If there is a mathematical formula for turning financial uncertainty into prosperity, I would dearly love to know it.
How do we grow our money? How do we protect it? And, perhaps most importantly, how do we stop worrying about it all the time?
I have spent a good part of my life searching for answers to these questions.
My investment history, however, is hardly a glorious tale of financial wisdom. It is more accurately described as a long series of mistakes, anxieties, and missed opportunities.
My Investment Journey Began with Bank Deposits
When I was young, I knew very little about investing.
Whenever I had money to spare, I put it into a fixed-term bank deposit. It was simple, reassuring, and easy to understand. My principal was protected within the applicable deposit insurance limits, and I earned a little interest.
What more could I ask for?
Then, sometime in the 2000s, I heard about a popular Japanese investment fund called Global Sovereign Open, which invested primarily in government bonds from around the world.
Apparently, it was a wonderful investment.
Wonderful in what way? How did it work? What risks did it involve?
I had barely bothered to find out.
Instead, I did something quite extraordinary: I invested almost all the money I had available.
And what happened?
My investment promptly fell below its original value.
I nearly had a heart attack.
Fortunately, the markets eventually recovered enough for me to retrieve my initial investment. Looking back, however, what I had done was hardly investing. It was closer to gambling, dressed up in the respectable language of finance.
Putting a substantial amount of money into a product you do not understand is an astonishingly reckless thing to do.
But that was the kind of investor I was.
When Retirement Became Our Own Responsibility
My generation also lived through a fundamental transformation of Japan’s corporate pension system.
Following the collapse of Japan’s economic bubble in the early 1990s, weak stock markets and persistently low interest rates made it increasingly difficult for companies to manage their pension obligations.
Then came a major change in accounting rules.
Beginning in 2000, new Japanese accounting standards required companies to reflect their retirement benefit obligations and related pension assets more transparently in their financial statements.
Previously less visible pension liabilities suddenly became a major concern for corporate management.
In 2001, Japan introduced a defined-contribution pension system modeled partly on the American 401(k) plan.
Under traditional defined-benefit arrangements, employers generally promised a specified level of retirement benefits. Under defined-contribution plans, contributions were specified in advance, while the amount ultimately received depended on investment performance.
Not every company switched systems, of course. But the reforms expanded arrangements under which employees themselves bore the consequences of their investment decisions.
There was just one small problem.
How many of us actually knew anything about investing?
Not nearly enough, I suspect.
Many people simply left their retirement savings in bank deposits, paying little attention to how their money was being managed.
I was hardly in a position to criticize them.
Gradually, unfamiliar terms entered everyday conversation: mutual funds, index investing, dollar-cost averaging, Japanese equity funds, American equity funds.
Books explaining how to invest began filling bookstore shelves.
I read some of them myself.
Yet I always seemed to arrive late to the party.
By the time I had learned about the latest investment trend, everyone else appeared to have moved on.
By the Time Spring Arrived, the Flowers Had Already Fallen
Then came the global financial crisis of 2008.
Anyone who had recently moved money from safe bank deposits into equity funds must have had some sleepless nights.
When markets collapse, we become frightened and want to retreat into cash.
But eventually markets recover.
In Japan, the economic policies introduced under Prime Minister Shinzo Abe from late 2012, widely known as Abenomics, helped shape a new period of optimism about the economy and stock market.
More recently, enthusiasm surrounding artificial intelligence has encouraged another wave of interest in equities. Political expectations, including those associated with the term Sanaenomics, have also entered Japanese market discussions.
And what happens to someone whose savings are still sitting in the bank?
He begins to feel terribly uncomfortable.
“Good heavens. Have I missed the opportunity again?”
So he starts buying investment funds.
Then, almost immediately, he hears warnings about an AI bubble, excessive valuations, or the next market correction.
Suddenly, he becomes nervous again.
What an exhausting way to live.
I sometimes feel that my investment career has followed a particularly unfortunate seasonal calendar.
By the time I hear that spring has arrived and rush outside, the blossoms have already fallen.
By the time I flee from an approaching storm, the clouds have disappeared and the sun is shining.
Again and again, I seemed to act just a little too late.
Eventually, however, I realized something important.
The fundamental problem was not the market.
It was me.
Know Yourself Before You Try to Know the Market
What had I been doing wrong?
First, I had never established a clear investment horizon.
Second, I had never seriously considered how much financial loss I could tolerate, either economically or emotionally.
When stock prices rose, I became greedy.
When they fell, I became frightened.
In other words, I had allowed the market to dictate my behavior.
So what should we do instead?
I believe we should begin by examining ourselves.
Are you cautious, or are you a fearless adventurer dreaming of making a fortune overnight?
Are you impatient and emotional, or calm and unshakable even when everything around you seems to be falling apart?
How old are you? How many years do you have to invest? When will you need the money, and for what purpose?
As for me, I must confess that when it comes to investing, I am cautious, impatient, and occasionally rather emotional.
Not exactly the ideal temperament for a speculative trader.
Clearly, a relatively conservative investment strategy suits me best.
