Where to invest ¥100,000 today

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It’s been a while! I hope everyone is doing ok in these difficult times. The state of emergency in Japan has been lifted and people are cautiously getting back to something like normal life. Looking at news from around the world it seems we are lucky to be living in a country that has weathered the Covid-19 storm so well, and I’m certainly looking forward to getting out and about a bit more in the coming weeks.

I note that Japan residents are starting to receive the paperwork  for the ¥100,000 government cash assistance scheme. If you are not sure how to make your claim, here is a useful thread telling you how to complete the paperwork.

For some people, this money is clearly needed to replace income lost during the corona virus crisis and ensuing state of emergency shutdown.

However, if you are lucky enough not to need this money to cover expenses, and are thinking of putting it to work, below are a few ideas as to how you could invest it today. Please note I am trying to make these interesting “satellite” type ideas. It is of course perfectly acceptable to simply add this money to your core asset allocation – it’s just not as fun!

Cash is king – ok I know I said “invest”, but now is not such of a bad time to be holding cash. After a steep drop in March, stock markets have rebounded remarkably well, but this does not disguise the fact that the economic damage from Covid-19 is significant. The US unemployment numbers really don’t fit with where the S&P 500 is right now, and with America and Europe trying to reopen even before they have got through the first wave, there’s a chance of further extended lockdowns and more market panic to come. Keeping cash for now and investing when fear takes over is not a bad strategy.

Precious metals – Gold is well known as a safe haven in times of market turmoil, but there is a growing buzz about the gold to silver ratio, which suggests that silver is a compelling buy at the moment. In short, the amount of silver it takes to buy an ounce of gold is near an all-time high, which suggests it should revert to the mean over time. This article does a good job of explaining why silver could make a good investment right now. As for how to buy it, if you are not looking to take delivery of the physical metal you can simply buy a silver ETF via your brokerage account. iShares SLV is perhaps the best known silver ETF.

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Source: https://www.macrotrends.net/1441/gold-to-silver-ratio

Cryptocurrency – Following the halving on May 11th BTC has traded between $8,500 and $10,000, despite a negative Goldman Sachs client briefing on the digital currency. The Grayscale Bitcoin Trust is said to have purchased a third of all newly mined Bitcoin in the last 3 months at a total of $29.9 million, and this retail investor demand is combined with heavyweight trader Paul Tudor Jones declaring himself a holder of BTC. This would be a high risk place to put your ¥100,000, but you are at least guaranteed an exciting ride.

Biotech – I mentioned this in a recent post on satellite holdings. With the race for a Covid-19 vaccine hotting up, Biotech / Pharma / Healthcare are obvious areas of interest. Also with more and more countries heading toward the Japan aging population model, it makes a lot of sense as a long term buy and hold. Picking winners is not easy in this space so it’s probably best to look at ETFs.

I hope these ideas help. I would love to hear if you are investing your stimulus money elsewhere. Of course this money is being given out to stimulate the economy, so you are doing a good thing if you simply go out and spend it in your local community. Covid-19 is likely far from over so please stay safe as you get back to work!

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.

 

Online Coaching – Perfect Timing

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I hope everyone is safe and well in these difficult times. One thing you are probably doing is spending a lot more time at home. And with that comes a lot more time online, particularly using internet communication tools like Skype and Zoom.

You may have noticed that I offer personal finance coaching. This also includes online coaching, which was initially meant for people living outside the Kanto area, but is fast becoming the norm in these times of social distancing.

Now would be a great time to get your finances in order and take advantage of one of the best opportunities to invest you will see in years. Below is the 25 year chart of the S&P 500. You can see quite clearly the benefit of investing during severe market downturns in 2000 and 2008. Why not make use of the extra bandwidth you have and put some money to work for you?

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Source: https://tradingeconomics.com/

Among other things, I can help you figure out:

  • How much you have available to invest and how much you should be keeping in cash for emergencies.
  • What currency is best for you.
  • What kind of account would be right for you.
  • How to allocate when you get the account.
  • How to maintain your investments over the long run.

