Practically speaking, it works like this: Sellers of securities like stocks, bonds, forex savings schemes, and other investments are now required to provide (at least once a year) clear explanations *on paper* of how their products work and the risks involved. Sellers must also ask clients what the purpose of their investments are (growth, savings for retirement etc), and are also obligated to be forthright in advertising these products as to the possible risks investors face (i.e. they might lose money!) in purchasing them.

This all emerged out of both the 2006 Livedoor scandal and a string of fraud cases involving elderly and/or other unsuitable investors being sold questionable products that clearly didn’t meet their needs, resulting in many billions of yen in losses. I personally heard the sad story of an older ‘friend of a friend’ who lost close to 10 million yen in foreign exchange options trading, which someone told her was ‘guaranteed’ to make money. Options trading, a rather complicated investment vehicle, is certainly not where a beginner should start.

So, where should a beginner investor look to put their money? What is safe? What has the best long-term performance? One of my favorite websites, Get Rich Slowly offered some excellent advice on the subject which can be boiled down to one word: indexing.

What is indexing? Essentially, this means placing your money in funds (or a portfolio) that track a particular target index, which is called a benchmark. The fund simply aims to achieve the same performance as the benchmark it tracks. Suppose, for example, that you want to invest in US stocks. You have a few choices:

(1) you can research one of the thousands of companies listed on the New York Stock Exchange and other markets,

(2) you can choose one of the tens of thousands of actively -managed mutual funds (i.e . you pay a fund manager to actively invest the money for you),

or

(3) you can buy an index fund which tracks a typical US stock index (such as the Standard & Poor’s 500). If you chose the latter, you would not only save money in fees (on average, you pay 3.1% *more* for actively managed funds), but may also enjoy better returns over the long-term.

For some extended reading on why, take a trip to this 53-page PDF file.

(Yes, I’m asking you to read [or at least skim] a 50+ page document on investing. Why? If you are serious about making money investing in a simple manner, you’ll have to do a little research. Most people, interestingly, spend far much more time investigating their next PC or car purchase than their investments.)

After reading up on indexing, doing some financial planning, and determining your desired asset allocation, it’s time to start shopping for funds. If you have a US address or bank account, you can most likely set up an online brokerage account and purchase one of the funds recommended in Transparent Investing file. I recommend this approach, from a tax perspective, for US citizens. If you do not have this access, then you can ask your local broker to find you an index fund that tracks either a Japanese index (there are many Nikkei 225 or TOPIX ‘rendogata’ funds) or one for an overseas market. The term ‘index fund’ is known in Japanese in its katakana version (indekkusu faando), or is sometimes mistranslated as ‘toshi shintaku’ (which is the general name for an investment trust). Be sure and specify what you want!

If you are interested in the Vangaurd Funds listed in the PDF, check out Monex Securities. It is, apparently, the sole distributor of Vanguard Funds outside of the US, and offers a small cap index and total stock market index fund. It is a Japanese low-cost online stock brokerage that also offers a full range of other investments. Regrettably, there appears to be no English language support.

Those using this information for investment purposes do so at their own risk.

© 2007 Wendy J. Imura.

For individuals, there are a few options for investing in Japan, some more complicated than others. For people wanting English-based services, there are a number of expat- oriented investment firms offering investment advising, tax planning, and other services. Although the investment products are centered mostly on offshore opportunities (making investment for Americans and other nations with restricted tax codes difficult), pension plans, mortgages, tax advice, and even health insurance are also available. I have personally had an excellent experience working with Stefanie Reichart of Banner Overseas Financial Services, which has been in business since 1979. She will run a detailed analysis of your future money needs and also offer a number of potential investment options. Visit http://www.bannerjapan.com for more information. Note that most purchases of the products offered by these firms require an international bank transfer in a foreign currency.

For those seeking something a little closer to home and who are comfortable in a Japanese-language environment, Japanese brokerages also are a reasonable option. They have a few points in their favor that the ex-pat firms do not. For one, you can fund your investment product purchases in yen through domestic bank transfers.

