New pension plan (similar to 401k, except in JP)

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Znarr
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New pension plan (similar to 401k, except in JP)

Post by Znarr » Thu May 19, 2011 4:14 am

Hello All,

My company has just initiated a pension plan for employees where we have the option of choosing which funds to invest in (apparently it’s akin to a Japanese 401k)
From what I understand, this is essentially “free” money, tax free (going in – there will be taxation at withdrawal), and is the equivalent of US$250 per month.

We have a total of 16 possible funds we can invest in, and I’ve narrowed down this down to 7 based on fees (I went for those with the lowest costs and with no redemption charges – some of the funds charge 1.7% annual, AND 0.2% redemption charges!!)

Out of those 7 funds, two of them are “Guaranteed Principal” – meaning that they guarantee that whatever you put in, you’ll get back (basically gov’t insured). Interest rates are 0.161 (5 year fixed) and 0.250 (3 year fixed).

The remaining 5 funds I can invest in are as follows (apologies, not much information is available – all this is what they were able to translate for me):

DIAM Kokunai Kabushiki Index Fund @ 0.231% ER – invests in JP equities and aims to match the TOPIX index
SS Global Equity Index Open @ 0.2625% ER – invests in international equities and aims match the MSCI-Kokusai Index ex-Japan (NYSE:TOK)
DIAM Kokunai Saiken Index Fund @ 0.2625% ER – invests in JP bonds and aims to match the Nomura-BPI Index (sorry, couldn’t find a ticker)
SS Global Bond Index Open @ 0.2415% ER – invests in international bonds and aims to match the Citigroup World Govt Bond Index ex-Japan (I think WGBI)

DIAM balanced fund 1, 2, or 3 @ 0.273% ER / 0.3045% ER / 0.336% ER respectively
The DIAM balanced funds 1, 2, and 3 are (respectively) blends of:

Japanese equities: 19% / 30% / 40%
International Equities (currency unhedged): 5% / 12% / 19%
Japanese Bonds: 65% / 43%/ 22%
International Bonds (currency unhedged): 8% / 12% / 16%
JPY money markets: 3% (same for each fund)

I have to make a decision on how I want to allocate the monthly funds by next Monday at the latest, and right now I’m just putting this out to get people’s opinions.

I’m 29, and I have a healthy emergency fund of approx. 10k USD. I have another 25k USD in a Vanguard retirement account (setup with Boglehead assistance! :)

My own thoughts are that this is something for the long term (think 20+ years down the line) – hopefully won’t have any reason to touch these funds for that length of time. So, for the most part I see myself setting the allocation once and then forgetting it. Perhaps as I get older I’ll want to think about re-balancing allocations, but for someone in my position what would you recommend?

To avoid the combined ER costs, is there any reason for me to not go for just 1 of the balanced funds, say, #3? Granted, the ER of .336 is a little steep, but if that’s the only fund I choose (as opposed to 2 or 3 separate funds) then it’s still cheaper right?

Or what are your thoughts/concerns on investing in the Japanese economy? I know that Japan has taken a financial beating due to the tsunami/earthquake/nuclear crisis, and things are likely to be dim for at least the next couple years. However, (and bear in mind that this is a purely personal/optimistic viewpoint) I think that Japan will come out this strong in the long run.

So to wrap up this lengthy post, I currently see my options as being to either:

1) Invest only in one of the DIAM Balance Funds (given my age/timeframe, possibly #3)
2) Choose a mix of International stocks/bonds, JP stocks/bonds, and money market and diversify a bit more.

If I went for option 2, then I would probably invest in all remaining 4 funds + 1 Guaranteed Principle (no ER), something along the lines of (trying to match age in bonds/mm):

-DIAM Kokunai Kabushiki Index Fund @ 30%
-SS Global Equity Index Open @ 45%
-DIAM Kokunai Saiken Index Fund @ 10%
-SS Global Bond Index Open @ 10%
-the 3 year fixed guaranteed principle fund @ 5%

Thanks for reading this far, and your thoughts, criticisms, advice are all welcome!
Znarr

livesoft
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Post by livesoft » Thu May 19, 2011 6:44 am

Do you intend to stay in Japan through retirement?

At $250 a month, this is not much money. Personally, I would put it all (100%) into just
SS Global Equity Index Open @ 0.2625% ER

in order to not be invested in Japan. You can adjust your other assets around this easily.
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Topic Author
Znarr
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Post by Znarr » Thu May 19, 2011 7:01 pm

livesoft wrote:Do you intend to stay in Japan through retirement?

At $250 a month, this is not much money. Personally, I would put it all (100%) into just
SS Global Equity Index Open @ 0.2625% ER

in order to not be invested in Japan. You can adjust your other assets around this easily.
Honestly, I don't know what the future holds, but I've already been here for over 10 years, and I don't see myself changing jobs any time soon.

Can I ask why you mention "in order not to be invested in Japan"? What are your reasons for avoiding investments in Japan (again, thinking over the long term).

livesoft
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Post by livesoft » Thu May 19, 2011 7:25 pm

You probably are already invested in Japan: job, other savings, other investments.

