Q&A: How to buy funds at desired prices with a Tsumitate NISA?
Hi there, Kinkajuu here.
Today, I received an inquiry from the contact form how about using Tsumitate NISA.
Specifically, is it possible to buy funds in the account at specific prices, or are you stuck with periodic purchases on fixed days of the month?
<I recommend consistent investments using the normal Tsumitate settings>
A1: Investors should follow dollar cost averaging
Tsumitate NISA is an account for periodic investments. Generally, investors have to set one fixed day per month to invest on. (Rakuten: On the 1st)
If you would like to invest whenever you want (say, when the market drops), unfortunately the Tsumitate NISA system doesn’t allow for it.
I generally recommend making consistent investments regardless of market prices. It is easier, less risky, and will generally get you better performance. After all, one of the main reasons behind index investing is the premise that no one can consistently time the market.
However, for those who want to attempt to buy while the market is low, there is one solution.
A2: You cannot change when you invest, but you can change how much you invest
With Tsumitate NISA, you can change the amount of money you invest each month up to 2 days before the fixed investment day. So, if you feel like the market is priced too high, you could set the minimum amount of money to invest that month. Then, assuming the market falls later in the same year, you could raise your contributions for the remaining months.
Another solution is to use a regular NISA rather than a Tsumitate NISA, as the regular account allows you to invest whenever you want. That is a more flexible solution for frequent trading.
However, please be aware that, as stated above, it is not a good idea to try timing the market. Further, it is an even worse idea with NISA investments.
Consider this scenario: it is June and you feel the market is priced too high – you want to wait for it to fall 10% before buying. So you set your Tsumitate NISA investment to the minimum. If the market falls before January, then there’s no problem – you raise your contributions to the maximum and buy in at the lower price.
But what if the market moves even higher? If this were a taxable account, you could wait several years before buying in during a crash. But in a NISA account, your maximum contribution is tied to the calendar year – use it or lose it. Come December, when the market is 20% higher than even in June, you’ll face the dilemma of buying in at that higher price or losing your yearly contribution entirely.
That is the point of my advice in A1.
If you would like to feel safe and calm, I recommend investing fixed amounts of money every month.
I hope this answer helps.