More information, including rates, is available here. If you would like to book a coaching session, or you have some questions before getting started, please get in touch with me via the Contact Form.

Spice up your Investments with Satellites

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Is the Covid-19 market plunge getting you down? Tired of being told not to panic and stay diversified? (by people like me!) Are you thirsting for something interesting and exciting to invest in rather than the usual steady and boring stuff?

Then this post is for you! Let’s look at something fun! However, before we jump in, please read here to make sure you understand what I mean by Core / Satellite holdings. In short, core is the sensible diversified allocation linked to your base currency and risk profile that you put 80-90% of your money in. Satellite is the other 10-20% where you swing for the fences!

Some areas that are typically classed as satellite holdings would be: hedge funds, direct stock picking, commodities, structured notes, private equity, biotech, property and cryptocurrency. This is by no means a definitive list and there are many other investments that would be considered non-core, depending on your risk profile.

Here are a few unique satellite holdings that I have come across recently:

ARKK – Ark Innovation ETF: Run by Cathie Wood, the Best Investor You’ve Never Heard of, Ark is a stock picking fund, focussed on innovation in DNA Technologies, Energy, Automation, Manufacturing, Next Generation Internet and Fintech. Ark are currently looking rather smart for their heavy backing of Tesla. Their holdings contain a heady mix of 3D Printing, Gene Therapy, Biotech and Blockchain Technology. This level of active management in highly specialised areas would usually come with a hedge fund 2 and 20 price tag, but the expense ratio is just 0.75%. ARKK is listed on the NYSE so you will need a brokerage account that can access that exchange to access. More here.

GBTC – Grayscale Bitcoin Trust: According to this article, a recent study by brokerage giant Charles Schwab showed that GBTC is in the top 5 holdings for Millennial investors, (currently aged between 25 and 39) ahead of Netflix and Walt Disney. GBTC offers investors access to Bitcoin returns via their brokerage account. The Trust trades like a stock or ETF and, for a 2% annual fee, it takes care of the issue of custody of crypto, so you don’t have to worry about losing your private keys. Bitcoin purists would probably rather hold the real thing, but GBTC is proving popular as an alternative way to get exposure to Bitcoin returns. This could be interesting with the upcoming Bitcoin Halving on the horizon. I would note that not all brokerages allow trading in GBTC. From what I can tell it is available in the US on Schwab, Etrade, TD Ameritrade and Interactive Brokers. More here.

CHNA / CNCR – Loncar China Biopharma ETF / Loncar Cancer Immunotherapy ETF: Given the origin of the novel corona virus Covid-19, China Biopharma is kind of a hot topic right now. Despite the current panic, this article argues that now could be a good time to buy. Companies in the Cancer Immunotherapy space are harnessing the power of the body’s own immune system to offer an innovative alternative to current treatments, which makes for an exciting and potentially rewarding investment opportunity. Loncar’s ETFs are NASDAQ listed. More here.

If you are living in Japan or elsewhere in Asia and looking for a US brokerage account then your best bet for getting an account open is probably Interactive Brokers. See this post for more details on brokerage accounts.

Hopefully that’s helped take your mind off the doom and gloom. Please note that these are not recommendations, and all of the investments mentioned should be considered as belonging in the High Risk category. That’s why they are satellite holdings. We are talking about around 5% of your total investments in any one of these strategies. Please feel free to share any interesting satellite holdings you like. I would love to hear from you.

Note: I have no affiliation with any of the investment companies mentioned above.

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.

Corona Correction

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Wash your hands, don’t touch your face, and there’s plenty of toilet paper!

When panic sets in, it’s good to take a step back and focus on the simple things you can do, rather than joining the stampede for the exit. And panic certainly set in last week in global stock markets. You may remember that a correction is defined as a 10% decline in market value. The one last week was one of the fastest ever, and the drop is now approaching 15%. 20% is bear market territory.