Second, many Japanese brokerages have convenient local offices in most major cities. If you don’t feel comfortable navigating a Japanese website to open an account, you can trek on down to a local office and get started. Finally, while you can be almost 100% sure that the information on the investments will be in Japanese, brokerages are offering an increasingly large variety of funds and products to choose from, including investment in overseas stock markets, bonds, real-estate investment trusts (REITs), and other mutual funds. Heck, even the Japanese stock market is looking attractive these days.

Opening a brokerage account in Japan is actually quite simple. You’ll need your official inkan, your Alien Registration Card information (the card itself, or a document issued by your local city or ward office), and bank account information. I recommend taking the time to visit the brokerage window (madoguchi) in person – it’s much like a bank-teller window. The staff will explain the various forms necessary and the procedures through which you can withdraw or deposit money. Some larger branches even offer Saturday seminars on investing or how to use their online trading programs. In short, if you have enough Japanese conversational skills to open a bank account, you can also open a brokerage account – just politely ask them to explain things to you on the forms, even if it takes some time. Also note that a new Japanese taxation system (tokutei koza, or special tax accounts for stocks) on investments levies a flat 10% tax up front, but eliminates the need to report your earnings later on at kakutei shinkoku (or tax filing) in February/March.

There are many companies one can choose from – among the large brokerages (Nomura, Daiwa, and Nikko), Nikko Cordial is rumored to be the most customer friendly. Smaller brokerages with a more “down-home” environment might also give you better service. It really does depend, however, on the luck of the draw. If you’d rather not be bothered by salespersons or advisors, then let them know ahead of time. They’ll make a note in your file. Of course, the more money you invest, the friendlier the staff will be! (Their commission is proportional to your investment.)

Finally, what to invest in? On this, I cannot offer much advice. In the end, investment is your own responsibility – try and gather as much information as you can, and realize that (unlike bank savings) there is a possibility that you could lose money. Good luck!

PS: For those looking for professional financial planning services in Japan, note that Banner Japan also offers these services in English. Japan also has a system for licensing financial planners, but the focus of their education seems to be more on budgeting and insurance product selection. As such, their assistance might be of limited help to the average ex-pat.

© 2006 Wendy J. Imura.

Thus, I thought I’d pass on a little advice from a handy booklet we picked up recently – entitled “No Mistakes – Seven Tips When Buying Your First Home,” written by a veteran Japanese real estate agent. He first lists the four most common misconceptions about the Japanese real estate market:

1) Each real estate agent has a different inventory of homes/condos that only *they* have access too.

Not true. Like the United States’ MLS listings, Japan also has a national database of real estate listings, called REINS (Real Estate Information Network Service). All Japanese real estate agents registered with the system have access to the data online or by fax.

2) The best way to get good information about what houses/condos are on the market is to visit lots of real estate agents.

Also not true. If all agents have access to the same listings, they can essentially all provide you with the same information.

3) You can build any kind of house you want on land you own.

Nope. There are various zoning regulations in Japan that prevent the construction of some types of buildings in some areas. A three-storey house, for example, may be prevented in some areas.

4) No down payment loans are a good idea.

Once again, the likelihood of a foreigner being approved for this type of loan is slim to zilch, but if your spouse is considering one of these, be aware – many loans in Japan do not feature fixed interest rates, and some include balloon payments or large payments due at bonus time. Read your loan contract carefully.

Okay, without futher ado, then – here are the seven tips.

1) Choose a reliable real estate agent.

What’s one way to do this? Check the Japanese listings (usually newspaper inserts or one of the proliferating free magazines available) for the real estate agent license information, which is usually formatted like: “Hyogo-ken Chiji (3)-1234″ (Hyogo Governor -1234) The small number in parenthesis is the number of times the real estate agent’s license has been renewed. As all agents are required to renew once every five years, a number (3) indicates that the agent has been in business for at least one year after two renewals. While this is not an indicator of quality, it will tell you, generally, how long the agent has been in business.

2) Be careful when using the telephone to inquire about real estate listings.

