Author Topic: Please help me invest my truckload of yen  (Read 6071 times)

throwaway-san

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Please help me invest my truckload of yen
« on: November 24, 2014, 12:32:17 AM »
I recently married a Japanese woman who has the rough equivalent of USD300K in yen (30 million yen) in a bank account, and no other significant investments, and I want to know what to do with it.

Keep in mind this dwarfs my own USD100K which is invested primarily in non-Japanese stocks and bonds.

I can already see the purists pulling out their keyboards ready to educate me that anything besides "put it all into the stock market now" is the equivalent of market timing. Yeah, I get that.

The problem is, I mentioned this to my wife and she brought up the fact that over the past 10 years during which time she has been diligently saving her money she has seen the value of her cash nest in both USD and in comparison to the Nikkei decrease significantly, and so everything *feels* like if she were to invest now it would be the equivalent of investing at the peak. So I know this is folly, but I was wondering, is there anything which is "cheap" in yen right now, that I can use to tilt the resultant portfolio to take the edge off? Japanese bonds? Japanese stocks? Gold? Options? A loan? While my wife ultimately trusts me and will let me do as I please with the savings she has brought to the marriage, anything I can do to make the proposal easier to sell to her would be appreciated.

acorn

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Re: Please help me invest my truckload of yen
« Reply #1 on: November 24, 2014, 12:56:05 AM »
Slightly confused by the question. Are you worried about the exchange rate between USD and JPY or that the Japanese market/global stock market are at the peak?

Wrt the JPY-USD rate, I don't have a good solution, hopefully someone else has a better answer.

And wrt to "investing at the peak", if your investment period is long enough (decades), the peak is yet to come.

Are you planning to reside in Japan or the US? You'll probably need to decide on your base currency for investing in an index fund tracking the global stock market, and then get some bonds in your local currency.

Just my two cents.

throwaway-san

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Re: Please help me invest my truckload of yen
« Reply #2 on: November 24, 2014, 01:02:20 AM »
Over the last 2-3 years she has watched USDJPY go from 77 to 117, as well as the Nikkei go from 10,000 to 17,000. She feels like buying stocks now is the equivalent to locking away these losses.

RichMoose

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Re: Please help me invest my truckload of yen
« Reply #3 on: November 24, 2014, 10:41:04 AM »
I'm not too familiar with Japanese financial instruments, but I would say that you can't go wrong investing in a sort of All World Index ETF if something like that exists on the Japanese stock market at a low cost. This will spread your currency risk and if your investment timeline is more than 10 years your investment should be worth much more.

hodedofome

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Re: Please help me invest my truckload of yen
« Reply #4 on: November 24, 2014, 10:48:05 AM »
Just go with a 50/50 all world stock and bond portfolio. Keep it simple. Since you don't know what's going to happen in the future, and she's probably a bit risk averse (there's a reason she's got all her money in cash...), just go with an equal weight balanced portfolio. Make no predictions, accept more volatility than cash but know that as long as the world economy stays intact, you should come out ahead in the long run.

Dodge

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Re: Please help me invest my truckload of yen
« Reply #5 on: November 24, 2014, 01:05:37 PM »

Over the last 2-3 years she has watched USDJPY go from 77 to 117, as well as the Nikkei go from 10,000 to 17,000. She feels like buying stocks now is the equivalent to locking away these losses.

Show her the USD/JPY chart, and explain there's no way to know where it's going to go.



So you shouldn't base any of your decisions on it. "Locking in losses" is typically used to describe "selling low" in the stock market. This makes sense in the stock market, because it generally goes UP over long periods of time. You shouldn't use those principles when talking about a currency pair.

sb_NoVA

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Re: Please help me invest my truckload of yen
« Reply #6 on: November 24, 2014, 02:36:55 PM »
You guys should sit together and see some Balanced Fund Charts, VBIAX.  Nobody knows what the future holds, but I could suggest a well diversified approach:
- 10% Yen (currency)
- 10% USD (currency)
- 20% VBILX (Intermediate Term Bonds)
- 20% VTSAX (US Stocks)
- 20% VTIAX (International Stocks)
- 5% 1oz Gold bars  (precious metals)
- 10% VNQ US Real Estate
- 5% International Real Estate

Do rebalancing and tax loss harvesting every year.

ioseftavi

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Re: Please help me invest my truckload of yen
« Reply #7 on: November 24, 2014, 02:54:18 PM »
I would really suggest not putting it all into the Japanese stock market.

