What do I need to know before I start investing?

Know Asset Management and Investments

The words "asset management" and "investment" are often used together, but actually have different meanings.

What is "asset management?"
It refers to managing assets that you own, such as cash, savings, stocks, mutual funds, and real estate. To manage assets, you must first create assets to invest. There are various options for asset management, including the following types of investment in addition to "investment".

What is "investment"?
It refers to using cash on hand to invest funds in stocks, mutual funds, real estate, etc. to earn a profit. Although the purpose of investment is to make a profit, investment should also be considered a type of asset management. Unlike "speculation" described below, it is an asset management strategy that produces profits slowly while reducing risk by investing over a relatively long period of time.

What is "Savings"?
One type of relatively risk-free (risk-free) investment method is "saving. Strictly speaking, it is not entirely risk-free, but simply depositing cash in a bank is called "saving.

What is "speculation?"
One type of asset management that can be confused with investment is "speculation. Speculation" means buying and selling physical assets such as stocks, FX, and cryptocurrencies in a short period of time, looking at the market to make a profit in a short period of time. Naturally, it involves great risk, and while it can result in large profits, it can also result in large losses. Some data show that 80% of mutual funds managed by professional investors (e.g., institutional investors) lose to index management (a long-term investment approach that aims to achieve results in line with market indices). It must be said that the possibility of amateurs winning is very low due to the high gambling nature of the game.

In today's column, we will discuss "investment," the process of creating funds from which "asset management" is based.

Set investment goals.

Many of you may have become interested in investing in the midst of a drastically changing social climate, such as the pandemic caused by the new coronavirus, anxiety about the future due to rapid inflation (rising prices), increased social insurance premiums and successive tax hikes due to the falling birthrate and aging population, and the introduction of the new NISA system.

Although everyone has his or her own reasons for starting to invest, setting a goal is the most important thing to keep investing and growing one's assets. Just as it is difficult to run a marathon without a goal, asset management without a goal will not last long. You should not start investing because you are worried about the future or because everyone else has started.Decide on an amount that will be your goal for asset building.

For example, it could be a trip abroad next year, or a car purchase in a few years, which are the three biggest expenses in life.home purchase fund, ,Children's Education Fundand ultimatelyretirement money (usu. lump-sum)... I believe that setting short- and long-term goals will motivate you to manage your assets and continue investing.

What are the three major expenses in life?

The three major expenses of life are the amounts that many people target in determining their asset management goals.
The three major expenses in life are housing, education, and retirement.

On the other hand, according to the household survey by the Ministry of Internal Affairs and Communications, the largest expenditure in 2023 for "household income and expenditure of households with two or more workers" was food at 26.51 TP3T, followed by other expenditures including entertainment expenses at 17.21 TP3T and transportation and communication expenses at 16.11 TP3T.
The cost of education is 5.31 TP3T and the cost of housing is 6.01 TP3T.

(Source:Ministry of Internal Affairs and Communications Annual Report on Household Budget Survey (Household Income and Expenditure Section))

Then why are "education" and "housing" said to be the three major expenses in life?
This is because, first of all, the above statistical data assumes that the household has an "owner-occupied house. In addition, although "education," "housing," and "retirement" expenses do not account for a large percentage of the monthly household budget, they require a large amount of money to be set aside at a certain time, and these expenses must be prepared systematically.

education or school expenses

The average cost of education (excluding boarding and lodging, housing, etc.) for one child from high school to college graduation is approximately 10 million yen even if all of the education is public. If all of them are private, the cost is approximately 23 million yen.

(Source:Ministry of Education, Culture, Sports, Science and Technology 2010 Survey Report on Children's Learning Expenses)

While the lifetime income of a typical Japanese company employee is said to be about 2 million yen in the major metropolitan areas of the Kanto, Tokai, and Kansai regions, the10% (for private school) is the cost of education.
Furthermore, this education cost is from around age 16, when the child starts high school, to age 22, when the child graduates from college.It has to be raised in seven years.The following is a list of the most common problems with the

Know how to build your personal wealth.

I understand the problem. Then how do we fund it!"

Asset Management."to begin,Investment."Let's do the following.of, beforeNothing begins without "securing investment funds."