Most people find a listing they like, call up the agent, and inquire about the plans. However, they usually end up regretting this: real estate agents are extremely persistant and will call many times a week or even a day, even if you purchase a home with another agent! (Their sales quotas are extremely tight.) Most real-estate agents have caller-ID systems on their phones, and will find out your phone number even if you don’t tell them. Dial “184″ (no ID) when you call to inquire about real estate listings.

3) Be careful which real estate salesperson you choose.

Many are quite persistant, again, and will ask you your name, telephone number, and address before even giving you the information you need. Instead of offering this information first, just ask “Where is the home/condo listed on page XYZ of the leaflet your first sent out?” (In Japanese, of course.) Agents which do not disclose this information without getting your personal details are not worth dealing with, the author says. He also recommends using email to correspond with agents instead of the phone.

4) Be careful when meeting the salesperson for the first time.

A good real estate salesperson will first talk with a customer about what they want in a house, what their budget is, and other information before introducing a particular listing. Thus, even if you visit a real estate agent with a particular listing in mind, don’t trust an agent that launches into a hard-core sales presentation the minute you walk in the door. Chances are they don’t have your best interests in mind, just the sale.

5) Avoid salespersons that push too fast, including lines like “If you don’t hurry, someone else is going to buy this house/condo.”

This is really just a sales technique to push you into buying faster. Also, avoid salespersons who introduce listings over your budget and try and talk you into borrowing more than you can afford.

6) Read real-estate ads carefully.

Many times, fake ads that are really too good to be true are put in to lure customers into an office. When a client arrives asking about that particular listing, the agent simply says that it has already been sold, but they have a similar house that is “just as nice” for a little bit more money. Ads of this type are called “hikimono”.

7) Finally, one must also be careful about real estate listings online.

In many cases, agents are good about putting up information but often forget to update it. Thus, many of the listings you see might be old or already sold. Be sure and call ahead of time to see if the listing your are interested in is still available.

Armed with this information, you’ll hopefully be a bit wiser, and find house-hunting just a little bit easier.

Interested in the person who wrote this booklet? His name is Masaru Osawa, and he owns is own real estate firm in the Century 21 Group (called Sakura Housing). He is currently located in Nishinomiya in Hyogo prefecture (Kansai), and can be reached at 0120-63-8450. (http://www.sakura21.com) I must add that there is no indication anywhere that he speaks any English or serves foriegners – I translated the information from the Japanese booklet myself.

© 2006 Wendy J. Imura.

Keibai bukken are the seized assets of companies and individuals who have gone bankrupt. At every local court there is an office which deals with the auctioning of these properties. The court produces a file about each property which includes a comprehensive report by a local real estate agent detailing the condition and value of the place with photos and maps. The files on a given property are available for anyone to view for a period of 4-6 weeks. Those who wish to bid on a property must then fill out the application form and pay a deposit of around 10% of the value. In the event that your bid wins this money goes towards payment. If you lose, the money is returned. If you win and are then unable to come up with the funds within a given time frame you must forfeit your deposit.

The bids are sealed and read out one by one on a set date at the court. From there if you are lucky enough to win and can organise a loan you can be in your new home within four to six weeks. The court takes two weeks to change names ‘meigi henko’ and finish all the paperwork, payment goes through after that and when payment is completed the property is yours.

It sounds easy but there is are risks involved and pitfalls to watch out for. As with any auction it pays to watch what kind of prices the properties go for over a period of time before rushing in and making bid which may be over/under priced. Once you get a feel for the figures be aware that more often than not the bid which wins is not a round figure. For example the house we bought went for 9,160,000. The competition in most cases is local real estate companies who are very astute at estimating the re-sale value of any property. Watch what kind of bids they put in on other properties before making your bid.

Because the properties involved were seized by the courts it is very possible that the person to whom the house belonged is not at all happy about it. This can be the biggest stumbling block; for example if the previous owners have nowhere else to go they may still be occupying the property. In such a case the court can issue an order asking them to leave but in many cases it has little effect. You may have to get the ‘professionals’ in to evict them. The previous owners of the property we bought had thankfully moved out. It is also possible that the previous owners are no longer living there but have sabotaged the place out of spite. You might not find out about this until it’s too late. The keys for keibai bukken are held by the lawyers of the people who went bankrupt and nobody is able to view the inside of the property until after the money is paid and the sale has gone through. You have to have a vivid imagination and like the floor plan to be confident that you will like the inside. We bought home design software and made a 3D model from the floorplan which was a great help. If, like us, you are planning to spend some of the money you saved on renovating it’s not such a big issue.

