Starting out, in Japan

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ewerton
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Starting out, in Japan

Post by ewerton » Wed Jun 06, 2018 4:13 pm

Hello Boogleheads, I am here to seek your good advice!

This is my first post, so, first of all, many thanks! -- this forum has been extremely useful for my education.

I am currently domiciled in Japan, and therefore do not have direct access to vanguard funds (access does exist through Japanese brokers, but at a cost), and will likely continue to live here for the foreseeable future. I do not have US citizenship, so the traditional restrictions on US citizens living / investing abroad do not apply.

I have checked the very useful Investing in Japan page, as well as other posts from people living here, but since many were from more than a couple of years ago, and our personal situations differed, I've reckoned it'd be a good idea to ask here :)

My situation:
- I haven't done much investing before, therefore I have a lump sum to invest, currently sitting at a savings account
- At the moment, I save about 45% of my income
- No expectation of needing to access invested money for the next 15 to 20 years
- Brokers account with Rakuten; in addition to a standard investment account, I've opened a tax-advantaged NISA account (old style NISA, limit of 1,200,000 JPY per year / 5 year period), as well as applied for an iDeCo account (Japanese equivalent of a 401k, more or less)
- Full employment at the moment, expect to retire in Japan


My initial plan:
(a) Allocation
Given my 15 to 20 years horizon, I was considering starting with 100% stocks, and incrementally increase bonds until a 60/40 stocks to bond ratio to be achieved say 15 years from now. Does that sound reasonable? I am in my early 30s now.

(b) Funds:
In terms of vanguard funds, ETFs for VT and VTI (World, and US Total Market, respectively) are available, but at a 0.486% purchase fee. For the NISA account only, my broker appears to have a cashback policy of this fee applicable to US ETFs.

Here is my broker's page, for reference (in Japanese): https://www.rakuten-sec.co.jp/nisa/commission.html

Given the above, my current plan is the following:
(b.1) For the NISA account: 100% VTI (Vanguard Total Stock Market, 0.07% expense ratio)
(b.2) For normal account:
- 20% 1348 MAXIS TOPIX ETF (Total Japanese Stock Market, 0.07% expense ratio)
- 80% 1657 iShares Core MSCI Kokusai ETF (Developed Countries not including Japan, 0.19% expense ratio); details
(b.3) For iDeCo account: TBD, not many options to choose from.

Since (b.1) and (b.3) are tax-advantaged, I intent to max them out first, and put whatever spills over into the normal investing account.

Any comments / suggestions are very much appreciated. If you have questions, also please let me know.

Thanks!

Karamatsu
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Re: Starting out, in Japan

Post by Karamatsu » Wed Jun 06, 2018 9:25 pm

ようこそ!

Since our situations are a bit different (I'm a US citizen) a lot of the craziness won't apply, so it just comes down to the choices that work best for you. I would, however, recommend something less aggressive than 100% stocks. I know all the arguments (been there, done that), but would seriously consider age-in-bonds as a more stable alternative. That's particularly so for someone just starting out during what has been more or less a bull market, where all you had to do was wait a bit and equities would recover.

Sometimes they don't. Or at least... not for a long time. And you really won't know what your risk tolerance is until you're looking at statements showing that your portfolio is down 50% and there is no bottom in sight. At some point even people like Bogle started talking about "Plan B."

In my experience, it's better to have that boring, tax-inefficient bond allocation there to keep you afloat when things go crazy, as they do from time to time. That said, bond yields in Japan are so stunningly low (the government can't afford for rates to go up, so they're not allowed to go up) that the opportunity cost probably isn't worth it. Right now all my bonds are in the US, where there are a lot of index fund options.

Otherwise the one thing I can say is don't lock yourself too tightly into a plan that's based on a vision 15/20/30 years ahead. It's important to have a plan but at the same to realize that things will never go as planned. Best to be a little on the conservative side... leave some room to adjust direction when/if it becomes necessary. But that's just a general thing, not specific to portfolios. Meanwhile enjoy life in Japan!

bpp
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Re: Starting out, in Japan

Post by bpp » Thu Jun 07, 2018 5:48 am

1657 is an ETF of ETFs, so I believe you are paying the underlying expense ratios on top of the advertised rate. In addition, the underlying ETFs are US-domiciled, so you are paying an unnecessary extra 10% US tax on non-US stock dividends.

