A Beginner’s Guide That How to
Investing in Japan
Money that remains idle in your bank account loses its value over time. It's wise to invest any surplus cash you have to not only outpace inflation but also potentially increase your wealth. As a resident of Japan, you don't need to rely on foreign brokerages or go through the hassle of currency remittance. You can simply use the following brokerages to invest your yen locally and without delay.
Should I Invest While Living in Japan?
In General, Investing is a Good Idea.
When interest rates are close to zero, any money you save without intending to spend it soon is gradually losing value over time. Due to inflation, the purchasing power of your money is constantly decreasing, which means that 100 yen today will only be worth 95 yen next year. The longer you let your money sit idle, the more its value will decrease, and the day you earned it is the day it was worth the most.
To counteract this loss of value, investing is the most sensible course of action. The fundamental idea is that un-invested money is subject to loss in value despite future economic growth. Once you've established a healthy emergency fund, investing the money that you don't plan to use for the next six months or so is the best way to ensure your wealth keeps up with the economy.
While you may be able to live on your current income and budget your expenses, your job may not be secure forever. Having a significant nest egg through careful investment is not only desirable for retirement (who wants to work when they're in their 60s or 70s?), but it is also entirely achievable.
But What About Foreigners Living in Japan?
The beauty of this guidance is that it’s not only relevant in your native land, but it also applies to Japan. Any individual residing in Japan, regardless of citizenship, has the ability to invest in the domestic or international stock markets and put their hard-earned yen to work.
However, everyone’s circumstances differ. Different nations have distinct tax laws for their citizens, even if they live abroad, which may make investing in Japan more or less beneficial. It's important to research your country's regulations and perform the necessary calculations before determining whether to invest your money in Japan or in an account back home, if feasible.
Although we cannot comment on everyone's individual circumstances, we can provide a summary of investment services available in Japan that are open to all who wish to utilize them!
Investing in Japan Basics: Two Types of Investment Accounts
When you create an investment account, you'll typically be given the option to choose between two types of accounts: tax-advantaged and non-tax-advantaged accounts. Tax-advantaged accounts, like the Nippon Individual Savings Account (NISA) or Japanese private pension plan iDeco, are intended for retirement savings. These types of accounts have annual or monthly contribution limits and are exempt from capital gains taxes for a specified period of time.
On the other hand, non-tax-advantaged accounts are designed for regular investing and are subject to normal tax rates. Although you can invest any amount you want in these accounts, you will need to consider the tax implications when calculating any gains you expect to make.
Non-Tax-Advantaged Accounts: Two Different Styles of Investing
When it comes to investing in Japan, investors have the option of choosing between two styles of brokerage accounts: directed and self-directed. The directed style involves working with a financial advisor who makes investment decisions on your behalf, while the self-directed style allows you to make your own investment decisions without the guidance of an advisor.
There is no limit to the number of accounts you can have, so you can choose to have only one type of account, or use both depending on your investment strategy and goals. Ultimately, it's up to you to decide which type of account will best suit your needs and help you achieve your financial objectives.
Directed Accounts:
・Advantages of Directed Accounts
Directed brokerage accounts are typically managed by roboadvisors, which use an algorithm to curate a unique stock portfolio for you. The roboadvisor continually monitors your investments, selling off poor-performing stocks and acquiring new ones to ensure your portfolio grows at an optimal rate. All you need to do is fund the account and set up recurring payments for a fully automated investing experience. Check in occasionally to adjust the risk level of your roboadvisor, from aggressive to conservative investments. This type of account is ideal for those who want their wealth to grow without dedicating time to learn the stock market or financial knowledge to build a portfolio. The roboadvisor handles everything, saving you time while your nest egg grows.
・Disadvantages of Directed Accounts
While roboadvisors may provide convenience for investors who lack the time or financial knowledge to manage their own portfolio, there are some drawbacks to consider. One such drawback is the lack of individual control over investment choices, which means that investors are unable to customize their portfolios. Additionally, roboadvisors typically charge annual fees of around 1% of assets under management, which can significantly eat into investment returns over time.
While 1% may not initially appear to be a substantial fee, it can have a significant impact on investment returns when calculated over the long term. For instance, assuming a balanced portfolio with an expected growth rate of 6%, an account with a 1% fee would only yield a 5% return. This could lead to a considerable reduction in returns over time.