Organising a loan can also be a little complicated depending on your situation. Banks view keibai bukken differently to ordinary home loans. In our case they were willing to lend the money we had paid for the property but were very hesitant to lend extra for renovations. The lending rate may also differ from that of a normal home loan. If you are seriously considering buying a keibai bukken talk to your bank manager about it well in advance so you know where you stand before putting down a deposit.

What kind of properties are available? Car parks, shops, office space, houses, any property which has been used as collateral. It may be something you would like to consider if you were opening your own English school. Houses tend to fall into two categories at either end of the scale; the ones sized from people on very low incomes who were unable to pay their city taxes for example, and the grand swanky houses of company presidents.

According to the office where we bid there is such an increasing amount of properties coming up for auction that they can’t keep up with the paperwork. This gives anyone interested a chance to choose carefully. The whole process of keibai bukken is little known and little used by regular people looking to buy a house. It is mainly used by real estaters. Why not get in at this level and buy your house for a reasonable sum rather than what the agents sell them for after they have cleaned a place and put in new tatami? You could save enough money to make your new place into your dream home.

© 2005 Sam Perry.

This is higher than the amount held by individual investors (20.5%) and banks (5.8%).

A higher ratio of foreign ownership might mean that companies are forced (through the shareholders’ active exertion of ownership rights) to act in a more shareholder-friendly manner (higher dividends, anyone?). (Article dated June 19, 2004, Nikkei Net Online Edition.)

Practically speaking, I think this is good news for people seeking to invest in the Japanese market on a retail (individual) basis. Corporations find an increasing need to report their earnings in English as well as Japanese, and both the quality and quantity of information available about Japanese companies is improving.

Want to learn about investing in a Japanese company? First visit its official homepage and click on the “English” logo. Next, click on “Financial Information” or another button with the words IR, Investor Relations, or For our Shareholders. In most cases, you will find information in English.

If you like what you see, visit a local brokerage and ask about the stock. Unlike firms overseas, Japanese companies usually have high minimum share purchase requirements (100 shares, 1000 shares), so make sure you have enough cash to invest.

© 2004 Wendy J. Imura.

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.

1) If possible, set up an online trading account. Japan’s traditional, large brokerages houses all offer online trading (Nomura, Daiwa, Nikko Cordial), but the real bargains in trading fees and account set up costs seem to be with the online upstarts.

Called “Netto Shoken”, the major players are DLJ Direct, Matsui Shoken (Securities), and E-Traden Securities. Kabu.com is also in the game, with its tie-up with the UFJ Banking Group.

2) If you’re looking at more of a long-term hold strategy, why not invest in stocks that offer special rewards or “presents” for stockholders. Owners of Oriental Land Group, the company that owns Tokyo Disneyland, get free tickets to Disneyland in addition to their shares. JAL, ANA, JR East and West and other companies offer discounted travel vouchers for shareholders, depending on the number of shares owned. Some fast-food companies offer Y3000, Y5000, or Y10,000 vouchers for food based on the various classes of stock. Some companies send flowers, food sets, coffee, beer and other gift sets to shareholders. Some brokerages put together special catalogs advertising these services, and it might be worthwhile to have a look. (Note that you must be a shareholder for a certain amount of time before the gifts take effect.) (For the Disneyland deal, check out this explanation in English: http://www.olc.co.jp/en/ir/ir.html.)

3) If you don’t have enough money to buy the minimum required share purchase right away, look into a Ruito (in hiragana). A Ruito (or “mini kabu”) is a “DRIP” style investment plan where you pay a certain amount of money per month to purchase shares of a certain company. While shareholders’ benefits and the companies that offer Ruitos are limited, they do offer a lower-entry way to get into the Japanese stock market.

© 2004 Wendy J. Imura.