Generally speaking, what percentage of a global asset allocation portfolio should Japanese stocks occupy for an ordinary individual?
Okay, friend, how much Japanese stocks should make up in a global portfolio is a great question, especially with how hot the Japanese market is lately. I'll try to explain my thoughts in plain language – don't take this as investment advice, just consider it a chat between regular investors sharing insights.
Overall, for an ordinary person wanting global asset allocation, what's a suitable percentage for Japanese stocks?
There's no one-size-fits-all "standard answer." If someone gives you a precise number like "you should invest exactly 12.5%," they're probably trying to sell you something. The most appropriate percentage depends entirely on what kind of investor you are.
I'll break it down into three scenarios; see which one fits you best:
Type 1: The "Chill & Easy" Approach – Follow the Market, Save Effort
If you're thinking: "I'm just a regular person, I don't want to research too much or guess which country will do well next. I just want to share in the benefits of global economic growth."
Then the simplest method is to "copy the homework." Whose homework? The global market's homework.
Look at major global indices like the MSCI All Country World Index (MSCI ACWI) or the FTSE Global All Cap Index. In these indices, the weighting for Japanese stocks is roughly 5% - 7%.
- Analogy: It's like going to a world cuisine buffet. The US market is the main course, taking up a big portion; European markets are a few solid dishes; and the Japanese market is that plate of refined and substantial sushi or tempura. You don't need to decide how much of each to take; just follow the proportions set by the restaurant to taste the world.
- How to do it: For the average person, the easiest way is to buy a global index-tracking ETF, like
VT(Vanguard Total World Stock ETF) on the US market. Buying this means you automatically own thousands of companies worldwide, including Japan, proportionally by market cap, without worrying about how much Japan should be. - Conclusion: For the "Chill & Easy" approach, 5%-7% is a very reasonable "default allocation."
Type 2: The "Moderately Bullish" Approach – I See Opportunity, I Want a Bit More
If you've heard about Warren Buffett increasing his holdings in Japan and know Japanese companies are reforming, trying to move past the "lost decades," and you think the Japanese market might perform a bit better than others in the coming years.
Then, you can "overweight" Japan slightly compared to the default allocation.
- Analogy: Using the buffet analogy again. You taste the sushi and think, "Hey, this is good, I want a few extra pieces today," so you take more than others.
- How to do it: On top of your global index fund, you can buy some Japan-specific ETFs, like
EWJ(iShares MSCI Japan ETF) orDXJ(WisdomTree Japan Hedged Equity Fund) in the US. - How much to add? Personally, I think raising the allocation to 8% - 15% is reasonable. This level lets you capture more gains if Japanese stocks rise, without causing too much damage to your overall portfolio if you're "wrong." It expresses your view while controlling risk.
- Conclusion: For the "Moderately Bullish" approach, 8%-15% is a range worth considering.
Type 3: The "Aggressive" Approach – I've Done My Homework, Going Big on Japan!
If you have deep research and strong conviction about Japan's economy, corporate culture, and industry strengths, and you believe this is a historic investment opportunity.
In this case, you might choose a much higher allocation, like 20% or even more.
- Important Reminder: This isn't really "allocation" anymore; it's more like "making a bet." High potential returns come with high risk. Japan also faces long-term challenges like an aging population and high government debt. If your judgment is wrong or the market shifts, your portfolio volatility will be significant.
- My View: For the vast majority of "ordinary" investors, I strongly advise against this approach. Investment masters can do this because they have massive research resources and strong risk tolerance. For us regular folks, preserving capital and steady growth should be the priority. Putting too many eggs in one basket is far too risky.
Summary: A Clear Table
| Investor Type | Investment Strategy | Suggested Range | Core Idea |
|---|---|---|---|
| Chill & Easy | Follow Global Market Indices | 5% - 7% | No predictions, diversify risk, aim for global average returns. |
| Moderately Bullish | Slightly overweight Japan on global baseline | 8% - 15% | Recognize Japan's potential, willing to take moderate risk for extra gain. |
| Aggressive | Highly bullish, focus investment | > 15% (Caution!) | High-risk, high-reward strategy, not suitable for most ordinary investors. |
Final Plain Words
- Don't get carried away by the news: When the market is hot, the news is all positive. But as a long-term investor, stay cool. The Japanese stock market was lackluster for most of the past 30 years; no one can guarantee how long this bull run will last.
- Start low: If you want to "overweight" Japan, start with 8% or 10% to get a feel for its volatility. If the market rises as you hope, you'll get a taste; if it falls, the impact on you won't be huge.
- Globalization is key: Remember, your goal is "global asset allocation." Japan is just one part. The most important thing is always diversification, diversification, and more diversification! The US, Europe, and emerging markets (like China, India) should all be on your plate.
Hope this plain talk helps you feel more confident in your decisions. Happy investing!