To illustrate this, consider an example where an investor places 100,000 yen into a self-directed account with no fees, as well as a roboadvisor account with a 1% fee. Over a 30-year period with a 6% growth rate, the difference in returns between the two accounts would be substantial.
Self-Directed Accounts
If you opt for a self-directed account, you'll have complete control. You'll transfer funds from your bank account and manage everything yourself, from researching investments to deciding when to sell them. This type of account is ideal for experienced investors who have a clear understanding of their investment strategy. While novices may feel intimidated at first, with some research and studying, they can easily overcome this hurdle.
The advantage of self-directed accounts is that you have the ability to customize and build your own portfolio, which can outcompete the robo advisors that rely on safe and low-risk algorithms. However, the downside is that you are solely responsible for your investment decisions, which means that any losses are also your responsibility. On the other hand, you won't have to pay the robo advisor fees and will only pay commissions on trades. These commissions are flat and are charged per trade, so they don't compound like percentage fees. Thus, putting in a little effort can translate to a lot more money in your pocket
Brokerages
There is a wide range of options available for brokerage services in Japan, catering to both directed and self-directed accounts. However, it is important to note that these brokerages typically operate exclusively in Japanese and do not offer support in English. As a result, investors who are not fluent in the language may need to rely on online translation services or seek the assistance of a Japanese-speaking friend to navigate the registration process and use the web and app interfaces. Although this may present a challenge, it is certainly worth the effort in light of the potential benefits of investing in the Japanese market.
Directed Brokerages
Wealthnavi – Easy to Sign Up + an Easy to Use App
Wealthnavi is a directed brokerage established in 2015, and it has gained popularity in Japan. Like other roboadvisors, it uses algorithms to build portfolios for its clients. To get started, you can take a brief 6-question survey that determines your risk profile. The roboadvisor then creates a portfolio tailored to your desired level of risk and return. Additionally, you can set up automatic funding with transfers from your bank account on a monthly, semi-annual, or annual basis to be automatically invested by the roboadvisor. The roboadvisor also rebalances your portfolio every six months to ensure that it aligns with your goals. With their smartphone app, you can easily access your account and add funds.
Fees and information:
Annual rate: 1%
Minimum investment: 100,000 yen
Free services: Deposits, withdrawals, and trading fees.
Primarily app-based
https://www.wealthnavi.com/
Theo – Cheaper Fee With Increased Investment
Theo boasts its advanced AI technology for its robo advisor, which focuses on investing primarily in Exchange Traded Funds (ETFs). These funds, composed of bundles of stocks, offer diversification benefits to avoid concentration risks. Theo's investment strategy involves selecting from a pool of 30 ETFs to create a well-balanced portfolio with a total of 11,000 stocks from 86 countries. In the past, the robo advisor has achieved an approximate annual return of 8%. Similar to Wealthnavi, Theo also manages your positions by rebalancing and optimizing for tax efficiency. Furthermore, the platform provides a user-friendly mobile application.
Fees and information:
Graduated fee structure depending on deposited money
￥10,000-500,000 = 1%
￥500,000-1 million = 0.8%
￥1 million to 10 million = 0.7%
￥10 million plus = 0.65%
Minimum deposit: 100,000 yen
Web and app-based services
https://theo.blue/
Raku Wrap – Choose Your Fee Structure
Raku Wrap, the roboadvisor from Rakuten, was launched in July 2016 and follows a similar model to other automated investment platforms. Once you've added funds to your Raku Wrap account, you'll be prompted to complete a brief questionnaire, and then you can choose from 9 distinct portfolios. What sets Raku Wrap apart from other roboadvisors is its integrated defense against market volatility. When market prices experience significant fluctuations, Raku Wrap will automatically allocate a portion of your savings into bonds, which offer greater safety and lower risk compared to other securities.
Fees and information:
2 different fee structures: fixed or performance-based
Fixed: 0.715% + 0.270% management fee
Performance based: 0.605% + 5.5% performance fee + 0.270% management fee
Web and app-based services
https://wrap.rakuten-sec.co.jp/
Self-Directed Brokerages
Kabu – Apply in Less Than a Minute
Kabu, a subsidiary of AU, the renowned mobile phone company, provides a seamless account setup process that can be accomplished in less than a minute via your smartphone. By taking selfies of the mandatory documents, you can swiftly apply for approval and access the web interface to transfer your funds and commence trading. As a full-service broker, Kabu offers a comprehensive range of investment products, which includes zero-fee ETFs among others.
