If you live and work in Japan, you are probably quite satisfied with your health insurance coverage. The Japanese national health insurance system is super-efficient and covers 70% of medical costs. Unless you have a serious injury or illness, you are unlikely to get any nasty surprise medical bills.
This is how I’ve thought of my own health insurance until recently. I bought a little extra cover in case of an extended stay in hospital and figured I’m good.
Then a friend of mine got a critical illness. Without going into too much detail, the doctors in Japan told him to get his affairs in order, there’s nothing they can do. He then returned to his home country and found that actually there is an option to undergo immunotherapy. The cost, however, is around 2 million yen equivalent per month…
Thankfully, many years ago he took out some international health insurance with a UK insurance company. He faithfully paid his premiums for years and now, when he actually needs it, they have agreed to cover the full cost of his treatment.
I don’t think I need to spell this out much further. Google international health insurance, do a bit of research to find a policy that fits you, and sign up. If you are choosing from a well known provider the terms and costs are likely to be pretty similar. The one choice you will need to make is whether you want US cover or not.
You may pay your premiums for years and feel like you are wasting money. Hopefully you’ll never need the cover. However, like my friend, there may come a time when you will be glad you had it.
A recent report from the Financial Services agency is causing quite a stir in the Japanese media after it detailed a shortfall in pension provision for retirees. It’s estimated that a quarter of Japanese 60 year olds will live until 95 and will need an extra 20 million yen for a 30 year retirement. (article here)
Of course the Japanese are known for their world-leading life expectancy, but the issue highlights another Japanese trait: saving money in cash instead of investing. A news report I watched this morning estimates that the average Japanese family has over half of their assets in cash, which of course earns next to nothing in the bank and is eroded by creeping inflation. This unwillingness to take risk could come back to haunt them in later life as they age and run out of money.
The political leadership are adamantly defending the credibility of Japan’s public pension system, but the reality of a pension shortfall has been known for some time. It seems a little unfair to only now be telling an aging public that they need to invest more.
Certainly there is a lesson here for everyone: Improved lifestyle, technology and advances in healthcare mean many of us will live longer than we perhaps once thought. With a noticeable reduction in the number of defined benefit pensions these days, we all need to save and invest more for the future.
It’s particularly important for younger people to realise this now and not wait too long to get started saving for retirement. Here is a useful calculator to help you understand if you are looking at a retirement surplus or shortfall.
If you are looking at a potential shortfall, you may want to review this section on retirement planning.
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.
And now for something different… If you recognise the title of today’s post, you probably already follow Naval Ravikant. And if you don’t, I recommend checking out his work.
His tweetstorm on getting rich is pinned to his Twitter page, and has also been reproduced in pdf form here. There’s a lot of knowledge packed into a five minute read and I think I might be coming back to this again and again.
I’m not going to try to summarise Naval’s thoughts and work, because he is already incredibly concise. Check out his series of short podcasts on Youtube and you will see what I mean. You will also find more on his website here.
After day two of the recent US Masters Golf, a friend of mine asked me who I thought he should bet on. My answer was somewhere along the lines of “My heart says Tiger, but my head says Molinari”. Shows where rational thinking can get you sometimes…
Luckily, when it comes to calls on a speculative asset like cryptocurrency, you don’t need my opinion to help decide if it’s worth a flutter. Tuur Demeester’s head and heart have been in Bitcoin for many years and he has been writing informative reports on the leading cryptocurrency since 2012. His latest report is here and I highly recommend you read it.
Although a little technical at times, the main points are quite clear:
Big investors (whales) are accumulating Bitcoin
We’ve seen this kind of bear market scenario before
Smart investors don’t try to buy the exact bottom, they accumulate when they know they are around it
Lower prices and shocks are still possible
Bitcoin expected to trade in a range of $3,000 – $6,500 before the next bull market breakout
Obviously I’m not saying you should be putting all of your savings into crypto, but given the potential for returns it’s worth considering a small allocation of money you can afford to take risk on.
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.
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:
Understand the correlated assets and how they behave over time – here’s a basic guide to cash, bonds and equities.
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?
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:
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.
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.
