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After lots of requests for information on investing while in Japan, I’ve decided to write a very basic introduction. This time I’ll be looking at managed funds, which is probably the easiest way to get a good return on your spare income with minimum of effort over a long term. Of course, there are other investment options – stocks, foreign exchange trading – but they require far too much effort and you’re just as likely to lose money unless you really know what you’re doing.

THE ABSOLUTE BASICS:

A managed fund means you pay money into your fund every month, usually a minimum of around 40,000 yen. When you start your investment, you must choose when your investment will mature – for instance, 5 years, 10, 25 years. You can however make regular withdrawals from the fund before the maturity date (but not recommended). You must make minimum payments every month for at least 18 months from the start – after which you can adjust the payment amount, or take a short break, or start to withdraw money. So if you know you’re going to be teaching English for at least 2 years, now would be a fantastic time to start. That’s the basics.

START NOW:

The most important thing is start investing early.

If your 20-25 years old, this may seem a little ridiculous to think about finances and totally something you can leave until later, but if you want to be financial secure later in life then start now – you too can be a millionaire if you just start investing that money now and get a head start on the rest of us. Have you thought about totally awesome it would be to be able to say you’re a millionaire by the time you’re 40 – well that’s really not such a crazy preposition once you look at the numbers.

For my age group, 26-30, you probably already feel some impending sense of doom that you’ve managed to save up very little money over the last 5 years of life, and even if you have saved something up then keeping it in the bank here is less than worthless (in fact, your money is just slowly losing value on a global perspective), so it’s about time you think damned seriously about some lifestyle changes and definately start investing now.

If your over 30 and still not investing, then you’ve missed out on a lot of compound interest that you could have made if you’d started earlier, but luckily you should be earning more than these young’uns so your best bet is to start investing now with a higher amount each month.

Either way you look at it, you need to start now.

“The most powerful force in the universe is Compound Interest” – Einstein

The key point about starting early is the concept of compound interest. If we assume we’ll be making a certain profit on the money we invest, then each year that our investment is sitting there it will be earning interest on the money we put in (the principal) plus the interest we earnt last year. So let’s say you put 10,000 into your investment fund right now, and just left it at a rate of return of 5%, for 50 years~ that 10,000 would have transformed into 115,000 yen when you took it out 50 years later! The power of compound interest!

Let’s look at a more concrete example, using 8% – a fairly standard rate of return for a managed fund investment.

I invest 50,000 yen per month from age 21 for a total of 10 years. After those ten years, I just let the investment sit there until I’m ready to retire at age 41 (!).

My hippy friend who frivolously spent his 20′s touring the world, playing in a band and drinking various beers decides that finally, at age 31, that he should probably start thinking about his fincancial future and invest. With a good job he can afford 100,000 yen per month and is also hoping to retire at 41.

As we both reach age 41, my investment is worth 20,300,000 yen. His however is only worth 18,700,000 yen. Even though he paid twice as much as me into his investment for the same amount of time, I’m 2 million yen better off. Read that again if you need to.

Of course, if this were a real world example I wouldn’t have stopped after 10 years. More likely I’d have kept investing 50,000 yen a month for another 10 years, or even more if I could afford it. In that case, when I hit my 41st birthday my investment would be worth a cool 30 million yen, even though I invested the same total amount as my friend.

The point is that aren’t many things in life that make you money just with the flow of time. An investment is one of them, and the most important thing is to start early!

WHAT ABOUT THE RISK?

There are so many risks involved with investing, that’s why you have to sign things that say your investment may decline in value as well as increase! It’s a fools game – you’re better off putting the money in a box under your bed!

Whatever. I’ll be totally honest here and tell you that right now, in this horrible economic climate – my investment is actually worth less than the amount I have paid in. But do I care, am I worried? No – not one bit, because in the long term all these minor economic “crisises” fizzle out. When the economy recovers again, my investment will recover with it. A lot of people will pull all their money out at this point – cover their losses and run – but that’s about the stupidest thing they could do. That’s why you invest over a long term. The cycles of economic ups and downs always correct themselves as history as shown time and time again.

Unfortunately – despite what critics think – the same is not true for the current environmental crisis. Global warming is happening and it is not simply a natural cycle – which is exactly why I choose to invest my money in clean energy developments!

THE POWER OF INVESTING IN A FOREIGN CURRENCY:

In fact, my investment is doing even worse now because of the fact that it’s in American dollars! “What a stupid decision that was!”, you might think – but not so. In fact, any clever frugalista will realise that right now the dollar is cheap, and my yen can purchase more dollars to put into that investment than it could last year – so if anything, now is the time to pay MORE into my investment account! Do you really think the dollar won’t recover in the next 20 years? At which point, I will have made even more profit by leveraging the power of investing in a foreign currency while it was cheap! On the other hand, if the yen ever devalued to something ridiculous, I could just reduce or even stop payments until it recovered again.

