Not invested in Japan yet? Here’s what to do

Japanese stocks continue to soar, with the Nikkei 225 shooting through the 14,000 mark. John Stepek examines whether it can continue, and explains what to do if you haven’t already bought in.

It's been an exciting 24 hours for anyone invested in Japan.

The yen broke through the 100 mark against the dollar yesterday evening. That's the weakest it's been in four years.

In turn, the Japanese stock market continued its blazing run this morning. The Nikkei 225 is now well above 14,000. I seem to remember Japan's politicians had been aiming for 13,000 by the end of March.

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That's not bad going.

Can it continue? We think so.

But what should you do if you haven't already bought in?

It's not just the yen that's weak the dollar is getting stronger

The slide in the yen through the 100 level last night was not simply about the Bank of Japan's money-printing promises.

If anything, it was more of a strong dollar' story. While the yen was slipping through 100, the Australian dollar was tumbling against its US counterpart too.

The Aussie is now not far above parity with the dollar, and has burst through a number of important technical' levels. In English, all that means is that lots of currency traders will now be taking long looks at the Aussie, stroking their chins, and betting that it will fall further.

Another interesting currency pair to watch is the Canadian dollar (the loonie') versus the Australian dollar. The Aussie has fallen hard against the loonie too. Australia is effectively a bet on China's economy. Canada is a bet on America's.

So what this suggests to me overall is that the investment world is waking up to the idea that for a while to come at least - America, not China, still represents the future.

That's one reason why we think you should be getting exposure to the US dollar. There are lots of ways to do that, as we've noted before: big British blue chips with lots of dollar revenue; selected companies and sectors in the US itself; and cheap European stocks (which will benefit from the euro weakening against the dollar).

How to stop yourself from destroying your savings pot

Of course, we also think that the Japanese story has a lot further to run. A weaker yen will help Japan's exporters. But it's about a lot more than just the exporters. My colleague James Ferguson recently covered all the reasons to be bullish on Japan.

A correction will come at some point, of course it will. But I can't tell you when. All I know is that investors have been expecting a correction all this year and we haven't had one so far.

That's leading to a growing sense of panic among those who aren't in the market yet (and I'm not just talking about Japan here). In turn, that's the sort of thing that triggers a melt-up' when everyone who has been holding off on buying in the hope that they'll catch a dip, just gives up and piles in at once.

Trouble is, when people start to feel like that, it's also often a sign that the correction is just around the corner!

You can see why this business of trying to second-guess the market can drive you insane or bankrupt or both.

So what do you do?

The good news is that there's a simple solution. Decide what proportion of your portfolio you want to invest in Japan (or any other asset class you are bullish on). Then drip-feed the money in over a period of months. That way you don't have to worry about timing the market.

I also find that drip-feeding, rather than lump sum investing, also has a fascinating impact on your psychological state when you invest. And this may be the most important thing.

Let's say you've got £5,000 you want to allocate to Japan this year. If you whack it all in at once this morning, then every time you happen to glance at the Nikkei index for the rest of this year, you'll feel depressed if it's lower than it is today. And if Japan suffers a nasty correction 10%, say you'll be prone to panicking, and pulling your money out, regardless of how confident you feel today.

But let's say you decide to invest £500 a month from this month. If the Nikkei is lower this time next month, you'll be pleased. Because you'll be getting more shares for your money.

In fact, you might even find yourself feeling a bit irritated if it's gone up. Because you'll think: "I could have got these cheaper a month ago." But you'll be able to console yourself with the fact that your initial holding has gone up in value.

Yes, if you get the original market-timing decision right, lump sum investing can make you more over the long run than drip-feeding. But getting your timing exactly right in the short term is really not much more than a matter of luck.

In any case, the true benefit of drip-feeding is that it takes the edge of panic out of investing. And that's incredibly important. The one thing that destroys more value for individual investors than anything else, is our flawed psychology. The only way to combat the desire to over-trade, to panic-sell when your screen fills with red and to panic-buy when it's a sea of green, is to have a process, and a strategy.

This is one of the key things that my colleague Phil Oakley wants to drive home in his new newsletter, Lifetime Wealth. Phil has spent a lot of time working on a strategy that factors in all of the good investing habits that we're always talking about: rebalancing, diversification, and cost control.

It's proved very popular with readers so far and if you're looking for a way to build your wealth over the long run, with a minimum of fuss and stress, then I think you'll find it very useful. You can find out more about it here.

PS: Fancy a chance to tell us exactly what you think of us and maybe win a year's subscription to MoneyWeek magazine in the process? Well you can now! We'd really appreciate it if you could take five minutes to fill in our reader survey here.

Lifetime Wealth is a regulated product issued by Fleet Street Publications Ltd.

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John Stepek

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.