Fees and information:
Fees on a per-trade basis
￥100,000 or less: ￥99
￥100-200,000: ￥198
￥200-500,000: ￥275
￥500,000+ : Price*0.099% + ￥99
Free services: Account opening and management; most transfers; some withdrawals
Web and app-based services
https://kabu.com/
PayPay – Mobile Payment Account Integration
Fees and information:
Fees on a per-trade basis
Domestic/foreign securities during operating hours: 0.5% of base security price
Transfers from banks: Mizuho ￥110, others ￥275
Withdrawals to banks: Mizuho ￥220, others ￥385
Free services: Account management
Multiple apps for different products, web interface as well
https://www.paypay-sec.co.jp/
Rakuten Securities – Free Transfers from Partnered Banks
Rakuten provides a hassle-free option to trade stocks in Japan. Upon submitting your application through their website, you can expect a response within a day or two, allowing you to commence trading promptly. You can transfer funds from several sources, including Rakuten Bank, affiliated internet banking services, and ATMs. Once your account is activated, you can trade a broad range of securities, including domestic and foreign options, via their website or mobile application. This is an excellent choice for individuals who already have a Rakuten Bank account.
Fees and information:
Fees on a per-trade basis
￥50,000 or less: ￥55
￥50-100,000: ￥99
￥100-200,000: ￥115
￥200-500,000: ￥275
￥500-1 million: ￥535
￥1-1.5 million: ￥640
￥1.5-30 million: ￥1013
￥30 million+ : ￥1070
Web and app-based services
https://www.rakuten-sec.co.jp/
SBI Securities – Wide Variety of Foreign and Domestic Stocks
SBI is a well-known and reputable stockbroker in Japan, offering a diverse range of investment options through its website and smartphone app. Despite its website's slightly outdated design, you can still deposit funds and trade with ease. SBI provides various account types and numerous investment options, including U.S., Chinese, Korean, and other foreign stocks, as well as their proprietary roboadvisor service. SBI's all-in-one solution is a great option for meeting your investment needs.
Fees and information:
Fees taken out on a per-trade basis
￥50,000 or less: ￥55
￥50-100,000: ￥99
￥100-200,000: ￥115
￥200-500,000: ￥275
￥500-1 million: ￥535
￥1-1.5 million: ￥640
￥1.5-30 million: ￥1013
￥30 million+ : ￥1070
Primarily web-based service, app as well
https://www.sbisec.co.jp/ETGate
Matsui Securities – Free Trades at 500,000 yen or Less
Matsui Securities enables you to open an account online or via mail, where you can select the account type and associated privileges such as basic stock trading, margins, and forex trading. Once approved, all trading activities are performed through their website. One of the notable advantages of Matsui Securities is the instant and free transfers from online banks, which sets them apart from their competitors. Additionally, they offer free daily trades up to 500,000 yen, providing significant savings for low-volume traders.
Fees and information:
Fees on a per-trade basis
￥500,000 or less spent per day: ￥0 per trade
￥500-1 million spent per day: ￥1100 per trade
￥1 million-2 million spent per day: ￥2200 per trade
Each additional million spent adds ￥1100 to the previous tier, with an upper limit of ￥110,000
Web and app-based services
https://www.matsui.co.jp/
Interactive Brokers – English Language Support
Interactive Brokers is a global brokerage company with branches in numerous countries, including Japan. While each branch is a separate entity, they all provide similar investment options and trading features. With a modern and user-friendly interface accessible through both the browser and mobile app, Interactive Brokers sets itself apart by offering English language support. This feature is particularly useful for U.S. citizens who need to comply with U.S. tax requirements for foreign investments, as the company is based in the U.S. and well-versed in these regulations. Overall, Interactive Brokers is an excellent choice for those who are not comfortable trading in Japanese and prefer an English language platform.
Fees and information:
Requires initial deposit of ￥1 million to open an account
Fees on a per-trade basis
0.08% of trade value, with a minimum of ￥80 and no maximum fee
Web and app-based services
https://www.interactivebrokers.co.jp/en/index.php?f=47661&p=english
Don't let your money sit idle in your bank account, losing value over time. Take advantage of the convenience of smartphone apps and roboadvisors and start investing today. With a wide range of options available, including the brokers mentioned above, it's never been easier to grow your wealth while living in Japan. So, take the first step and start investing today to see your savings grow alongside the economy.
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