me I'd be happy to answer them in a future blog post.