My Journey from Fund Confusion to Simplicity

Last week, I received five emails asking the same question: "Jason, how did you decide which iDeCo fund to choose?"

I stared at my own iDeCo dashboard, reflecting on my recent change from one index fund to another. At 29, with potentially 36 years until I can access this money, I've gravitated toward what seems like a surprisingly simple approach.

Currently, I'm concentrating my iDeCo contributions into a single global stock index fund - a decision that might seem counterintuitive but reflects my personal learning journey about long-term investing complexity.

The Educational Journey Through Choice Overload

When I first opened my iDeCo account, the investment options felt overwhelming. My provider offered 47 different funds across domestic stocks, international stocks, various bond categories, REITs, and commodity options.

During my initial consultation, a bank representative suggested what seemed like a reasonable "balanced" portfolio approach: multiple asset classes spread across different geographical regions. "Diversification reduces risk," she explained, showing me pie charts that looked professionally crafted.

My Learning Process About Risk Perspectives

What I didn't initially understand was that different life stages might require thinking about risk differently. Through my research, I learned that investment risk isn't just about market volatility - it's also about whether your long-term purchasing power will meet your future needs.

This realization led me to question whether the conventional wisdom about "balanced" portfolios applied equally to someone with a 30+ year investment timeline versus someone nearing retirement.

My Evolution Toward Simplicity: A Personal Case Study

Three months ago, I consolidated my entire iDeCo allocation into a single global index fund. Let me share the learning process that led to this decision, while emphasizing this reflects my specific circumstances and research conclusions.

Factors I Considered:

Cost Analysis: I compared expense ratios across different funds, learning how small percentage differences compound over decades. The fund I selected has a 0.056% expense ratio, which I calculated could potentially save significant amounts over my investment timeline compared to higher-cost alternatives.

Market Coverage: I researched global index funds that track broad market indices, learning about geographic and sector diversification within single funds. The fund I chose tracks the MSCI All Country World Index, providing exposure to developed and emerging markets.

Complexity vs. Implementation: Drawing from my product management experience, I reflected on how complexity can sometimes hinder consistent execution. I questioned whether managing multiple fund allocations would help or hurt my long-term discipline.

Important note: This decision reflected my personal research, risk tolerance, and specific circumstances. Different investors might reasonably reach different conclusions based on their situations.

Understanding Global Index Fund Concentration

One concern I researched extensively was geographic concentration. The global index fund I selected has approximately 62% allocation to US stocks, with individual companies like Apple representing around 4% while entire emerging market regions represent smaller percentages.

My Learning About Market Weighting

Through my research, I learned that global index funds reflect market capitalization weighting - essentially, company sizes as determined by global markets. This raised interesting questions for me:

• Should I try to "correct" what I perceive as over-concentration in certain regions?

• Do I have sufficient knowledge to improve upon global market allocations?

• What are the risks of both following and deviating from market weights?

After considerable research and reflection, I concluded that with my monthly contribution amount and knowledge level, attempting to outsmart global market weightings felt beyond my competence. However, other investors might reasonably reach different conclusions based on their research and expertise.

The Simplicity Philosophy: Lessons from Investment Literature

My thinking was influenced by reading "The Simple Path to Wealth" by JL Collins, whose central thesis emphasizes simplicity in long-term investing. His argument that complexity often undermines consistent execution resonated with my professional experience managing products.

Key Educational Insights I Gathered:

• Historical market data suggests that predicting optimal asset allocation timing is extremely difficult

• Behavioral finance research indicates that investors often struggle with complex systems

• Academic studies suggest that costs and consistency matter more than sophisticated allocation strategies for long-term outcomes

Critical disclaimer: Past performance doesn't predict future results, and market conditions can change dramatically. These observations reflect historical patterns that may not continue.

Tax-Advantaged Account Strategy: My Learning Process

One framework I developed for thinking about iDeCo was considering where tax advantages provide the most potential value.

My Analysis of Tax Shelter Utilization:

iDeCo provides three potential tax benefits:

1. Contribution deductions (I calculated approximately ¥48,000 annual tax savings in my situation)

2. Tax-deferred growth during accumulation

3. Favorable withdrawal tax treatment

I researched which asset classes might theoretically benefit most from tax deferral. My conclusion was that assets with higher growth potential - historically stocks - might maximize the value of tax-advantaged space, while lower-growth assets might be held in taxable accounts.

However, this analysis depends on numerous assumptions about future tax rates, market performance, and personal circumstances that could change significantly.