Japan - while a wonderful country - is a terrible place to earn returns on investment capital.  This is for a number of reasons, but the prime reasons are:
  • slow/nonexistant population growth
  • Underleveraged companies / management has a tendency to hoard excess cash instead of paying it to shareholders
  • rampant corporate pyramiding with little regard for how counter-productive cross-holdings are
  • Poor corporate governance
  • Low regard for investors ("investors get what's left after the employees, management, government, and suppliers all take their share")
  • Nearly impossible for activist investors to improve/restructure/take-over poorly performing companies
I could go on and on about this but I suspect it would sound racist or rude, and I swear up and down that I do not mean to come across that way.  It's simply that stock market returns, over the long haul, are linked pretty closely to GDP growth, population growth, global competitiveness, and average company returns on equity.  Particularly for that last one - in general and over the long term, public companies earning strong returns on equity will translate into strong stock market performance. 

For Japan, unfortunately, the country scores pretty low on a lot of these metrics.  It is, generally, not a wonderful place for equity investments.  The optimist in me hopes that the factors I mentioned will change in my lifetime.  The realist in me says that if my company sent me to Tokyo for work - even for the next 20 years - I would not invest the bulk of my 'stache there.

Bonus: FT article explaining how some of the government's recent initiatives are designed to raise awareness of ROE and capital efficiency.
« Last Edit: November 24, 2014, 02:56:16 PM by ioseftavi »

throwaway-san

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Re: Please help me invest my truckload of yen
« Reply #8 on: November 26, 2014, 01:19:44 AM »
Thanks for the replies.

I admit it's odd that she kept all this cash for so long. It's almost like she was anticipating deflation or something. Oh wait, that might not be such a bad idea.

Dodge thanks for the graph. I think you can't dismiss exchange rate wholesale as it is a large factor in determining the level of investment by overseas investors. I know full well that overseas investors buying Japanese stocks cheaply are getting the same amount of the company in relative terms. I guess the way to think about it is that this money had to have come from somewhere, and so it must have come from non-Japanese investors selling non-Japanese stocks. Maybe I have answered my own question.


larmando

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Re: Please help me invest my truckload of yen
« Reply #9 on: November 26, 2014, 02:58:14 AM »
You also have to make clear that:

1) she can't change the past: there's no such thing as "locking in" past virtual losses. Of course in hindsight she should have invested them, but she can only do what's best with them now, not what was best 10 years ago (or we'd all be billionaires)
2) even more important: her question is equivalent to "how do I beat the market" (because she wants to "recover past missed opportunities" which is impossible) and none of us knows a reliable way to do so (or we'd be billionaires) :) If she finds one great, but this also involves considerable extra risk.

StockBeard

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Re: Please help me invest my truckload of yen
« Reply #10 on: November 26, 2014, 09:33:24 AM »
I've been living in Japan for 9 years, married to a japanese for 6 years.

I do not have a good answer for you, still trying to figure things out myself, but here's what I've done:
- a large amount of my money is on a schwab brokerage account in the US, which my (American) company opened for me a while ago. That account is 100% stock. I think that, not being an american citizen and not living in the US, I am not allowed to get any bonds. They have "bond based stocks" which don't have the same guarantees as bonds, but seem good enough, I'm thinking of buying some of those. Overall, by putting my money in on of schwab's ETFs (SCHB), I've seen good results so far, I just need to diversify a bit more

- My wife and I largely disagree on where and how to invest money. She does not trust the stock market, and the historical proof that it performs better than anything else does not convince her. The Japanese haven't seen investments actually generate any sort of benefit/interest in years. It is very difficult for them to understand that there exists ways to get a reasonably safe 4% return on investment. Bottom line is we sometimes have to compromise. she opened a bunch of JP insurances (life insurance, cancer/heart attack insurance) and a fund to get our kid through college. All of these are sub par investments (the disease one is a pure waste, nothing's coming back unless I actually get cancer) but it makes her feel safe. They also give back more than having "just" the money in cash, so it's still a better deal than keeping cash (with the huge counterpart that in the college fund thing, the money is locked for about 15 years...)