It’s been a long time coming… 27 years in the case of a well known soft drinks company. Japan’s top Coca-Cola distributor recently announced that they will be increasing prices by between 6% and 10% as soon as April this year. (article here) They are certainly not the only ones, as spring will see price increases in many of your favourite restaurants, as well as on specific foods such as instant ramen, canned mackerel and even ice cream! Coupled with the planned October increase in sales tax from 8-10% this means that your yen isn’t going to go as far as it has for the last three decades.
This will come as a shock to the Japanese public and long-time Japan residents. We’ve all got used to the size of food and drink portions getting incrementally smaller, so called “shrinkflation”, but it’s really quite a jolt to see the actual price of things going up. Even my barber is raising his prices from next month!
What is this going to mean for us all financially? Well, put simply, the massive debt bubble created by the Bank of Japan means we are unlikely to see a rise in interest rates any time soon. So, money languishing in our Japanese bank accounts is going to be losing spending power. I have talked about base currency over and over, but it still bears repeating: If you are planning to spend the money you make in Japan in the UK, then UK inflation is your minimum benchmark for investments. Holding cash in JPY at zero interest in this case means you are not only losing spending power in your base currency, but taking currency risk as well. Up until now, if you were planning to spend the money in Japan, then holding JPY cash was both safe, and good enough to at least preserve your spending power. Regardless of what government inflation statistics might say, this is clearly no longer the case.
So what action should Japan residents be taking here? Here are a few things you can do:
Review your base currency / currencies – if you are saving to pay for your kids education overseas, or your retirement abroad, you should be saving and investing in the currency you are planning to spend the money in. JPY cash is not the place to be.
That said, if you live and work in Japan, your emergency cash reserve should be in JPY. (unless losing your job would mean leaving Japan immediately)
If you have a future need for JPY as a base currency, you are going to lose spending power in JPY cash / bonds – this means you will have to take some risk with some of your money.
One way to do this would be to look for dividend paying stocks / ETFs. Here is an interesting list of dividend paying ETFs in Japan. Google translate does a pretty good job on this. Remember that you should be looking at the Japan stocks / REITS – anything that invests in overseas assets, like emerging market bonds, carry currency risk that could wipe out your actual return.
You could also consider a diversified Japan fund manager. I invest part of my NISA in Rheos Hifumi Plus, which is one of the most popular NISA investment funds in Japan. (this is not a sales pitch – just what I do)
I hope this helps. Please do get in touch with any interesting price increases you notice here in Japan.
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.
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.
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.
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.
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:
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:
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:
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:
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.
I recently read here that bitcoin bull Tom Lee has reduced his target for the price of bitcoin at the end of 2018 from $25,000 to $15,000. It’s actually amazing that people are willing to make put their reputation on the line about something as volatile as cryptocurrency, but as the above graphic shows, Mr. Lee is not alone in making bold predictions.
It’s interesting to note that two American economists are right down at the bottom with predictions of $100. They are far from the only “experts” who have a negative view with Bill Gates and investor Peter Schiff both expecting bitcoin to go to zero.
So should we all be buying bitcoin and betting on it going to a million dollars, or is that just reckless speculation?
First of all, no-one knows where this is really going, and there’s certainly a lot of speculation involved. Before making a decision, I would suggest reading up on the reasons people think bitcoin will reach a certain value. Yes, you should study up on the views of Tom Lee and Jim Cramer, as well as those of Joseph Stiglitz and Kenneth Rogoff. In fact, Peter Schiff is a good person to follow if you’re looking for the ultimate bitcoin bear.
Here’s another way to look at it. The bitcoin price as I write today is around $5,500:
How would you feel if you bought one bitcoin today and the price went to zero and you lost $5,500?
How would you feel if you didn’t buy bitcoin and the price went to $250,000? How about $1,000,000?
These two questions alone should tell you a lot about the way you view risk. There’s no correct answer, just what works for you.
FYI I bought originally at $2,500 and just bought a little more at $5,500 – that’s not advice, just disclosure. And no, I don’t have a price prediction for end of 2018, 2022 or ever!
If you simply enjoy reading the predictions there are a few more here, although this was from October before Tom Lee adjusted his outlook.
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.
Smart Money Asia 