The 2024 NISA – NISA Forever!

I have been meaning to write this update for a while. In particular, because people keep finding an article I wrote about the ‘New NISA – Coming in 2024’ and telling me it is out of date, which it most certainly is! You see, that was the old new NISA plan and since then there is a new new NISA plan, which is even bigger and better. Clear? Apologies for the confusion and for my tardiness in updating – the old article will be consigned to the fires of internet hell just as soon as I get this one written and posted.

If you’ve read this blog before, you may be aware that I care very little about product. By that I mean, if you are buying a box to hold things, I don’t care if you get the blue box, the pink box or the rainbow box. It’s just a box, after all! There are a number of NISA products out there offered by online brokerages and banks. I hear even the Japan Post Bank is getting in on the act. My preference would be for the online brokerage accounts, but that’s mainly because I am terminally online and want to minimise time spent ever talking to staff at the bank! If the post office works for you, have at it!

What does get me excited is what you put in the box. That’s where things get interesting. I already wrote a post on How to choose investments for your NISA, so please check that out as a compliment to this post.

So, down to the nitty-gritty. How does the new NISA work? My NISA is with SBI, and they wrote a little guide with some ‘helpful’ graphics – see here. Google translate works ok on the main body of text but the graphics remain in Japanese. I’m really linking to this so you don’t rely entirely on this post to remain correct. Keep an eye on official sources in case something changes before launch.

In short:

You can invest up to ¥3.6 million per year – ¥1.2 million has to be invested in mutual funds, and the remaining ¥2.4 million can be invested freely. That means ETFs and direct stocks are on the menu.

The investment term is unlimited – so ¥3.6 million a year for 5 years = ¥18 million. This is the fastest you can fill it up, but you can actually take as long as you want to reach the ¥18 million limit.

The holding term is forever – there is no limit on how long you can hold the assets in the NISA. As long as you don’t sell, dividends will be paid tax-free and there will be no capital gains tax when you do eventually sell.

All in all, it’s a pretty good deal! I plan to be maxing out my allocation for each of the five years before making any investments into taxable accounts.

If you have an existing NISA, you will not be able to make any new contributions to it after the end of 2023, but you can choose to keep the money invested until the end of the term. For example, if you started a regular NISA this year and invested ¥1.2 million, you can leave that money invested, tax-free, for another four years. Any new contributions will go into the new NISA. If you have a Tsumitate NISA with 15 years remaining, you can choose to leave the money contributed up until the end of 2023 in there for 15 years. Again, from 2024 any new contributions will go to the new NISA.

Investment Strategy

I encourage you to give some thought as to how to allocate the investments in the new NISA. Again, the post I mentioned earlier may help.

There is one trade-off I am particularly focussed on here: growth vs. income. Your forever NISA investment will benefit from not being charged the 20% tax on capital gains or dividends. So which should you try to maximise? The short answer here is probably a combination of both, but let’s do some thinking about it:

For the ¥1.2 million per year that has to be invested in mutual funds, I don’t think it will be possible to generate income. Mutual funds generally re-invest dividends, so they are part of the investment return, but unless they have a distribution share class, they don’t pay dividends out. If anyone finds a mutual fund, available for NISA, that actually pays out dividends, please do chime in – I would be very interested to hear about it. For now, I’m going to assume that such funds are not available. In that case, for the ¥6 million (¥1.2 mill x 5 years) that you invest in mutual funds, it would make sense to go for growth. I will be looking for high-growth-focused funds for this part of the allocation. (note that growth stocks generally pay no/low dividends as any earnings the company makes are reinvested to spur further growth)

For the remaining ¥2.4 million a year, that’s ¥12 million, I am tempted to strongly focus on dividend-paying stocks and/or dividend stock ETFs. If you can generate a 4% dividend return on ¥12 mill, that gives you a tax-free ¥480,000 per year in income alone. And, of course, these stocks will probably also grow in value over time if you are patient. Now, nobody is retiring on ¥480,000 a year but over 25 years, for example, that’s ¥12 mill in your pocket. Not bad, huh?

Of course, there’s a pretty good argument for investing the ¥12 mill into a fund that reinvests the dividends so you get the compounding effect over the term of the NISA. I have no objection to that. I just like the idea of collecting my ¥480k tax-free every year and either spending it or reinvesting it myself.

Also, after a discussion with Ben at Retire Japan, I discovered that under the new NISA rules, you can sell assets and then re-use the tax-exempt amount to invest in a different asset, which is a huge improvement on the current system. Thanks, Ben for pointing that out! See this FAQ on the FSA website.

So those are my thoughts. I would love to hear from anyone who looks at the NISA opportunity differently. Drop me a line or come and tell me I’m wrong on X. (yes, we have to call it that now…)

Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.