Furthermore, it wasn’t just stocks that fell. The 3%+ fall in the gold price on Friday (likely profit taking) shows that being well diversified means having more than one defensive strategy in your portfolio. Even truly diversified portfolios were down between 3% and 8% from their highs last week, depending on risk profile.

Clearly we don’t know where we are heading now in terms of the spread of Covid-19. It seems likely we will see a significant increase in cases worldwide over the next few weeks. However, it is interesting to note that in China, where the virus originated, infection rates are slowing and business is slowly starting to resume. With luck, the rest of the world will follow a similar pattern. If it does, then more market panic followed by a quick recovery is not an unreasonable expectation, particularly as central banks are likely to respond with further easing.

So what should we be doing? I’m certainly not offering trading advice at a time like this but there are certain common sense actions worth considering:

  • If you were already well diversified, relax. You were setup correctly and have done the best you can. Perhaps look at rebalancing when the panic dies down.
  • Same if you are investing monthly and averaging into the market. You get to buy cheaper this month!
  • If you were heavily invested in stocks, how much have you really “lost”? The S&P was near all time highs before last week, so a pullback would not have been out of the ordinary, even without the Covid-19 panic. If you invested capital recently your timing was not good, but do you want to sell into the panic and book the loss? Learn your lesson and move on.
  • If you are looking at the current drop as a buying opportunity, good for you. Get your capital into position – if it’s just a simple domestic transfer to your investment account then no problem. If you have to send money overseas it may take a little longer to organise.
  • Even pros will struggle to call the bottom. Let the panic subside and buy slowly. Maybe allocate a little each week. Markets could always fall further.

Most of all, look after your health and stay sensible. Without pointing fingers at the reactions in particular countries, I saw footage of hundreds of people lining up, bunched close together, to buy masks. It’s probably not a good time to follow the herd…

And yes, Japan makes its own toilet paper and there are warehouses full of it waiting to be delivered to stores soon!

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.

 

 

 

Coronavirus – How to Protect Your Investments

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What a year this month has been! I can’t believe I wrote a 2020 Investment Outlook just nine days ago and talked about trade and geopolitical tensions in the Middle East as potential trapdoors for markets, without any mention of epidemics. Things certainly do develop quickly!

Most importantly here, the sensible advice when it comes to protecting yourself and your family from the coronavirus is to wash your hands thoroughly and often. There’s a lot of alarmist “fake news” out there but this article keeps things very simple.

So what’s the equivalent of washing your hands for your investment portfolio? In yesterday’s LinkedIn post, Bridgewater Associates founder Ray Dalio put it quite succinctly: “When you don’t know, the best investment strategy is to be smartly diversified across geographic locations, across asset classes, and across currencies.”

If you are a regular reader of this blog, then hopefully he is preaching to the choir. Here’s a post I wrote in October 2018 titled “Don’t Panic”.

A couple of points I would clarify for individual investors, and expats in particular:

  • Diversification is important, but make sure your weighting to each asset class fits your risk profile. Conservative investors and people close to retirement should have a heavier weighting to cash and bonds than a young, growth-oriented investor.
  • Dalio mentions diversification across currencies, which is by no means a bad thing, but remember it’s also important to build assets in your base currency to minimise currency risk.

So stay safe out there: don’t panic, wash your hands and stay diversified.

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.

 

2020 Investment Outlook

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And just like that, another year is gone! After a long wait for the 2019 Rugby World Cup to get started in Japan, the six-week tournament went by in a flash. And now here we are looking forward to the Olympics. I hope 2019 was a rewarding year for you.

When it came to markets, it was one of the best years for risk assets since the Global Financial Crisis with the S&P finishing +30.7%, MSCI Europe +27.1%, MSCI UK (despite Brexit) +16.4%, Japan Topix +18.1%, MSCI Emerging markets +18.4%. Crude oil was +22.7% for the year and Gold +18.3%. This appetite for risk meant that safe haven government bonds were subdued, while US High Yield and Emerging Market bonds returned +14.3% and +12.6% respectively. Bitcoin once again refused to die and posted an impressive return of +95% for the year.

