NISA deferral of permanent measures! How can long-term investors increase their assets while keeping taxes low from now on?
NISA is not suitable for long-term investing. Seek to grow profits and cut losses!
The financial industry has been requestingthe permanent establishment of NISA to be postponedas part of the policy. If this continues, it will apply up to 2023, and thereafter it is not expected to continue. Note that “Tsumitate NISA” is expected to be maintained.
When people say NISA, it refers to a system where dividends and capital gains on investments up to 1.2 million yen per year are tax-free. It was introduced at the time when financial taxation was raised from 10% to 20% in 2014. It also seemed to promote long-term investing.
However, from my perspective,it was not necessarily convenient. While it claims to promote long-term investing, the tax-free period is only five years, which is too short to be considered long-term.
Real long-term investing means holding for 10 years or 20 years. Under the current system, you are forced to sell after five years.
Moreover, the biggest drawback is that you cannot offset gains and losses (tax-loss harvesting). You cannot offset with other accounts besides NISA, so there is no incentive to cut losses. Therefore, even if you incur losses, you end up holding on and delaying action.
Selling winning stocks and holding losing stocks is the worst strategy for long-term investing. Conversely, you should hold as long as possible the stocks that are profitable, and for those with losses, assess carefully and cut losses if necessary.
For example, Buffett’s portfolio isalmost entirely composed of stocks with unrealized gains. This is because he did not sell good stocks and correctly sold those deemed poor (such as IBM).
Even for one stock with an unrealized loss (JP Morgan), it was bought within a year, and judgment is still to come.
Selling losing stocks and holding winning stocks has tax benefits.
If you annually cut losses or realize losses (sell and repurchase), you can offset with dividends or capital gains, reducing taxes.
On the other hand, there is no tax on unrealized gains, so as long as a stock remains a good one, continuing to hold is prudent. If you worry the price will drop while holding, that stock may not be good.
Truly good stocks will continue to grow unrealized gains through their own growth. Profits from short-term trading are taxed each time, but the growth of stocks you hold is not taxed until you sell. If you continue this, the difference becomes evident after 20 years.
In other words, the following Warren Buffett proverb becomes relevant tax-wise as well.
The secret of stock investing is to buy good stocks at good times and hold them as long as they are good
Warren Buffett
People who have succeeded in stock investing especially practice this “holding on”. Of course, it’s essential to be able to choose stocks that are worth holding. I want to continually seek such stocks daily.
Applying the “1,200,000 yen per year” concept
What was good about NISA is that it created a framework ofan annual limit of 1.2 million yen. This had a significant influence on my investing approach as well.
One of the questions investors often worry about is “how much should I invest?” Even if told to invest with available funds, it’s hard to determine what “available funds” means.
If it’s 1.2 million yen per year, that’s 100,000 yen per month.It’s fairly easy to judge whether you have roughly 100,000 yen available each month based on your income.
I once studied for an MBA while working, and tuition was paid incrementally according to earned credits rather than in a lump sum. It was around 100,000 yen per month, an amount I could manage even when I was young and had little savings.
This was “self-investment,” and the same idea applies to stock investing. In other words,even without substantial funds, you can invest reliably by setting a budget.
If you set a budget based on available funds, you can invest every year without worrying about stock price declines, and you won’t take more risk than necessary. That’s why I set a budget of 3 million yen per year for my pilot operation.
If you invest 1.2 million yen every year, eventually tax on the profits there becomes less of a problem. The claim that the permanent establishment of NISA benefits the wealthy has been made, butthe wealthy do not care about NISA.
What’s really important is to focus on improving investing skills rather than tax movements. Within your annual budget, invest steadily without overcommitting, and reach a point where you can say that NISA has nothing to do with your wealth growth.NISA has nothing to do with this.
Should you invest as the Nikkei hits a fresh high?
Let’s touch on market conditions as well.
Stock prices are continuing to rise.The Nikkei Average reached a fresh high for the year on Friday.
The rise is largely due toglobal monetary easing. With liquidity plentiful, funds are flowing into well-performing Japanese stocks so as not to miss the rally. This is evident as larger-cap stocks outperform smaller-cap ones.
Entering such a market with bad timing isn’t advisable. Although investment styles differ, even the famous “Nikkei is moved by the man” cis-san has said the following.
When the Nikkei average becomes a Uniqlo-Fanuc-Gekie, it goes up the most, and a short-term drop is near
Buying sizes that can quickly escape the middle of a rising market is wise
Even with long-term investing, do not push too hard right now. I have nothing particular to do in trading either, just staying still while looking for good stocks.Whether you can wait is also an important factor in investing.
★ Please also check Tobame Investment Advisor's YouTube channel ★