Might suggest looking at Japanese ETFs which hold foreign stocks directly, without the US (or other country) intermediary in between.
Last edited by bpp on Thu Jun 07, 2018 8:53 am, edited 1 time in total.

ewerton
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Re: Starting out, in Japan

Post by ewerton » Thu Jun 07, 2018 8:25 am

Thanks both for the replies!

Karamatsu-san,
Yep, I think it makes sense to start with a more conservative allocation, and see how I feel about it. Probably something around 60/40 stock, bonds ratio. That said, as you illustrated, finding attractive bond options in Japan seems challenging at best.

Does anyone know of good index fund options for bonds, available from Japan?

bpp,
Thanks for he heads-up, I hadn't realized 1657 was an ETF of ETFs. To the benefit of my education, how did you figured it out? I sort of read the brochure, but could not read in-between the lines.

I guess, what I am looking for are not-too-costly broad index funds -- total (developed) world market, or total US market -- which I can buy from a broker in Japan. Or, is vanguard still the way to go even in spite of the purchase fees (0.486%) I'd have to leave with my broker?

Thanks again!

bpp
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Re: Starting out, in Japan

Post by bpp » Thu Jun 07, 2018 9:19 am

ewerton wrote:
Thu Jun 07, 2018 8:25 am
bpp,
Thanks for he heads-up, I hadn't realized 1657 was an ETF of ETFs. To the benefit of my education, how did you figured it out? I sort of read the brochure, but could not read in-between the lines.
Look under the ‘Holdings’ tab.
I guess, what I am looking for are not-too-costly broad index funds -- total (developed) world market, or total US market -- which I can buy from a broker in Japan. Or, is vanguard still the way to go even in spite of the purchase fees (0.486%) I'd have to leave with my broker?
I would recommend non-US citizens to avoid US financial products entirely, if possible. Besides the extra layer of income taxes, I would worry about the possibility of assets being frozen at death by the broker until heirs can produce US estate tax paperwork, even in the presence of an estate tax treaty which might reduce the US estate tax to zero.

For MSCI-Kokusai index funds, either 1550 or 2513 should be ok. (Or 2514 if you want hedging back to yen, but at the added cost of hedging and the addition of hedge counterparty risk.)

For bonds, the only domestic ETF is 2510, with expense ratio of 0.07%. Or else use 個人向け国債, or even just plain cash in the bank.

For foreign bonds, 1677 (er 0.25%) and 2511 (er 0.12%) are unhedged, while 2512 (er 0.12%) is hedged back to yen.

ewerton
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Re: Starting out, in Japan

Post by ewerton » Sat Jun 09, 2018 8:41 am

Thanks again bpp, that was all very helpful!

My current thinking now is to go with 1348 (Topix) and 1550 (MSCI kokusai) for equity, and 1677 for bonds. As a deflation hedge, I'll probably keep a bit more cash around than I had first anticipated since returns on Japanese government bonds (個人向け国債) seem rather dismal anyways.

bpp
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Re: Starting out, in Japan

Post by bpp » Sun Jun 10, 2018 11:27 pm

Sounds good.

By the way, I was wrong about the expense ratios of etfs-of-etfs. I called BlackRock Japan and they told me the ERs of the underlying funds are included in the reported ER of the outer fund, and don’t need to be accounted for separately.

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peterinjapan
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Re: Starting out, in Japan

Post by peterinjapan » Mon Jun 11, 2018 2:42 am

Beware fees. Folks here would laugh if I told them what my Japanese wife -- who just *has* to have the hand holding -- allows to be taken in fees. It's like Japan is still in the year 1985 or something.

I will be starting a NISA (a 5 year limited retirement account) soon, I hope they extend the timeline since 5 years is next to meaningless.

ewerton
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Re: Starting out, in Japan

Post by ewerton » Wed Jun 13, 2018 8:12 am

By the way, I was wrong about the expense ratios of etfs-of-etfs. I called BlackRock Japan and they told me the ERs of the underlying funds are included in the reported ER of the outer fund, and don’t need to be accounted for separately.
Cool, thanks for checking! That ETF seems more appealing now; the ER difference from 1550 is not that much (0.06%), but it might just be the least expensive "total developed world excluding Japan" index fund available here.