Looking forward to this year “Don’t expect a replay of 2019” seems to be a recurring message, particularly when it comes to equities. Once again Bloomberg have compiled a thorough Wall Street round up for people who have the time:

For those who like to keep it simple, here is a list of key themes to look out for:

  • The end of the bull cycle is getting nearer, but it is still not here yet…
  • Equity and bond market valuations are significantly higher than they were a year ago.
  • Central banks are likely to continue pursuing ultra-loose monetary policy.
  • Smart investors remain invested but are staying alert and perhaps reducing risk.
  • The recent escalation between the US and Iran highlights the potential for sudden geopolitical shocks.
  • There is still potential upside for gold if/when things get rough.
  • Don’t let the US election distract you too much. Politics are not necessarily a good indicator of market returns.
  • Trade is again likely to dominate headlines and unsettle markets from time to time.
  • The Bitcoin halving occurring in May is likely to dominate crypto talk – here’s a detailed and rather bullish post on that for those interested.

At risk of repeating myself year after year, planning and strategy don’t need to be complicated:

  • Have a plan! Read this post if you don’t have one.
  • Stick to your guns. Don’t let the noise divert you from your commitment to saving and investing. (the Japan market made most of its returns in the last third of 2019. If you weren’t buying in the first two thirds then you missed it)
  • Diversify and rebalance – particularly if you are heavily invested in stocks and coming off a good year.
  • Max out tax advantaged investments such as NISA.
  • Look for Japan stocks that are likely to benefit from the Olympic buzz (see what happened to The Hub stock price around Rugby World Cup time)
  • Keep an eye on what the bank of Japan are buying – see post here.

With that I wish you all the best for 2020 and hope you enjoy the Tokyo Olympics!

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.

Financial News – Cut Out the Noise!

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If you are a consumer of financial news, you will be used to seeing headlines like this: “The Dow added 141 points because recession fears are fading”. Well that sounds like great news doesn’t it? Onward and upward! Yet only two days ago it was “Dow plunges on recession fears”. So are we afraid of a recession or not? Is the market going up or down?

Of course, the market is going up and down. That’s what markets do. Most of what passes for financial news is just commentary on that particular day. It’s like listening to a report on how the weather was at the end of the day – not much use if you’re trying to figure out if it will be sunny for golf at the weekend…

But surely some of this stuff must be important? What should we be paying attention to and what is just noise? Well firstly, if you are a long term investor with a diversified portfolio that you rebalance at least annually, then almost all of this stuff is noise. It may be helpful if you are making tactical trades with a small portion of your assets, but talk of an inverted yield curve* should not be keeping you awake at night.

Of course I am not trying to discourage you from keeping an eye on what’s going on and trying to become a better investor. But if you want to keep your time spent on this stuff to a minimum, here are some simple tips:

  1. Understand the correlated assets and how they behave over time – here’s a basic guide to cash, bonds and equities.
  2. Understand what stage of the stock market cycle we are in. Most people buy and sell at exactly the wrong time. If you don’t know where we are on the graph below, then how do you know when to be more aggressive or defensive?

Psychology-of-Market-Cycles

3. Know your benchmarks. In particular, know the rate of inflation in your base        currency. This is your key benchmark to compare investment performance to.

For most (non-finance) people, I think this is enough. If you understand how the main asset classes behave over time, what stage of the market cycle we are in, and how your investments are performing relative to the main indices, you probably have more valuable knowledge than you would gain from watching an hour of Bloomberg news a day.

This isn’t to say you shouldn’t read or listen to investment podcasts to broaden your knowledge. Just don’t let yourself be swayed from your long term goals by sensational headlines. I know people who have been following doom and gloom commentators far too closely since the 2008 crisis, and have completely missed the 10 year bull run in equities. Keep in mind what the stock market looks like over the long term:

Stock Market Since 1900

Much like other types of news, focus on a few key things and shut off the rest of the noise for a less stressful life.

If you are looking to go a little deeper, this article provides a simple guide to 16 major leading and lagging economic indicators which are worth keeping tabs on.