- I got scammed by some "asset management" company that sold me an offshore life insurance (RL360, a.k.a Royal London 360). DO. NOT. DO. THIS. All these life insurance companies are at best a very poorly optimized investment strategy, at worst you will actually lose money. They are easy to spot, but you have to know about them. 101% return guarantee, obfuscated fees, many red flags should have warned me but I was so happy to have found the "expat loophole" to prove my wife that investing offshore was better than investing in Japan... I lost about 2M Yen, and I am in the process of cancelling that thing now. It is rampant in Tokyo, so be careful.

- Everything that is remaining on our bank accounts goes into short term investments: Our bank is shinsei, they have this 2-week investment thing. Brings close to no interest, but better than 0.

Bottom line: try to invest as much as possible in the US stock market, this is what has been both the most successful and the most "safe" for us so far. You just have to find a balance where she's confident. I would suggest you convince her to put 20 million yen at the same place you have your 100K USD, assuming you are happy with your investments so far. The remaining 10M she can keep in cash for safety, or invest in one of these low return things I mentioned above (insurance, college fund for kids, or short term savings with your bank)

StockBeard

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Re: Please help me invest my truckload of yen
« Reply #11 on: November 27, 2014, 08:11:58 PM »
Sorry for the double post, but I felt this was relevant.
This link has lots of information:
http://www.bogleheads.org/wiki/Investing_in_Japan

I am not staying in Japan (leaving next month), but if I were to stay, or if I come back, I'd probably go with:
- open a Tax efficient "NISA" account (1'000'000 yen max per year, maxes out at 5M. This should be enough for your wife to feel "safe" about it)
- And open a brokerage account with SBI or another bank, and start investing: some bond ETF, some stock ETF. mix of JP/US/worldwide ETfs)

(I'm not a finance professional, I'm sharing what I would do, but cannot actually say if this is a good plan for your situation)

DavidAnnArbor

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Re: Please help me invest my truckload of yen
« Reply #12 on: November 27, 2014, 09:48:33 PM »
If Prime Minister Abe follows Paul Krugman's advice and therefore delays implementation of the 2nd national sales tax hike from 8% to 10%, and Abe continues to have the central bank perform quantitative easing, one could reasonably expect the Japanese Yen to continue to decline against the dollar, and the stock market, inflation and the GDP of Japan to go up. Of course, nothing is guaranteed, Abe's party could lose in the next election, etc.

milesdividendmd

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Re: Please help me invest my truckload of yen
« Reply #13 on: November 28, 2014, 01:10:59 PM »
After the last 2 decades, inflation would be a welcome development for Japan....

The Japanese stock market is neither expensive nor cheap at this point, so a 50/50 Japan/world passively managed equity portfolio would be a reasonable if aggressive play.

If she keeps her yen unhedged in her investments, then ignoring the currency risk is probably the wisest option of all.

It sounds like your wife's main concern is a loss of principle, which is always a very wise thing to focus on.  (just ask Warren Buffet.)

I am currently writing a series on strategies to avoid large investment drawdowns on my site.

So far I've covered a general background on the wisdom of avoiding drawdowns here,

http://www.milesdividendmd.com/on-the-wisdom-of-cowardice/

and a piece on the passive approach (the permanent portfolio) here:

http://www.milesdividendmd.com/the-cowards-game-that-old-standby/

In the coming weeks I will cover barbelling, value investing, trendfollowing,  dual momentum strategies, and possibly options which all seek to limit downside risks and have good track records doing so.

You and your wife might look at the permanent portfolio and see if that approach is appealing to both of you.

A happy marriage is far more valuable than an optimal portfolio, so finding a solution that psychologically works for both of you is well worth missing out on some upside potential, in my view.

Hope that helps.

AZ

PS My wife is from Kyoto and we go back once a year, I still love Japan, and wish you guys well in your marriage.