By the way, I am also thinking about getting some exposure to emerging market equities. Does 1681 (上場インデックスファンド海外新興国株式) seem reasonable?

bpp
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Re: Starting out, in Japan

Post by bpp » Wed Jun 13, 2018 9:01 am

ewerton wrote:
Wed Jun 13, 2018 8:12 am
By the way, I was wrong about the expense ratios of etfs-of-etfs. I called BlackRock Japan and they told me the ERs of the underlying funds are included in the reported ER of the outer fund, and don’t need to be accounted for separately.
Cool, thanks for checking! That ETF seems more appealing now; the ER difference from 1550 is not that much (0.06%), but it might just be the least expensive "total developed world excluding Japan" index fund available here.
2513 is even cheaper, and doesn’t have the extra layer of US taxes applied to dividends from non-US stocks in the index that 1657 has. They both have low liquidity, though that may be tolerable if not buying large chunks at a time.
By the way, I am also thinking about getting some exposure to emerging market equities. Does 1681 (上場インデックスファンド海外新興国株式) seem reasonable?
It is really the only choice for a fund that actually holds the underlying securities, which I prefer over futures-based funds (like 1681). Unfortunately, its only holding is a US-based ETF, so add US tax on the dividends to the effective expense ratio (this adds maybe 0.2%+ to the effective ER?). But not much one can do about that if one wants EM exposure.

ewerton
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Re: Starting out, in Japan

Post by ewerton » Thu Jun 14, 2018 6:00 am

Your right, 2513 is even cheaper!
It is really the only choice for a fund that actually holds the underlying securities, which I prefer over futures-based funds (like 1681).
Just to see if I understand correctly, but is 1681 the eft which holds futures (couldn't guess that from the linked pdf, but my Japanese isn't that great)? In that case, what is the sole choice you mention for exposure to EM while actually holding the underlying securities?

bpp
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Re: Starting out, in Japan

Post by bpp » Thu Jun 14, 2018 6:46 am

ewerton wrote:
Thu Jun 14, 2018 6:00 am
Your right, 2513 is even cheaper!
It is really the only choice for a fund that actually holds the underlying securities, which I prefer over futures-based funds (like 1681).
Just to see if I understand correctly, but is 1681 the eft which holds futures (couldn't guess that from the linked pdf, but my Japanese isn't that great)? In that case, what is the sole choice you mention for exposure to EM while actually holding the underlying securities?
Sorry for the confusion. :oops:

1681 holds futures
1658 holds a US-domiciled ETF (IEMG)

See:
http://www.jpx.co.jp/equities/products/ ... 01-08.html
or,
http://www.jpx.co.jp/english/equities/p ... 01-08.html

ewerton
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Re: Starting out, in Japan

Post by ewerton » Thu Jun 14, 2018 7:00 am

Cool, that makes sense. Thanks!

Interesting how the volatility of 1658 is around 20%, and that of 1681 around 15% to 18%.

bpp
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Re: Starting out, in Japan

Post by bpp » Thu Jun 14, 2018 7:09 am

Actually, looking at the prospectus for 1681, it seems to hold a mix of ETFs and futures:
http://www.nikkoam.com/files/fund_pdf/6 ... moku_s.pdf

Possibly they will move to fewer futures and more equities in the future as fund size grows?

Though their developed-markets index fund, which is much bigger, is all futures. So perhaps the problem is actually a lack of available futures for some smaller markets?

(No idea, just pondering out loud.)

rhe
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Re: Starting out, in Japan

Post by rhe » Thu Jun 14, 2018 10:41 am

A couple of years back I looked at the etfs that were available in japan. I concluded that there were very good domestic etfs, but that the options for foreign investment were not so good. I think you are better off opening an account with interactive brokers for all your non-japanese investing. They have a japanese office that is available during japanese business hours, and they have always solved any problems quickly for me. You will save a ton on the currency spreads alone.

ewerton
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Re: Starting out, in Japan

