Exploring the Buzz around New NISA: The Investment Strategy that I “Highly” Recommend for Beginners

The upcoming "New NISA," set to launch from January next year in Japan, is generating quite a buzz. There is already an abundance of information on the advantages of the new NISA and how to get started, so in my blog, I'd like to share my own "investment philosophy."

First of all, what is this NISA? Most of non-Japanese readers may have no idea about this, but to explain, NISA (Nippon Individual Savings Account) is a tax-advantaged savings and investment account in Japan designed to encourage individual savings and investments. NISA accounts allow Japanese residents to invest in a variety of financial products, including stocks, mutual funds, and ETFs, with certain tax benefits. This is a major shift from the government’s effort, as Japanese had more of the tendency to keep their money in the bank accounts to sit there, despite low interest rates, and now the government is encouraging them to invest.

While I may have exaggerated a bit, I can only convey my personal investment experiences and the lessons I've learned from them. This is solely based on my own experiences, so I would be delighted if you consider it as a reference. (Remember, invest at your own risk!)

Being the CEO of Money Forward, a company dedicated to solving financial issues, people often assume that I must be knowledgeable about investments and never make mistakes in them. However, that is far from the truth. I've had my fair share of painful investment failures, leading up to the present.

I started my investment journey shortly after becoming a working professional, beginning with stock investments. Although I joined Sony as a new graduate, I always kept my resignation letter in my office desk drawer with the mindset of being ready to leave at any time. This was because I wanted to work wholeheartedly without depending on the company.

To maintain independence from the company and increase financial self-sufficiency, I started studying investments. While working under Mr. Matsumoto at Monex Inc., I gradually ventured into stock investments. However, juggling Mr. Matsumoto's affectionate demands (?) and keeping up with the daily fluctuations in stock prices proved to be quite challenging. Working at a securities company also came with various compliance constraints regarding stock transactions, making it quite difficult.

When I was searching for an investment that could be sustained without much difficulty, I became interested in real estate investment at the age of 28. With a friend who was a real estate investment expert, I read numerous books, purchased educational materials through distance learning, and, with courage, made my first significant investment by purchasing a small apartment building with a full loan.

The property I bought was in a convenient location in Tokyo but consisted of 14 rooms, each a small 4.5 tatami mat space. While real estate investment is often emphasized for its "monthly rental income without doing anything," the reality is far from it. Rent could be delayed, vacancies were a constant issue, and the cash flow did not always match the simulations.

Additionally, in an attempt to save costs, I initially handled tenant relations on my own. This led to weekends spent changing light bulbs in the hallway, overseeing cleaning in vacant rooms, and even receiving calls during work hours about a "broken toilet." Although the income may have been slightly positive, the mental burden and distraction from my main job were not ideal. (Therefore I recommend to leaving it to the pros for real estate management if your budget allows!)

During the FX investment trend, I was enticed by high-interest rates and suffered a significant loss when I dabbled in South African Rand commodities, which rapidly experienced a sharp yen appreciation and I burdened a huge loss from it. Foreign exchange is truly challenging...

While I have experienced my fair share of investment failures, it has not made me dislike investing. I still like it and and I believe everyone should do it. Having a strategy of making money work for you in addition to earning money through your day job is crucial. Furthermore, investing increases your understanding of the world. Just by buying U.S. stocks, your sensitivity to the latest Wall Street news and presidential election trends significantly improves. It raises your awareness to the things going around the world.

The experience I shared earlier about my real estate investment taught me to develop a "managerial sense," managing profit and loss (P/L) by subtracting costs from monthly rental income and calculating interest. The nervousness of wondering what would happen if I went bankrupt was similar to the tension in running your own company.

Sometimes people decide to quit investing after a single failure, but I find it unfortunate. What matters is starting within your "risk tolerance" and not exceeding it.

Regardless of the amount of assets, some people dislike even losing a dollar, while others can accept losses of up to 30% of their investment. If your mindshare is being consumed during crucial times like work or relaxation with family, you might be in a "risk tolerance exceeded" state.

In this regard, the eligible products for the new NISA offer relatively low-risk index funds, making them suitable for those who do not want the excitement and beginners. Even for experienced investors, the tax advantages alone are substantial.

I've read books, consulted with experts, and studied about investments, and I've concluded that the principles of "investment that beginners cannot lose" are simple.

The key points are three: "compound interest," "diversification," and "global."

Compound interest, praised by Einstein as the "greatest invention of mankind," involves reinvesting profits gained through investments into the principal, creating a situation where "profits generate profits." Choosing investment products designed with this compound interest method is crucial.

Next is diversification. Instead of investing in individual stocks of specific companies or bonds dependent on a single currency, selecting index-based products that combine multiple securities in a balanced way minimizes risk. This approach allows you to lead a calm daily life without getting overly excited or disappointed about the ups and downs of individual companies.

Furthermore, investing in growing overseas markets is essential. Multiplying money only in Japan, where an aging population is prevalent, is no longer realistic. Actively investing in countries with expected growth and adopting a strategy of "investing money in growing overseas markets to increase wealth" is wise.

Choosing a securities account with low transaction fees also becomes a significant factor, as the differences can accumulate over time. With the recent trend of zero fees for online securities accounts, users now have a significant advantage. Money Forward is working hard to expand services to help our Japanese users with their asset building, so please stay tuned.

While I have shared the three principles of "investment that beginners cannot lose," I would like to boldly add another principle: The Investment That I “Highly” Recommend for Beginners. I am well aware that using the word "Highly" when disseminating investment information is taboo, but I will write it intentionally.

The most reliable method to increase wealth, in my opinion, is to invest in building "credibility." I believe this involves investing in building "credibility" or "trust." When attempting to achieve something by cooperating with others, the most critical factor is trust, not money. Accumulating trust, the belief that "let's help this person" or "let's support them," is crucial. If trust is accumulated, money naturally follows.

In the end, I think the intangible asset of "credibility" is what maximizes happiness in life. Although the term "credibility" may sound complicated, it essentially involves fundamental things like "not lying" and "keeping promises," as well as achievements like "helping that person" or "that person achieved such amazing results."

Knowledge and experience can also contribute to increasing trust. These are essential elements that inflate the "balance sheet of life." With trust, knowledge, and experience, even if you fail, you should be able to challenge the next opportunity.

In that sense, I believe that "books" are an investment with an extremely high return for the price paid. Just by paying a few bucks for a book, you can gain the wisdom that predecessors have acquired throughout their lives.

When asked by young people, "What investment products do you recommend?" I always add books to the list mentioned above.

Recently, when I realized that I automatically buy both the hardcopy and ebook when I find a book I want, I was a bit moved.

I would like to share with my 28-year-old self, who was fumbling through my first real estate investment. Without being swayed by short-term gains and losses, I want to accumulate knowledge, experience,　and trust. Investing is a life long learning process, and I hope you all get to learn and thrive from it too.