So, before you rush to the bank or brokerage firm with an urgent need to invest, or throw your money away saying, "I can't afford to invest on my current salary! Let's first take a look at the different methods of personal asset building, and what their characteristics are.

• Saving and Household Budgeting
  • Monthly review of expenditures
    • Organize and review cellular and subscriber services
    • Stress is high even though saving money on utilities is not very effective.
• self-investment
  • Lowest risk, highest return investment
  • Raise salary, change jobs, get a second job, dual job, or start your own business to increase your deposit.
• ordinary bank account
  • No risk of loss of principal, no loss of assets due to inflation
  • Annual interest rate of about 0.021 TP3T
• term deposit
  • No risk of loss of principal, no loss of assets due to inflation
  • About 0.2-0.4% per annum interest rate if you are an online bank
  • Cancelable at any time, but you may not receive interest if you cancel in the middle of the contract.
• iDeCo (individual defined contribution pension plan) 401K (company defined contribution pension plan)
  • Premiums are tax-exempt and tax-preferred
  • You can't unload until you're 60.
  • Investment is personal responsibility, with risk of loss of principal
  • The products available for purchase are selected for their relative safety.
• savings-type insurance product
  • In the event of an emergency, they will support your financial obligations.
  • Cancellation refund if premiums are paid for a certain period of time, but principal loss if surrendered in a short period of time
  • Maturity refund is available when all term payments are completed, and the interest rate is about the same as that of a time deposit.
  • High cost for the insurance company's hassles
• individual stock
  • high risk/high reward
  • Interest rates are unlimited, risk is at worst zero of the invested principal
• investment trust
  • Relatively low risk/low return
  • Diversified investment without hassle
  • Some products have high financial institution fees.
  • Expected rate of return depends on the product, risk is up to zero on the entire principal amount invested.
• real estate
  • Relatively high risk, high return
  • Returns tend to be higher now that borrowing rates are low.
  • Ability to borrow against one's own credit and easy leverage
  • Low liquidity, sometimes taking a long time to redeem or not redeemable
  • If the property is good and individualized, income gain (rental income) and capital gain (profit on sale) can be expected, but if the property is bad, you may be left with only debt even if you sell it.
• commodity
  • Financial alternatives such as gold, virtual currencies, FX, etc.
  • Gold is relatively low risk, low return, basically the safest asset
  • Virtual currency and FX are not investment but speculation (highly gambling)

The highest expected return and lowest risk is "self-investment.

The most important thing to emphasize in the above table is,The most low-risk, low-return thing in the world is "self-investmentThat is to say.

However, other than studying, buying a PC to earn extra income on the Internet, buying the latest consumer electronics to generate time for side jobs and study, and exercising for health are also excellent self-investments.

Finally, I would like to summarize the "key elements of investment" in relation to the author's recommended investment method, "self-investment.

• Investing involves risk and return, and while you must accept higher risk to earn higher returns, choosing lower risk will also result in lower returns.
• Risk and return are always a trade-off. There is no no-risk (no risk) high return product (it's a 100% scam!).
• The elements of investment success or failure are time, diversification, and continuity.
  • Aim for large profits over a long period of time (at least 5 years, preferably 20 years or more) with low risk (compounding effect)
  • Risk can be diversified by incorporating multiple of the above investment factors in a balanced manner (diversification effect)
• In order to maximize the effectiveness of the investment, the "financial power" and "deposit power" that can be invested are the key to success.
  • 5,000 profit on an investment of 100,000 yen in a product that yields an annual profit of 5%.
  • Profit of 50,000 yen for an investment of 1 million yen and 500,000 yen for an investment of 10 million yen
• Deposit capacity is likely to be enhanced by self-investment.
  • Increased salary through studies related to company business.
  • Study to earn extra income on the side.
  • Qualify to start your own business and earn business income.
  • Buy the latest appliances and spend more time studying or working on the side.
  • Go to a sports club to stay fit and work forever.
  • Improve sales performance by making them look good.
• On the other hand, the risk of losing one's own investment is the cost of books, certification schools, etc., and above all, "time.
• If you study and try for a promotion or certification exam and fail, the knowledge and experience gained from your studies will remain in your head as a benefit. The knowledge in your head is not at risk of being stolen.