Post by ewerton » Fri Jun 15, 2018 7:46 am

Incidentally, what are the thoughts on 1554, MSCI ACWI excluding Japan? Unfortunately, it seems to hold futures (like 1681), but at 0.25% ER, it would have a great potential for simplifying one's portfolio.

bpp
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Re: Starting out, in Japan

Post by bpp » Fri Jun 15, 2018 5:18 pm

ewerton wrote:
Fri Jun 15, 2018 7:46 am
Incidentally, what are the thoughts on 1554, MSCI ACWI excluding Japan? Unfortunately, it seems to hold futures (like 1681), but at 0.25% ER, it would have a great potential for simplifying one's portfolio.
Yes, 1554 would be ideal if not for the futures thing. Very tempting, but I personally would feel too nervous about how a futures-based fund would behave in a market crisis, like the Lehman Shock of a few years ago or worse. I just don’t like the idea of adding counterparty risk to market risk.

Don’t know how rational that fear is, though. The same fear makes me distrust currency-hedged funds,which don’t seem to bother most Bogleheads.

ewerton
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Re: Starting out, in Japan

Post by ewerton » Sat Jun 16, 2018 6:09 am

I had been looking at the retirejapan forum, and came across http://shintaro-money.com/index-cost/, with costs for several (traditional) index funds. Some funds seem promising, with costs lower than comparable ETFs; for total world market excluding Japan eMAXIS Slim 全世界株式(除く日本), with ER 0.15%, appears to be pretty good .

rhe
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Re: Starting out, in Japan

Post by rhe » Sat Jun 16, 2018 6:23 am

The stated expense ratios for some of the international etfs do look good, but the problem is that the benchmark they track is the net return index, not the gross return index. If you look at vanguard international funds in other countries that track a net return index, they actually outperform their benchmark because the net return index assumes that tax withholding happens at the standard (rather than tax treaty) rate. I didn't see this sort of outperformance in japan, which makes me think that some additional money is disappearing somewhere.

Regarding etfs that use futures, there is no counterparty risk with exchange traded futures. Counterparty risk happens with swaps that are not traded through an exchange. The problem with futures is that they usually need to be rolled every quarter, and so you will be paying the bid ask spread four times a year, unless the fund managers are nice enough to figure out something cheaper... but the cheaper thing would probably have counterparty risk. Also, futures are unfunded, so they have to do something with all the cash they have. They may do something that is good for them, but not for you.
Last edited by rhe on Sat Jun 16, 2018 7:18 am, edited 4 times in total.

rhe
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Re: Starting out, in Japan

Post by rhe » Sat Jun 16, 2018 6:39 am

Regarding mutual funds like the emaxis slim series, you have to put a lot of faith in the fact that there are no fees taken out anywhere further down the line. I don't think you can ask anybody about this, because there are too many places where the money could disappear. As far as I can see, the only way to check is to try to compare the dividend payments and nav changes to the index and other funds you trust. This fund is new, though, so that comparison would be difficult.

For example, I believe expense ratio generally exclude certain kinds of "transaction costs". The mitsubishi people could decide to do some creative transactions with their friends that have substantial costs.

ewerton
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Re: Starting out, in Japan

Post by ewerton » Sat Jun 16, 2018 7:46 am

Thanks for the input rhe!

By the way, the http://shintaro-money.com/index-cost/ website has some "real cost" estimate for other, older, emaxis funds, and indeed it seems costs can go 0.1% over or more sometimes.
If I understand how things work correctly, I think one of the advantages of using a traditional fund (over an "equivalent" ETF) in this case would be that dividends can been reinvested automatically, thus effectively deferring the tax collected on them.

rhe
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Re: Starting out, in Japan

Post by rhe » Sat Jun 16, 2018 11:01 am

Yes, there is something weird about japanese mutual funds, because some of them appear to accumulate dividends rather than distribute them.

One of the unusual features of the japanese tax system is that capital gains and dividends are both taxed at the same rate, and this is fixed regardless of your income. It is thus entirely possible that the funds that accumulate dividends internally are paying tax on them. You would not necessarily get any forms to notify you that this is even happening. My japanese brokerage has never mailed me a tax withholding form, although if i dig deep enough I can see that taxes are being paid on my dividends. No tax forms are sent presumably because almost nobody in japan needs to file taxes, but it does make the whole system harder to understand.