That TOK fund is essentially a low-cost passively-managed index fund that covers equities. You can get fixed income in your other accounts.
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Znarr
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Post by Znarr » Thu May 19, 2011 10:13 pm

livesoft wrote:You probably are already invested in Japan: job, other savings, other investments.

That TOK fund is essentially a low-cost passively-managed index fund that covers equities. You can get fixed income in your other accounts.
Thanks livesoft. I don't have any other investments, but I see what you mean - even though I don't directly invest in anything else (aside from the VG Target Retirement in the US), I guess the JP national pension plan (obligatory monthly deductions from salary) could count as an investment in Japan. So there would not really be any point for me to choose one of the "guaranteed principle" options. But aside from the national pension plan (SS equivalent), I don't have any other investments in Japan.

So I am still pondering a partial investment in the JP equity option. I've looked at the data sheet for the SS Global Bond Index Open and though I can't read the fine details (the kanji is beyond me), I can see the top 10 country breakdowns which are as follows:

America @ 52.71%
England @ 10.62%
Canada @ 5.84%
France @ 5.06%
Australia @ 4.34%
Switzerland @ 3.92%
Spain @ 1.79%
Sweden @ 1.62%
Italy @ 1.45%

Are there any strong feelings on the economic state of Japan for the long term?

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Post by supersharpie » Thu May 19, 2011 10:22 pm

Znarr wrote:
livesoft wrote:You probably are already invested in Japan: job, other savings, other investments.

That TOK fund is essentially a low-cost passively-managed index fund that covers equities. You can get fixed income in your other accounts.
Thanks livesoft. I don't have any other investments, but I see what you mean - even though I don't directly invest in anything else (aside from the VG Target Retirement in the US), I guess the JP national pension plan (obligatory monthly deductions from salary) could count as an investment in Japan. So there would not really be any point for me to choose one of the "guaranteed principle" options. But aside from the national pension plan (SS equivalent), I don't have any other investments in Japan.

So I am still pondering a partial investment in the JP equity option. I've looked at the data sheet for the SS Global Bond Index Open and though I can't read the fine details (the kanji is beyond me), I can see the top 10 country breakdowns which are as follows:

America @ 52.71%
England @ 10.62%
Canada @ 5.84%
France @ 5.06%
Australia @ 4.34%
Switzerland @ 3.92%
Spain @ 1.79%
Sweden @ 1.62%
Italy @ 1.45%

Are there any strong feelings on the economic state of Japan for the long term?
Until the ongoing Fukushima nightmare is over do any of us really know?

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robolove
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Post by robolove » Thu May 19, 2011 10:33 pm

Znarr wrote:My company has just initiated a pension plan for employees where we have the option of choosing which funds to invest in (apparently it’s akin to a Japanese 401k)
....
....
and though I can't read the fine details (the kanji is beyond me
In addition to gajins cold calling me, my company offered some sort of pension plan.

My wife is fluent, but, my gut feeling told me, "If I can`t read and comprehend something myself, don`t do it."

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Znarr
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Post by Znarr » Thu May 19, 2011 10:54 pm

Until the ongoing Fukushima nightmare is over do any of us really know?


I know... but at the same time I feel that things can't get much worse - or maybe that's just the optimist in me :(

@ robolove

Ordinarily I would agree, but this new plan is something that all employees will participate in. If I don't do anything, by default the monthly contribution from the company (this is not coming out of my normal salary, it's a company contribution) will go to the "guaranteed principal" product. So I wouldn't lose anything, but it wouldn't have any chance of growing much over the next 10-20 years..

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ofcmetz
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Post by ofcmetz » Fri May 20, 2011 3:18 am

livesoft wrote:You probably are already invested in Japan: job, other savings, other investments.

That TOK fund is essentially a low-cost passively-managed index fund that covers equities. You can get fixed income in your other accounts.
I like the TOK fund as well based on these reasons. Also should be easy to track how the fund is doing and based on the $250 per month employer contribution you should have a good idea of the accounts worth. What is the vesting period, is it instant?
Never underestimate the power of the force of low cost index funds.

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Znarr
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Post by Znarr » Fri May 20, 2011 10:06 am

ofcmetz wrote:
I like the TOK fund as well based on these reasons. Also should be easy to track how the fund is doing and based on the $250 per month employer contribution you should have a good idea of the accounts worth. What is the vesting period, is it instant?
No, one has to have participated for a minimum of 10 years OR be 61 years old before withdrawal can commence.

larmewar
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Post by larmewar » Sat May 21, 2011 3:45 pm

You could add just enough of the Japan fund matching TOPIX to the TOK fund make an all world equities.

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Znarr
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Post by Znarr » Sun May 22, 2011 7:12 pm

larmewar wrote:You could add just enough of the Japan fund matching TOPIX to the TOK fund make an all world equities.
Yes, I think that's what I'll go for. Hopefully the additional ER won't wipe out any gains. I'll try it for a while, and if it doesn't seem worth it, I'll just go 100% TOK.

Thanks for all your input everyone :)

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