Investment trusts: Long-Term, Asset Allocation and Timing

(Updated on 2021/01/21)

Topic: Introducing iDeCO, NISA and Tsumitate NISA. I’ll talk about three key points for investing: long-term, asset allocation, and timing. Finally, I’ll explain what investment trusts are.

• System investors cannot miss
• How investors select to use iDeCo, NISA or Tsumitate NISA

• The one-point investors have to retain is “getting the least loss and cost.”
• What’s the investment trust funds?

Hi there, Kinkajyuu here.

Let’s talk about the different types of investment accounts. There are many ways to invest money, such as the NISA, iDeCo and Tsumitate NISA accounts. Other investments include investment trusts, dividend funds, ETFs, commodities, real estate, FX, bitcoin, and more.

Investment accounts

In addition to the normal taxable investment accounts, Japan has three types of accounts that allow tax-free investing: iDeCo, NISA, and Tsumitate NISA (the NISA accounts are mutually exclusive).

The Japanese government imposes a 20% tax on both capital gains and dividends. However, the above accounts are tax shelters – investments in those accounts are mostly exempt from the 20% tax. So, I recommend using those accounts first before any taxable accounts.

However, the fund selections in these three accounts are limited by the Japanese government, so you may not be able to buy everything you want.

How to select between iDeCo, NISA and Tsumitate NISA

Fist of all, investors need to consider why they are investing money and for what purpose. The most suitable account will change based on the investor’s goals.

iDeCo is best used to save money for retirement, as investments cannot be withdrawn from the account until retirement at age 65. On the other hand, money can withdrawn from NISA and Tsumitate NISA at any time, so they are more suitable for shorter term investments where you know you will need the money.

The two NISA accounts are similar, differing mainly in their account length. NISA allows investments of \1,200,000 every year for five years, while Tsumitate NISA allows \400,000 for 20 years.

Important thought: Long-Term, Asset Allocation and Timing

If there is a golden rule in investing, it is to follow the three principles of investing for the long term, using a proper asset allocation, and dollar-cost averaging.

Dollar-cost averaging is the strategy of investing the same amount of money in a finance product at the same time every month. Investors use this strategy to reduce their risk by buying financial products steadily and without regard to the ebbs and flows of the market.

In contrast, FX trading usually relies on day trading, which is the complete opposite of these three principles.

Maximizing returns while minimizing costs

Risk and return are two sides of the same coin, but it doesn’t always follow that the biggest risks lead to the biggest returns. In theory you could make a fortune day trading, but it’s extremely risky and a good way to lose all your money. Not to mention that it is extremely stressful. I think a better method of investing is to accept good returns at an acceptable risk level and ignore get-rich-quick styles of investing.

Since we’re investing for the long term, fees are a major consideration when investing. Check my post on finding low-fee investments for more information.

Investment Trust: How different are stock commissions and trust fees?

Many brokerages let you open iDeCo, NISA and Tusmitate NISA accounts. Some banks and insurance companies have them as well, but I strongly recommend you open the accounts with a proper brokerage, especially Rakuten Securities and SBI Securities. Generally, internet brokerages don’t charge commissions, and Rakuten and SBI have a wide selection of funds and investment trusts to choose from.

What are investment trusts?

Investment trusts are similar to mutual funds, which hold stocks/bonds from several companies in a single fund. The main difference is that you can invest any amount of money you wish and that dividends can be reinvested automatically.

If you have an account at a major bank, it’s likely that they have funds available for you to invest in. However, I strongly recommend you avoid investing at a bank, and you certainly should be skeptical about any products that the bankers recommend. Bankers typically recommend products with high fees so they can take much of the return for themselves.

Internet brokerages offer much more reasonable fees, and they have a wider range of funds to choose from. Generally, picking funds with low costs is a totally reasonable strategy. Investments with lower fees are more likely to have a better return.

In another post, I wrote about selecting a proper asset allocation for your investments. Check below for more information!

Investment trust fund: The Importance of Diversification

Finally, if I can share one piece of advice, it is to always keep up with the newest information. Information changes quickly, including investing systems and rules. Keeping up to date is the best way to protect yourself.

I hope these posts will help as you start to invest and select funds.

Cheers,
Kinkajyuu