Another alternative is that hidden mutual fund fees are so high that the dividends aren't being accumulated at all, they're just entirely eaten up by fees each year.

bpp
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Re: Starting out, in Japan

Post by bpp » Sat Jun 23, 2018 9:20 pm

Looks like there is a new, domestically-domiciled EM ETF coming out on July 10th. Ticker code 2520:

http://www.jpx.co.jp/equities/products/ ... index.html
http://www.jpx.co.jp/equities/products/ ... 2520-j.pdf

This should be a good alternative to 1658, though will probably take a while to grow in asset size.

WanderingDoc
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Re: Starting out, in Japan

Post by WanderingDoc » Sun Jun 24, 2018 1:38 am

Lots of folks living in Japan here, awesome!

For someone with index funds and physical real estate, any problems if they move to Japan for say, 3-7 years.. I mean to continue to invest as before in equities and real estate in the States?

Not sure about equities, but real estate investing is more profitable in the U.S. from what I can tell. Plus it would be nice to stick to what I know.

I would continue to hold my U.S. passport. Not sure if obtaining permanent resident status in Japan is worthwhile.

I have started memorizing 2200 Joyo Kanji writing and meanings, more than halfway there. Next step is audio and sentence immersion. Looking for N1 level in 24 months. Sound crazy to you guys? Cheers!
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

Karamatsu
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Re: Starting out, in Japan

Post by Karamatsu » Sun Jun 24, 2018 3:28 am

The main difficulties with investing in US assets in the short term come from the brokers. Many US brokers don't want to deal with expatriates, so you'd want to check with your broker(s) and make sure they are OK with you continuing to invest while in Japan. Be sure to phrase it as a hypothetical so they don't think you're already in Japan! Otherwise there are just a bunch of tax issues: discrimination from both the IRS and the Japanese Tax Agency, that you need to be aware of to make smart choices, but the Japanese rules, especially, change every year so there's only so much you can anticipate.

I'm not sure why you'd want to get permanent residency if you're thinking of leaving after 3-7 years, but I guess it depends on your initial visa status. Permanent residency would change your tax status immediately rather than giving you the five-year grace period, so it might be advantageous to wait. Also having a "track record" of making money and paying taxes is a big help in getting permanent residency if you choose.

Another thing is that you can't make US social security contributions while working in Japan (unless you're being paid by a US company or government agency that sends you here), or contribute to a US IRA (unless you have US earned income) but will be required to pay into the Japanese retirement pension plan. You can get some of that refunded to you after you leave Japan, but (last I checked) only three year's worth.

As for the JLPT, I applaud your enthusiasm! As I'm sure you know, you can get practice tests from previous years, etc, to assess your level and prepare. I imagine N1 would be very hard without intensive immersion since the idea is to test the ability to deal with complex and unfamiliar subjects. Just for comparison, a Chinese classmate (so reading the meanings of kanji were generally not an issue) went from zero to passing N2 after one year of full-time study. I don't know if she tried N1.

bpp
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Re: Starting out, in Japan

Post by bpp » Sun Jun 24, 2018 7:29 am

Good comments from Karamatsu, as always.
Karamatsu wrote:
Sun Jun 24, 2018 3:28 am
Another thing is that you can't make US social security contributions while working in Japan (unless you're being paid by a US company or government agency that sends you here), or contribute to a US IRA (unless you have US earned income) but will be required to pay into the Japanese retirement pension plan. You can get some of that refunded to you after you leave Japan, but (last I checked) only three year's worth.
Or alternatively, leave the contributions in place, and use the US-Japan social security totalization agreement to get you entitled to a bit of Japanese social security when you retire.
As for the JLPT, I applaud your enthusiasm! As I'm sure you know, you can get practice tests from previous years, etc, to assess your level and prepare. I imagine N1 would be very hard without intensive immersion since the idea is to test the ability to deal with complex and unfamiliar subjects. Just for comparison, a Chinese classmate (so reading the meanings of kanji were generally not an issue) went from zero to passing N2 after one year of full-time study. I don't know if she tried N1.
Don't know how the new N levels compare to the old JLPT levels, but if they are at all comparable, don't be shocked to discover that even passing the highest level doesn't ensure fluency. But good luck!

