As a someone known for writing about saving money in Japan, I often get asked: what do we do with our money now that we’ve saved it?
That’s an excellent question, one that the multi-billion dollar investment industry tries its hardest to answer. The options in Japan (aside from offshore investments, which will be addressed in a future Frugal Watch) are essentially the same as one might see in your home countries: stocks, bonds, certificates of deposit, mutual funds, real estate, REITs and just about everything in between. The rate of return, method of access and other factors can differ, however.
Most people begin thinking about investing their money when their savings finally begin to grow and they realize how little they are earning in interest at Japanese banks. My term-deposit at a major Japanese city bank earned just 0.05 percent annually on about $5,000 US. Frankly, searching for loose change in vending machines would have yielded a better return. Banks in Japan should be viewed as a convenient and safe place to park your money to keep it from burning a hole in your pocket, and nothing more.
At what point should one begin investing, however? How much money can you start with?
Practically speaking, most financial planners recommend building a ‘contingency fund’ of three to six months worth of living expenses as a cushion in a cash-ready account (regular savings, money market, etc.)
This contingency fund is designed to keep you out of debt should an emergency like a sudden hospitalization or the loss of a job. If you have to tap into your contingency fund for any reason, it should be topped up as soon as possible. After your contingency fund has been saved, then you can begin to look at other places to put your money where it might work for you better.
If you are interested in putting your money in something like the average bank account or term deposit, begin by researching your various options. A decision to buy a stock or take part in an investment fund should be treated as carefully as any other major purchase. Imagine if you were buying a car or a house: you’d carefully examine the loan paperwork and the house’s foundations or get a glimpse under the car’s hood. Likewise, learn as much as you can about the company, industry, or product you are considering to buy. A little legwork now might save you some serious money in the future.
© 2004 Wendy J. Imura.