Why would anyone invest in these funds?

alexpun said:
In Japan if you go through the trouble to buy that basket of stock in the index (well, before futures and etf are invented I suppose), you actually get many shareholder benefits which is sort of monetary reward program for owning the stock. Which can yield about 1% on top of dividends.
https://asia.nikkei.com/Markets/Tokyo-Market/Japan-s-companies-embrace-gift-giving-to-lure-investors

For example, a chain store Bic camara (stock number 3048) would send 1000 yen coupons to the stock owners.
http://www.biccamera.co.jp/ir/service/index.html
owning 1000 stock cost JP¥1,421,000
The company send you 10x 1000yen coupons in a year for owning 1000 stock. If you hold the stock for more than 2 years, you get 2x 1000 yen coupon each year.
So you would get ¥12000 yen coupon to spend with an investment of JP¥1,421,000

If you want to squeeze out every bit of juice, you can buy 100 stock instead and they would still send you 3 coupon each year + 2 for holding it long term.

There are Japanese web sites teaching people how to live off these programs.
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Calculation assume no dividend, so dividend saved up over these working years can be used to help funding living expenses. You also get dividend which is about 1% in the early day and near 2% recently.

If you work in Japan you are also forced to join this. http://www.nenkin.go.jp/international/english/nationalpension/nationalpension.html
which pay ￥779,300/ year (full benefit amount based on 40 years of fully contributed coverage periods)

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Yeah 30% is aggressive, I should have use something like 15%, so just cut the figure into half and adding that to the Japan pension plan.
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The last part first: I have paid into Japanese nenkin and thus know how little it is that they will pay out by the time I reach the retirement age. That nenkin, plus the 1.1 M JPY from your calculation sheet is hardly enough to live of. I know that I would not be able to live of it. And those shareholder goodies are fun to receive, but don't help you much if you need food on your table.
 
HobbyTrading said:
The last part first: I have paid into Japanese nenkin and thus know how little it is that they will pay out by the time I reach the retirement age. That nenkin, plus the 1.1 M JPY from your calculation sheet is hardly enough to live of. I know that I would not be able to live of it. And those shareholder goodies are fun to receive, but don't help you much if you need food on your table.
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The thing is you can only get what you have saved. When you only put in little money you can't expect to suddenly withdraw huge amount.

Here is a revised calculation with 1.5% dividend assumed and reinvested, also saving rate reduced to 15% and contribution curve smoothed. (I don't have dividend data in old times) I don't know why people can complain about poor return when you get this sort of return with low inflation.

One of the trap here is to assume you were a baller in 1989 and way overspend. I agree that most people would fall for it and just withdraw 4% of total networth thinking it is safe. If you blow through the retirement fund in early 1990s then you really would be eating cat food.

Easy to make decision in hindsight though, I would also think I were an investment god in 1989.

 
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Alexpung said:
The thing is you can only get what you have saved. When you only put in little money you can't expect to suddenly withdraw huge amount.

Here is a revised calculation with 1.5% dividend assumed and reinvested, also saving rate reduced to 15% and contribution curve smoothed. (I don't have dividend data in old times)
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Currently Nikkei pays 1.4% with PE of around 20. Is it safe to assume 1.5% dividend yield when the index was trading above 100 PE?

You are also assuming withdrawal amount of around 27% avg. salary in 1990. General rule of thumb is 60% to 80% of retirement salary. It is very difficult to change life habits from 100% salary to just 27% salary in very short time.

Another way to look at it, you are withdrawing 1.4% per year from your total investment, but dividend yield is also 1.4%. In inflation free world, this retirement fund will last till perpetuity.

I looked from inflation adjusted total return money, with 3% withdrawal. This pie will run out in 2004.

Snap1.png


2% withdrawal, it will run out in 2011
 
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srinir said:
Currently Nikkei pays 1.4% with PE of around 20. Is it safe to assume 1.5% dividend yield when the index was trading above 100 PE?
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No, but the bubble only last a couple of years. You also have periods after the crash when the dividend more than 2%. If you have the dividend data I would be glad to update my calculation.

srinir said:
You are also assuming withdrawal amount of around 27% avg. salary in 1990. General rule of thumb is 60% to 80% of retirement salary. It is very difficult to change life habits from 100% salary to just 27% salary in very short time.
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Add in national pension (pay about 25% of an average guy salary) and stock holder benefits (can yield >1%), it is not all that unreasonable.

Now you are just arguing the guy aren't saving enough. How about running the same number on other investment targets?

srinir said:
Another way to look at it, you are withdrawing 1.4% per year from your total investment, but dividend yield is also 1.4%. In inflation free world, this retirement fund will last till perpetuity.

I looked from inflation adjusted total return money, with 3% withdrawal. This pie will run out in 2004.
More...

I agree in the last post that if you withdraw based on the bubble number, the fund will not last.
However I am not really sure if that guy invest in S&P 500 instead, he would be much better. Japanese bond is doing well though.
 
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