WanderingDoc
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Re: Starting out, in Japan

Post by WanderingDoc » Sun Jun 24, 2018 1:13 pm

bpp wrote:
Sun Jun 24, 2018 7:29 am
Good comments from Karamatsu, as always.
Karamatsu wrote:
Sun Jun 24, 2018 3:28 am
Another thing is that you can't make US social security contributions while working in Japan (unless you're being paid by a US company or government agency that sends you here), or contribute to a US IRA (unless you have US earned income) but will be required to pay into the Japanese retirement pension plan. You can get some of that refunded to you after you leave Japan, but (last I checked) only three year's worth.
Or alternatively, leave the contributions in place, and use the US-Japan social security totalization agreement to get you entitled to a bit of Japanese social security when you retire.
As for the JLPT, I applaud your enthusiasm! As I'm sure you know, you can get practice tests from previous years, etc, to assess your level and prepare. I imagine N1 would be very hard without intensive immersion since the idea is to test the ability to deal with complex and unfamiliar subjects. Just for comparison, a Chinese classmate (so reading the meanings of kanji were generally not an issue) went from zero to passing N2 after one year of full-time study. I don't know if she tried N1.
Don't know how the new N levels compare to the old JLPT levels, but if they are at all comparable, don't be shocked to discover that even passing the highest level doesn't ensure fluency. But good luck!
Great comments and advice guys, thanks. I am aware that N1 probably isn't fluency, so I will be studying for fluency and not N1, but doing it part time so giving myself around 5 years of consistent study.

I would have some earned income from real estate investments. I am guessing this would qualify for me to contribute to an IRA in the U.S. while living overseas?

I am not totally versed on the 5 year rule, so hoping someone could clarify. After 5 years living in Japan, all of your foreign (U.S.) assets become taxable under the Japanese system as I understand. Is this for life? So what if someone moves back to the States after staying in Japan longer than 5 years. Then what happens to these assets?
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

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Hyperborea
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Re: Starting out, in Japan

Post by Hyperborea » Sun Jun 24, 2018 3:16 pm

WanderingDoc wrote:
Sun Jun 24, 2018 1:13 pm
Great comments and advice guys, thanks. I am aware that N1 probably isn't fluency, so I will be studying for fluency and not N1, but doing it part time so giving myself around 5 years of consistent study.
I've read those discussions of the "speed" learners and discount most of it. There are likely a few in there that have really done it but they're few and far between and likely had not much going on in their life at that time. The US Foreign Service expects it to take 2200 class hours (probably another 1100 to 2200 or so of non-class hours) for an English speaker to be professionally proficient (maybe N2 or N1 plus conversation ability). That's going to be hard to fit into a busy work life, so if you are really a doc then it just might take longer than that. Note that the JLPT levels say nothing about conversation - they test grammar, kanji, reading, vocabulary, and listening but not conversation.
WanderingDoc wrote:
Sun Jun 24, 2018 1:13 pm
I would have some earned income from real estate investments. I am guessing this would qualify for me to contribute to an IRA in the U.S. while living overseas?
It would have to be earned income and not investment income.
WanderingDoc wrote:
Sun Jun 24, 2018 1:13 pm
I am not totally versed on the 5 year rule, so hoping someone could clarify. After 5 years living in Japan, all of your foreign (U.S.) assets become taxable under the Japanese system as I understand. Is this for life? So what if someone moves back to the States after staying in Japan longer than 5 years. Then what happens to these assets?
The five year rule means that for five years as long as you keep the investments and any income from them out of the country then you will not be taxed on them in Japan. After that Japan takes it taxes off your capital gains before the US and on the dividends and interest after the country where the money is invested and then the US follows that (since you are an American) if it wasn't the country where the assets were located.
https://home.kpmg.com/xx/en/home/insigh ... e-tax.html

Also, Japan has in the last few years instituted an exit tax and that kicks in after 5 years of residency during the last 10 years (under certain conditions) if you have assets over ¥100M (~US$1M). You may want to limit your time to 5 years OR make sure that you don't fall into the categories that this exit tax applies to.
https://www.pwc.com/jp/en/taxnews-inter ... y-2015.pdf
"Plans are worthless, but planning is everything." - Dwight D. Eisenhower

WanderingDoc
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Re: Starting out, in Japan

Post by WanderingDoc » Sun Jun 24, 2018 4:13 pm

Thank you for clarifying!

