Well, that’s month one of 2026 done. We’ve seen stocks near record highs, the yen up and down, metals explode upwards and then hit the ceiling hard, crypto confirm a bear market, Trump & Co. lecture the WEF, and so much more. Remember Greenland? What happened to that? How about Venezuela? The Maduro raid was only a month ago!
It’s pretty much impossible to make responsible financial planning decisions day to day without a solid framework. There is simply too much noise. I realise I am part of the problem, as I try to write content that is current and engaging. So, perhaps it’s time to take a step back and review the basics.
You’ve probably heard all this before. If you read this blog regularly, you most certainly have come across this information multiple times. Sometimes you just have to put in the reps, so bear with me.
Protect yourself and your family
Start with a solid foundation, so you can handle the typical curveballs that life throws at you without having to cancel plans and unwind investments.
- Pay off high-interest debt – get rid of that credit card debt asap
- Emergency cash reserve – 3 to 6 months’ expenses minimum. More if you have a fluctuating income or don’t feel secure in your job. You want to be able to eat and pay bills if you suddenly lose your income. How long will it take you to find another job? That’s how long you want to cover. This should be cash in the bank – liquid and easy to access.
- Basic insurance – health, income protection in case you are sick/injured and unable to work. If you have any significant debt, you may need life cover so your dependents don’t get shouldered with it if the worst happens. If you are unsure what you need, get someone to help you figure it out.
- Some kind of pension – don’t overthink this. If you are employed, you probably have it in place. We’re not trying to cover your whole retirement here. To begin with, you should at least be contributing a small amount of money each month to an investment plan with a long-term focus.
Own assets
I heard a campaigning politician complain that while shareholder dividends have risen considerably over the previous 10 years, wages have barely moved. He’s absolutely right.
If the onset of inflation in Japan hasn’t convinced you of the need to own assets, learn the lesson soon. That politician doesn’t actually have a plan to fix anything.
Let’s not argue about stocks, bonds, real estate, commodities, Bitcoin, etc. These are all just ways to protect and increase your purchasing power. Cash is getting eaten alive, and it’s only getting worse. Owning as many of these different assets as you can is the only way to beat inflation.
Bear in mind that volatility is normal and should be expected. Price swings are not risk; being forced to sell or owning too little of anything real is.
Know your time horizon
Asset allocation will vary depending on how long you intend to hold the investment. As a rough guide:
- Short-term money (0-3 years) – focus on capital preservation. Cash only for anything shorter than 12 months.
- Medium term (3-10 years) – balanced/growth
- Long term (10+years) – maximum growth
Understand and plan in your base currency
You need to build assets in the currency you plan to spend the money in eventually. Otherwise, you are exposed to currency risk. The weakening of the yen over the last few years should have driven this lesson home.
There is no point building up yen assets if you are going to spend the money outside Japan. It’s perfectly normal to have more than one base currency. If your future spending currency is unclear, diversifying across currencies is usually better than betting on one.
Three stages of personal financial planning
- Accumulation – spend less than you earn and invest the difference into stocks and other high-growth assets. If asset prices decline, don’t panic and keep buying. In fact, buy more if you can.
- Diversification – broaden your asset mix so you own a range of assets across the risk curve. Protect capital, whilst continuing to accumulate.
- Distribution – lower the risk and focus on income generation from your accumulated assets.
Fill up tax-advantaged accounts first
Don’t spend months agonising over one investment product versus another. You can roughly prioritise in this order:
- Employer matched contributions (if applicable)
- Tax-free growth
- Tax-deferred investments
As a rule of thumb, take “free money” first, then tax-free growth, then tax deferral.
In Japan, NISA and iDeCo are the key vehicles to understand. These are typically accumulation-stage tools.
Big lump sum investments call for diversification
Dumping a large amount of cash into a single asset class involves significant timing risk. A diversified core/satellite allocation is a good way to gain exposure to higher-risk assets without overdoing it.
Know when to get help
Some people enjoy organising their finances and are good at it. Some hate it and are generally poor at it. Understand where you are on the scale and don’t be afraid to get help.
Some people are more likely to require specialist help, in no particular order:
- People with complicated cross-border issues
- High-net-worth people who have covered all the basics and need more focused advice
- US citizens living abroad – it’s complex!
- People dealing with succession planning/inheritance
Remember: Consistency beats optimisation. A good plan you stick to beats a perfect plan you abandon.
You are probably aware that I offer a fee-based coaching service. I have deliberately kept prices low to keep it accessible to as many people as possible. In many cases, the value I provide significantly exceeds the fees I charge. You can read reviews of the service here.
In closing, yesterday the Nikkei 225 index surged almost 4% to a record high in anticipation of an LDP victory in this weekend’s election. Tons of stocks were up big on the day. The day before that, the same index rose in the morning and fell dramatically in the afternoon. A reminder that it’s impossible to guess short-term moves. For someone in the accumulation phase, both days were irrelevant.
Zoom out, cover the basics and make sure you own assets.
The rest will figure itself out.
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 