Long-Term Perspective: Understanding Time Horizon Impact

"But what about risk and balance?" - a question I asked myself repeatedly.

My Research into Time Horizon and Risk

I studied historical market data to understand how time horizon might affect investment risk. Some patterns I discovered:

• Over 20-year periods, diversified global stock indices have historically provided positive returns, though this doesn't guarantee future performance

• Longer time horizons have historically allowed recovery from market downturns, but past patterns may not continue

• "Balanced" portfolios have historically shown different risk/return profiles over various time periods

Critical caveat: All historical analysis assumes past patterns will continue, which is never guaranteed. Future market conditions could be entirely different from historical experience.

My Hypothetical Calculations (For Educational Purposes Only)

Using historical average returns (which may not continue), I calculated potential scenarios for different allocation approaches over 30 years with ¥20,000 monthly contributions:

• Hypothetical scenario assuming 9% annual returns: approximately ¥36.6 million

• Hypothetical scenario assuming 6.5% annual returns: approximately ¥24.8 million

These are purely educational calculations based on historical averages. Actual results could be dramatically higher or lower, and market returns are unpredictable.

My Simple iDeCo Approach: Personal Framework

Based on my research and circumstances, I developed this personal framework:

My Current Strategy:

• Selected one low-cost global index fund

• Set automatic maximum affordable contributions

• Established annual review schedule (not frequent monitoring)

• Committed to long-term consistency regardless of market conditions

This reflects my personal approach and circumstances. Your optimal strategy may be completely different.

Behavioral Challenges: Learning from My Mistakes

I want to share my behavioral mistakes to illustrate common challenges:

My Investment Changes Over Time:

• 2021: Started with balanced fund allocation (seemed "safe")

• 2022: Shifted toward S&P 500 focus (reacting to performance)

• 2023: Moved to global index (broader diversification)

• 2024: Changed to lower-cost global index (cost optimization)

What I Learned About Myself: Each change reflected emotional reactions or attempts to optimize rather than sticking with a long-term plan. This pattern taught me about the difficulty of maintaining discipline and the importance of establishing a sustainable approach from the beginning.

Age-Specific Considerations: Important Educational Note

My approach of concentrating in global stock indices reflects my specific age and time horizon. This strategy would likely be inappropriate for investors closer to retirement.

For Investors Approaching Retirement (Age 55+):

Different considerations become critical:

• Shorter time horizon for market recovery

• Greater need for capital preservation

• Importance of stable income generation

• Sequence of returns risk during withdrawal phase

Investors in this category typically benefit from more conservative allocations including bonds and cash equivalents, though specific allocation depends on individual circumstances.

This highlights why personalized professional advice becomes essential - optimal strategies vary dramatically based on individual situations.

Educational Resources for Further Learning

For those interested in developing their own investment education:

For those interested in diving deeper into personal finance and investment strategies, here are some highly recommended resources from various experts:

• JL Collins: Known for his straightforward approach to investing, especially for those pursuing financial independence.

  • Book: The Simple Path to Wealth: Your Road Map to Financial Independence and a Rich, Free Life

    • Recommended Blog Post: His foundational "Stock Series" is an excellent starting point for understanding his investment philosophy.

• Mr. Money Mustache: A pioneer in the FIRE (Financial Independence, Retire Early) movement, focusing on extreme frugality and simple index fund investing.

  • Recommended Blog Post: Start with "The Shockingly Simple Math Behind Early Retirement" for a core understanding of his principles.

• Money with Katie: Offers practical, relatable advice on personal finance, often covering topics like budgeting, investing, and career growth, with a focus on younger generations but applicable to all.

  • Recommended Book: Explore for tactical and societal pondering in "Rich Girl Nation" with actionable steps.

• Ramit Sethi: Focuses on conscious spending, earning more, and automating personal finance systems to live a "Rich Life."

  • Recommended Book: Check out his book I Will Teach You To Be Rich for practical steps to streamline your finances.Questions for Your Own Educational Journey

What questions are you exploring as you research iDeCo fund selection? What educational resources have you found most helpful?

Next week, I'll be sharing what I've learned about reviewing and potentially adjusting investment allocations over time - the balance between staying the course and adapting to changing circumstances.

Stay Wealthy,
Jason from Money Daruma

P.S. Remember: This shares my personal educational journey and research process, not investment advice. Your path will be different, and professional consultation is valuable for significant financial decisions.

For personalized financial guidance, please consult with qualified Japanese financial advisors who can assess your individual circumstances.