I think there is something to be said about "classroom" hours vs. a different way to study. I don't think classroom based learning is the best for every language. Constant drills, vocabulary rules, and boring exercises may not be the best method.

For example, it is perfectly reasonable (and this is exactly how infants learn Japanese and any language) to learn Japanese sentences and grammar without learning any grammar. At all. Grammar doesn't really exist. Languages are alive and changing. A baby learns its Native tongue without learning a single grammar rule, but the sentences come out perfectly every time. How? Imitation. Since the womb, an infant has listened to 10,000 hours of Native Japanese conversation by age 3-4. So through input, not learning ANY grammar, then are fluent by age 4.

Personally, the two languages I am fluent in, I do not know a single grammar rule or definition. I intend to use this fact to learn Japanese the same way an infant learns their native language. 10,000 hours of audio, and 10,000 sentences that I myself deem useful learn how to say, in a spaced-repetition software. Boom. That should be enough for fluency. Kanji is first, and am on pace to memorize 2200 in 5 months.

It sound like holding real estate is then beneficial. I do not have any capital gains on dividends and interest with my real estate business (I don't sell anything). I just have monthly income, which after taxes are filed, I legally pay no taxes on. A minor part of my portfolio is equities, so I guess that is the only part that the taxation rules you listed will apply.

Thanks again, I would love to chat via PM about your experience in Japan if you would be so kind.

Hyperborea wrote:
Sun Jun 24, 2018 3:16 pm
WanderingDoc wrote:
Sun Jun 24, 2018 1:13 pm
Great comments and advice guys, thanks. I am aware that N1 probably isn't fluency, so I will be studying for fluency and not N1, but doing it part time so giving myself around 5 years of consistent study.
I've read those discussions of the "speed" learners and discount most of it. There are likely a few in there that have really done it but they're few and far between and likely had not much going on in their life at that time. The US Foreign Service expects it to take 2200 class hours (probably another 1100 to 2200 or so of non-class hours) for an English speaker to be professionally proficient (maybe N2 or N1 plus conversation ability). That's going to be hard to fit into a busy work life, so if you are really a doc then it just might take longer than that. Note that the JLPT levels say nothing about conversation - they test grammar, kanji, reading, vocabulary, and listening but not conversation.
WanderingDoc wrote:
Sun Jun 24, 2018 1:13 pm
I would have some earned income from real estate investments. I am guessing this would qualify for me to contribute to an IRA in the U.S. while living overseas?
It would have to be earned income and not investment income.
WanderingDoc wrote:
Sun Jun 24, 2018 1:13 pm
I am not totally versed on the 5 year rule, so hoping someone could clarify. After 5 years living in Japan, all of your foreign (U.S.) assets become taxable under the Japanese system as I understand. Is this for life? So what if someone moves back to the States after staying in Japan longer than 5 years. Then what happens to these assets?
The five year rule means that for five years as long as you keep the investments and any income from them out of the country then you will not be taxed on them in Japan. After that Japan takes it taxes off your capital gains before the US and on the dividends and interest after the country where the money is invested and then the US follows that (since you are an American) if it wasn't the country where the assets were located.
https://home.kpmg.com/xx/en/home/insigh ... e-tax.html

Also, Japan has in the last few years instituted an exit tax and that kicks in after 5 years of residency during the last 10 years (under certain conditions) if you have assets over ¥100M (~US$1M). You may want to limit your time to 5 years OR make sure that you don't fall into the categories that this exit tax applies to.
https://www.pwc.com/jp/en/taxnews-inter ... y-2015.pdf
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

bpp
Posts: 1948
Joined: Mon Feb 26, 2007 12:35 pm
Location: Japan

Re: Starting out, in Japan

Post by bpp » Sun Jun 24, 2018 6:18 pm

WanderingDoc wrote:
Sun Jun 24, 2018 1:13 pm
I would have some earned income from real estate investments. I am guessing this would qualify for me to contribute to an IRA in the U.S. while living overseas?
I think most real estate income would be classified as passive, not earned, income, and therefore not usable for IRA contributions. And you have to be physically present in the US (or international waters/air/land/space) for earned income to be treated as US-sourced.