*If you really want to know what an inverted yield curve is, there’s an explanation here.

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.

Investment Fees – Am I Paying Too Much?

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I came across an interesting article this week – see here. JP Morgan are launching a US Equity ETF with a fee of just 0.02%. That makes it the lowest fee ETF available at the moment, beating Vanguard, Schwab, and iShares on cost.

This is great news for long term investors, as long as they make money. Now why wouldn’t they make money with a fee of only 0.02% you ask? With the rise of ETFs, there’s a lot of talk these days about how much investors are paying. Fund managers and financial advisers are frequently criticised for charging too much.

But here’s the thing: it doesn’t matter how cheap your investment is if you buy it when the market is doing well and then sell it during a downturn. You are going to lose money!

Here are a couple of excerpts from Tony Robbins’ “Money Master the Game” book:

For the 20 year period from December 31,1993, to December 31 2013, the S&P returned 9.2% annually. However the average mutual fund investor averaged just over 2.5%, barely beating inflation. They would have been better off in US Treasuries.

Another fascinating example is that of the Fidelity Magellan mutual fund. The fund was managed by Peter Lynch, who delivered an astonishing 29% average annual return between 1977 and 1990. However Fidelity found that the average Magellan investor actually lost money over the same time period. How can that be? Well, quite simply, they bought and sold the fund at the wrong time!

So what can we learn from this? Simply that if you focus too hard on fees, be careful not to lose sight of the big picture. If you are prone to making emotional investment decisions when markets are swaying, maybe it’s worth paying for a good adviser who can help you make sound decisions?

If you are able to buy that JP Morgan ETF, hold it forever, and add to it when markets are bleeding, then good for you! You are going to be very happy with the result over the long run.

If watching your investment value go up and down makes you nervous, maybe you are better off paying for a diversified managed fund with a blend of asset classes that is adjusted tactically by the manager. Then you don’t have to worry about buying and selling at the wrong time.

I guess what I am saying is; if you are a disciplined investor you should absolutely be conscious of fees, and minimise them where possible for best results. If discipline is an issue for you, or you simply don’t have the time, it may be worth paying for some help.

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.

2019 Investment Outlook

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Wow is it February already? Apologies that this is a little late, but after a family holiday it’s been a slow start to the year. 2018 marked the arrival of our first child, so it’s been easy, and fun, to take my eye off the ball a little. However, it is time to get back to business, not to mention getting the house in order! I’ve seen a lot of talk recently about the Netflix series “Tidying Up With Marie Kondo”, so perhaps we should make de-cluttering our theme for this post.

So how was 2018 for you? From an investment perspective there was little joy being sparked no matter where you looked. In a year where much of the talk was about the prospects for a continuing bull market in stocks, actual returns were rather bearish. We never really got the crash that many predicted, but we saw a significant correction in February, and a rather painful last quarter where most stock indices dropped double digits.

Some rough numbers for 2018: The S&P 500 finished -6.2%, Euro Stocks were around -13%, Japan -12%, Emerging markets -17%. Gold ended the year strongly but was still down around 2% for the year. Oil fell some 40% from its previous high, losing almost 25% for the year. Furthermore, as interest rates rose, bonds prices fell too. There were not many places to hide in 2018. (let’s not even talk about that crypto portfolio…)

So what can we expect in 2019? Depending on how much information you are able to digest, Bloomberg has compiled a monster article of Wall Street predictions here.

Sticking with the idea of de-cluttering though, here is a short list of key themes:

  • The end of the bull cycle is getting nearer, but it is not here yet.
  • Investors, however, are likely to behave as if the end is right around the corner (this means continued volatility)
  • The US Federal Reserve will continue to normalise rates.
  • The Bank of Japan will continue its accommodative monetary policy.
  • The outcome of trade negotiations with China will be the main driver of USD strength / weakness. (perhaps we’ll see a weaker USD vs. JPY?)
  • Brexit will not have as big an effect on global markets as many commentators make out. (just my personal opinion here)
  • There is, perhaps, excessive pessimism with regard to Japanese stocks. With the end of the Heisei era, and subsequent celebration of the new era, a growing influx of foreign tourists, the Rugby World Cup later this year and the upcoming 2020 Olympics, we could see a real buzz that will be good for business.

