Small low-risk investment options?

camcraw

New member
I don’t make much money, in fact I live more or less month to month. But over the years living in Japan and being frugal I have managed to save around 150man.
I don’t want the money to just sit idle in my bank and would like to invest some as low-risk as possible - I’m thinking to start small by investing 4-5man somewhere and maybe increase further down the track.
What options are available for small time investment noobs like me that just want to see a return on their money faster than a savings account interest rate (which is basically a non-existent return in Japan)?
I’ve heard S&P funds are a safe bet but don’t know if that is possible in Japan or how I would go about it, what providers are reliable and user friendly etc.
Thank you very much for your time
 
@camcraw
invest some as low-risk as possible

Be aware that there is nothing as low risk as JPY cash. As soon as you use that cash to buy an asset (e.g., a share in a mutual fund or ETF), you take on risk. The risk is the price you pay in order to access higher returns.
 
@kristhuy JPY cash is arguably an asset with risk, so you ALWAYS have an asset with some risk, no matter what. Sure the JPY might be one of the lowest risk (FX exchanges notwithstanding), but you have the risk of e.g. inflation as well, or robbery/burglary.
 
@albinoguitman From a neutral, global perspective, sure. But in this specific context, what a beginner investor living in Japan typically means by "risk" is "risk of the JPY value of the investment decreasing" (投資元本を割り込む).

In that sense, JPY constitutes the metric which the value of any investment is being measured, so it doesn't itself have the characteristics of an investment. But in a broader context, you're right ofc that holding cash instead of other assets (whether in a bank or under the mattress) has a bunch of risks attached to it, and nothing is risk-free.
 
@resjudicata Since OP doesn't seem to be too savvy, iDeco and NISA are investments programs that help any investment gain to be tax-free (lots more complicated, but that's the gist) so you can invest in S&P500 through iDeco/NISA, and that's a double win IMHO. Specially if you don't have a lot of cash and where every penny counts, 100% go with iDeco/NISA if possible.

Notice that if your long-term plan is to live and retire in Japan, when buying S&P500 you are buying an asset in dollars; that means you increase your risk by adding a two-way FX transaction; one when buying, one when selling. I haven't found a good way around this though, just noting it so that you are aware that the "typical advice" from USA-people living and retiring in the USA has a different (higher) risk profile if you live and retire in Japan. Still the USA market has historically been way better than the Japanese one, so for me it's still worth it even with the added risk.
 
@camcraw As others noted I'd also recommend looking at NISA to save the tax (or iDeCo, if you are okay to only receive the money after retirement) and invest through those into some low-cost, diversified option, like ETFs.

Overall there are only a few certainties in investing, and one of them is that diversification brings down risk. To give you an example: you like cars, so you invest in Volkswagen, but then they get into a scandal about their emissions and have to recall bunch of cars and pay fines making their stock value drop. Instead if you'd also buy stocks in all major automakers (e.g. Ford, Toyota, GM, Honda, etc.) then regardless of how the individual companies do, as long as people keep buying cars the overall investment will do well. Of course manually buying many stocks get complicated and expensive (transaction fees add up) and that's where ETFs (Exchange-traded funds) come in: companies like Vanguard buy a group of stocks and offer pieces of this bundle for sale, which then get traded similar to how normal stocks are traded. For example Vanguard's Total World Stock ETF (VT) includes stocks from 95,000+ companies worldwide weighted by their size (so e.g. 3% of it is Apple, but it also has a tiny portion of JP Post Bank stock). These ETFs charge a yearly fee (while holding individual stocks usually don't cost anything), but with Vanguard ETFs it's usually pretty low, e.g. the VT's fee is 0.07%/year.

You should also note that dividends from US-based stocks and ETFs get taxed in the US at 10%, which is not a problem if you need to pay taxes on them in Japan (as you can deduct the tax paid in the US from your Japanese taxes), but if you are using a tax-free account (NISA, iDeCo), then a non-US ETF would save that tax.

As someone starting out in investing I think the most important part is to take it slow and get yourself used to seeing the ups and downs of your portfolio. Markets move a lot in the short term, e.g. one day your investment might be up 5%, then next week it's down 3%. It's much easier to handle the down if the -3% only means you are down 300 yen as opposed to 30,000 yen. If you are investing regularly (let's say monthly) then it will help you see the market being down as things are on sale too.

Also note the foreign exchange risk. E.g. if you convert 13,312 yen to $100 now, buy 1 stock for $100. In one year the stock goes up to $110, but meanwhile the yen went back to 110 yen/$, so now if you sell and convert back you get only 12,100 yen. But if the yen goes to 150, then you get 16,500 yen. Investing in domestic stocks removes this risk, but Japanese stocks have historically offered much lower returns than foreign ones.

As a final note: this year has been turbulent, and no one knows what the next years will bring. We might be heading for a recession, Word War 3 or a quick economic recovery and continued growth. In these times it is especially important to decide and stick to your goal: if you need this money in a year, then don't invest it into risky things like stocks. If you are fine not touching this money for 5-10 years, then invest it, but keep this time frame in mind when the market goes up and down. Historically stocks had a positive return in the long term, but there have been multiple periods when in the short term they lost parts of their value.
 
@camcraw I don’t mean to be mean when I say this, but 150,000 yen is not a lot of money to have saved over a few years.

The only reason I say this, is that building an emergency fund, before piling into investment is important. Life happens. So you never know when something can come up, which requires significant funds to cover. If you do not have enough cash, and have to dip into your investments to cover an immediate bill, there is every chance you could have to take a loss on your investment.

To avoid this, I would personally advise building up a few months worth of spending, put it aside, and use additional savings from that point onwards for investing.
 
@camcraw Open a stockbroking account with Interactive Brokers or similar who offer o/s investment options. Then you can buy ETF's that follow the indexes or follow someone like @CacheThatCheque on Twitter if you want to look at Japanese stocks.
 
@camcraw Even local banks now offer iDeco and Nisa plans, so its probably worth inquiring about it there. Through both you can invest in the S&P, and other index funds.
 

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