You could try using the Foreign Tax Credit instead of the Foreign Earned Income Exclusion to preserve IRA eligibility. Or else arrange for some business trips to the US to generate some earned income while there.

Lumier3
Posts: 1
Joined: Thu Jun 21, 2018 9:06 pm

Re: Starting out, in Japan

Post by Lumier3 » Mon Jun 25, 2018 2:12 am

Hey guys,

another japan-ite here as well, hoping to catch onto this thread.

My situation is very similar to the OP and I too am looking at starting out in the very near future, based in Japan, but non US citizen etc, and looking at VOO as my benchmark, and doing research at the moment.

I am curious if any of you looked into the Rakuten/Vanguard funds?

https://www.rakuten-toushin.co.jp/begin ... /vanguard/

If so, if anyone has any opinion of them I'd be very interested.

Karamatsu
Posts: 1333
Joined: Mon Oct 27, 2008 2:42 am

Re: Starting out, in Japan

Post by Karamatsu » Mon Jun 25, 2018 8:36 am

For example, it is perfectly reasonable (and this is exactly how infants learn Japanese and any language) to learn Japanese sentences and grammar without learning any grammar.
Just keep in mind that in order for that to work it can't just be passive. There needs to be constant positive feedback and modeling of grammatically correct sentences by parents and others. Also children have a degree of linguistic plasticity that is kind of unusual in adults... beyond a certain point, the grammatical constructs of the languages you use (which do have grammar rules, even if you aren't conscious of them!) become sort of "burned in," and it's harder to accommodate new ones. Same deal with pronunciation. It can all be done, most certainly, but interaction and feedback are key, so try to find a way to work those into your study/practice.

As for real estate income (which I assume means things like rents?), I'm not sure how that will be treated by Japan, but if we assume it's just ordinary income. As Hyperborea said, the five year exemption only applies if the income is earned abroad and stays abroad. I'm pretty sure that, if you have the rental income sent to you here in Japan, it will become taxable even within the five year period, so if that's what you're planning (to live off your US rental income) then you should probably talk to a tax professional familiar with the laws in both countries to see if there's a way to structure that to avoid paying too much in taxes. The wrong choices can definitely hurt you!

That said, what sort of visa are you thinking about? There are many different categories but if you won't be working in Japan I'm not sure what's best. It's another thing to consider.

Karamatsu
Posts: 1333
Joined: Mon Oct 27, 2008 2:42 am

Re: Starting out, in Japan

Post by Karamatsu » Mon Jun 25, 2018 8:46 am

Thanks for that link to the Vanguard funds. I had not seen them before, but at first glance they look good. What do people think about the .1696% ER? It's a little over 4X what the actual Vanguard fund costs, but maybe still reasonable for Japan. I'm not sure... but if so, it would be tempting just because it's Vanguard.

rhe
Posts: 20
Joined: Sun Feb 26, 2017 2:10 am

Re: Starting out, in Japan

Post by rhe » Mon Jun 25, 2018 9:15 am

The vanguard fund looks like it's less than a year old. A couple of years back I did a fairly careful investigation of what was available, and I didn't see anything that looked as good as this one.

One thing to keep in mind is that if you already have money it will become taxable if you bring it into the country.

bpp
Posts: 1948
Joined: Mon Feb 26, 2007 12:35 pm
Location: Japan

Re: Starting out, in Japan

Post by bpp » Mon Jun 25, 2018 6:01 pm

The Rakuten/Vanguard funds have the same problem as the Blackrock iShares funds mentioned above. They hold US-based ETFs, so incur an unnecessary extra layer of taxation on any non-US equities in the fund. A pure domestically-domiciled Fund would be better for non-US taxpayers. For US taxpayers, these funds look like PFICs. So I don’t know for whom they are supposed to be good.

For domestically domiciled ETFs, the new NEXT Funds series of ETFs seems quite good in principle. Low-cost, and no foreign ETF holdings, so better tax efficiency. They are put out by Nomura, which I don’t normally associate with low cost, but I guess the market is finally speaking and forcing them to pay attention.

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