YOU MENTIONED CHOOSING FUNDS?

Yes – the type of investment I’m referring to here is called a managed fund. This is where you allocate your money to a particular fund. That fund, or pool of money, is managed by someone who chooses where to invest it – given the objectives of that fund, the level of accpetable risk and the likely return. Each fund will perform independently, so the more funds you distribute money to then the safer your investment will be. Each fund has a certain level of risk – high risk funds could make as much as 15-20%; medium risk around 10-15%; and low risk about 5%.

Personally, I want to make sure my money is invested morally – so the majority of my fund goes to high risk emerging energy technologies and biotech industries. Despite being high rish, I believe that it was a morally good choice to support renewable energy and I believe that in the coming years those industires will boom. Land or gold based funds or usually fairly safe though.

You don’t really have to do a lot of research when you start investing – just check the current list of funds on the website and pick out some that sound appealing to you for whatever reasons you have. You can redistribute your funds at any point at no extra charge if you change your mind.

Oh, and one more thing. If you make your investment payments through your credit card, you’ll be getting an additional 0.5-1% back in cash or points! For me, this works out to about 10,000 yen free every year, which I can then re-invest!

And that’s pretty much it. Bear in mind, I’m no financial manager. But, I do know that getting your finances in order and beginning your investment right now are the keys to being financial secure later in life. I would like to recommend my personal investment manager Matthew Murray, who writes the financial column for the Hiragana Times, so if you’d like to get in touch with him directly please drop me an email or use the form below and I will forward your details onto him. If you have any questions you think would benefit everyone, please write in the comments section too! Thanks~

Reader John Turningpin asked for more info on the CompTIA A+ IT qualification I passed recently, so I’ve put together a list of resources I used and more info on actually taking the test.

Overview:

The CompTIA A+ is an entry-level qualification that proves you are able to repair, upgrade, diagnose, and torubleshoot Windows computers. It consists of 2 tests. The first is a basic computer repair and troubleshooting skills test. For your 2nd test, you can choose from different options: (1) A higher-level but still general “IT technician” test (2) A customer focussed test for helpdesk roles (3) A hardware focus for depot / no-customer contact roles. I had originally planned to take the hardware test since I hate dealing with customers, but from the advice I had gotten it seemed like the general technician test would be more useful in getting a job.

As a general indicator for if you think this qualification is for you, I’d take the quick 10 question practice test over at CompTIA site (quick form filling in required) – anything below 5, and this probably isn’t for you; 5-7 and you have a good chance of passing with a few months of good study; above 8 and you can probably just go ahead and take the test immediatly, or find out the exact topics you need work on and focus on those for a week maybe.

Studying:

Experience: The best way to learn how to repair PCs is to get a hold of some hardware and play with it. Here’s an off the top of my head list of things you need to have experience of doing at least a couple of times:

• Change the video card out, and know the difference between PCI and AGP, and the newer PCI-e slots.
• Add 2 extra hard drives to your computer, and figure out how to partition them. I say 2 drives in order for you to understand the concept of primary and secondary drives on an IDE chain.
• Strip the processor and fan from the motherboard and then put it all back again.
• Format the drive and reinstall from scratch. If the idea of re-installing Windows XP doesn’t sound like a thoroughly riveting Sunday afternoon, this test maybe isn’t for you.
• Go to Sofmap and check out all the hardware – would it fit in your computer? Look at all the motherboards, figure out what kind of processor slots they are.
• Try connecting your computer to your TV. Most laptops and decent gfx cards support this just fine.
• Try setting up a home network manually. DO NOT just plug your computers into your broadband router – that’s cheating.

That’s all I can think of right now, but if you think of anything else, please add them in the comments.

Online learning: Going the legal route, ProProfs is a fantastic free resource with online practice tests, flashcard, tutorials on specific tough topics (like the laser printing process, which *will* be on your test) etc.

Videos: If you have money to burn or have no moral qualms about piracy, I thoroughly recommend the CBT Nuggets training course or VTC series. They cover everything in the exam rather comprehensively.

Taking the exam in Japan:

You’ll need to register at Pearson Vue first, then find a test centre near you using their locator. The process of actually booking a test is very easy using their online booking system, and just make sure you select the English version of the test (there is a dropbox that allows you to choose – it defaults to English). During the booking you will also need to select the test centre and an available time slot, so be sure to have chosen your test centre using the locator before you book. Simple!

Hope that was useful to you John, and anyone else interested in getting their first IT qualification.

I encourage you too to get some additional qualifications and make yourself more marketable in these harsh economic times. Next on my list is a bunch more computing tests, and maybe even JLPT 1. If you plan on staying in the English teaching career, you’re going to need a masters degree in TEFL or language, but the cost is rather more prohibitive. An online TEFL course would be a good start, and the JLPT is always going to be useful in Japan. How about you, do plan on taking any qualifications in the near future? Let us know in the comments…