So how should you plan your personal investment strategy for 2019? Again let’s keep it simple:

  • Have a plan! Read this post if you don’t have one.
  • Stick to your guns. Don’t let the noise divert you from your commitment to saving and investing.
  • Diversify and rebalance – review your asset allocation.
  • Max out tax advantaged investments such as NISA.
  • Look for Japan stocks that are likely to benefit from the buzz of the next two years.

With that I wish you all the best for 2019. Hope it is filled with things that spark joy!

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.

 

 

Diversifying Through Crypto – How Digital Assets Could Change Your Retirement Plan

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Sticking with the theme of cryptocurrency this week, I came across this fascinating research paper  on the role that digital assets can play in asset allocation. While I recommend you read the report yourself, I appreciate that not everyone is enraptured by talk of efficient frontiers and Sharpe ratios, so I will attempt to summarise the main points of the paper into something more easily digestible.

First of all, here’s a post I wrote previously about asset allocation, which may be a good refresher. As noted there, modern portfolio theory is about diversification, specifically, blending various asset classes to produce good returns with the lowest possible risk. Over the long term it is possible to estimate the future behaviour of various asset classes and blend them to together to create an efficient frontier portfolio, whereby the return is optimized to the level of risk.

Efficient frontier
https://grayscale.co/a-new-frontier-research-paper/

What makes the development of a new digital asset class so interesting is the opportunity to add it into the mix and create an allocation that is more diversified than traditional portfolios. A well diversified portfolio contains a blend of assets which are not strongly correlated to each other. So the key to success is not necessarily finding better performing assets, but properly combining uncorrelated assets. In short, to widen the net and capture a better return without greatly increasing the risk.

The graphic below shows a simple simulation of how this could work. It takes a typical portfolio that is 60% global stocks and 40% global bonds, (Global 60/40) and shows how the performance and risk characteristics change by simply adding an allocation to bitcoin:

Figure 5
https://grayscale.co/a-new-frontier-research-paper/

As you can see, a 1% allocation to Bitcoin increases the return over the time period without greatly affecting the level of risk. A 5% allocation to bitcoin moves the risk needle a little more, but the cumulative return is almost double that of the Global 60/40.

This can then be taken a step further by adding a blend of digital assets rather than just bitcoin:

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https://grayscale.co/a-new-frontier-research-paper/

It seems that the extra diversification achieved through a range of digital assets has a significant positive impact on the risk/return profile of this portfolio. This can be attributed to the fact that although digital assets appear to go up and down together, they are not perfectly correlated.

I’m not going to get into Sharpe ratios in this post but you can get a definition here. From a financial planning perspective I do think it is worth a look at Figure 12 and Figure 13 in the paper, which give an interesting simulation of how someone saving for retirement could benefit from an allocation to digital assets over time:

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https://grayscale.co/a-new-frontier-research-paper/

Assuming $100,000 in starting capital and an annual contribution of $18,500, this gives us an idea of how adding a 5% allocation to a blend of digital assets to the Global 60/40 can affect risk/return results over time. Although the increase in annualised return is only 0.3% for a similar level of risk, the effect of compound interest over the years turns this into a meaningful dollar figure at the end:

grayscale_fig13
https://grayscale.co/a-new-frontier-research-paper/

Now this is, of course, a simulation and there is no guarantee of achieving these returns over time, but it certainly makes for a compelling argument for allocating a small portion of long term investments to digital assets. Having said that, we are still some way from being able to click a button and add a 5% allocation to crypto to a retirement plan, which means investors currently have to figure out how to buy and store these assets safely themselves. However, there is already talk of bitcoin ETFs, and crypto funds that are accessible to retail investors are starting to appear. It looks like making an allocation to digital assets as part of your long term investment strategy is about to get easier.

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.