But does that mean I should keep everything in bank deposits?
Not necessarily.
By doing so, I might sacrifice opportunities for long-term growth.
Then a thought occurred to me.
Why had I been treating bank deposits and investment funds as opposing alternatives?
Why not combine them?
A Portfolio for a Cautious Man
I began constructing an investment portfolio designed around my own circumstances.
At its foundation are fixed-term deposits, mainly with online banks offering relatively attractive interest rates.
I also include Japanese government bonds, particularly ten-year floating-rate bonds whose interest rates are periodically adjusted.
Then there are corporate bonds, generally with maturities of around five years, selected after considering the issuer’s creditworthiness and the terms of the securities.
Corporate bonds may offer higher yields than government bonds, but they also carry the risk that the issuing company could fail to repay principal or interest.
I have also included certain single-premium savings-oriented life insurance products.
These products may provide a predetermined maturity benefit if held for the required period. Their guarantees, returns, surrender conditions, and tax treatment vary considerably. Early surrender can result in a loss, and the insurer’s financial strength matters as well.
The lesson is simple: never mistake a reassuring product name for an absence of risk.
Together, these relatively conservative assets are intended to account for roughly 70 to 80 percent of my portfolio.
But even then, I cannot quite stop watching the stock market.
Human nature is a remarkable thing.
So I decided to invest a portion of my surplus funds into equity index funds through regular monthly contributions.
Within the equity portion, my preferred allocation is 60 percent to a fund tracking Japan’s TOPIX index and 40 percent to a fund tracking the American S&P 500 index.
TOPIX represents a broad segment of the Japanese stock market, while the S&P 500 tracks approximately 500 leading publicly traded American companies.
This provides exposure to many businesses rather than concentrating everything in a handful of individual stocks.
Of course, Japanese and American equities can decline simultaneously, and foreign exchange movements affect the yen value of American investments.
Diversification reduces certain risks; it does not abolish risk itself.
Over the next five years or so, my tentative target allocation for my total financial portfolio is:
- Fixed-term bank deposits: 30%
- Japanese government bonds: 20%
- Corporate bonds: 10%
- Savings-oriented insurance: 20%
- Equity index funds: 20%
This is not a universal formula. It is simply a personal allocation based on my age, temperament, financial position, and plans for the years ahead.
It may need to change as circumstances evolve.
Nevertheless, I find it rather comfortable.
Why?
When the stock market rises, I can enjoy a modest sense of satisfaction as my equity funds appreciate.
And when the market falls, I can quietly congratulate myself on having kept most of my assets in relatively conservative investments.
What a wonderfully unambitious, compromise-ridden, everything-in-moderation approach to investing!
A more aggressive investor might find it thoroughly uninspiring.
But I am perfectly content with it.
The point is not to achieve investment returns that make other people envious. It is to follow a strategy you understand, can live with, and are unlikely to regret.
To Those Beginning Their Investment Journey
Now let me offer a few thoughts to those who still have many decades ahead of them.
I begin with a fundamental belief.
As long as humanity continues to work, invent, discover, and create, I believe progress will continue, despite the inevitable setbacks along the way.
New technologies will emerge. New industries will develop. New forms of value will be created.
But human progress does not guarantee that the stock market of any particular country, or the shares of any particular company, will rise.
That is precisely why diversification matters.
Rather than staking everything on a single company’s future, consider investing across a broad range of businesses.
Low-cost index funds tracking markets such as Japan’s TOPIX or America’s S&P 500 can provide ways to do so.
And there is no reason to limit your imagination to Japan and the United States. Globally diversified funds offer another possibility.
What matters is understanding what you own, investing amounts you can afford to leave invested, and allowing time to work in your favor.
There is another principle I would emphasize.
Do not let every market movement become an emotional crisis.
When stock markets collapse, remember that you are not the only person suffering.
Millions of investors around the world are probably staring at their screens with precisely the same expression of disbelief.
That does not make the losses disappear, of course.
But if you have kept money needed for everyday living and near-term commitments out of volatile investments, you may be better able to avoid selling in panic.
Optimism does not mean blindly believing that everything will turn out well.
It means preparing for difficult circumstances while retaining the ability to think and act calmly.
Another consideration is what you ultimately want your money to achieve.
Suppose, for example, that you hope to buy a home.
In that case, you might gradually set aside some of your investment gains to build the funds needed for a purchase.
There is no need to identify the perfect moment to sell at the top of the market. As the purchase approaches, converting the required amount into cash according to a plan may be far more sensible.
Owning a home brings maintenance costs and exposure to changes in property values. Yet having a place of your own, somewhere to build a life, can offer rewards that cannot be measured solely by investment returns.
The remainder of your assets can then be allocated among deposits, government bonds, corporate bonds, and other products according to your circumstances and tolerance for risk.
Above all, keep learning.
Every financial product has a structure, costs, and risks.
Do not reject something merely because its name sounds complicated.
But never trust it merely because its name sounds impressive, either.
Read books, financial publications, and reliable information from public institutions.
Learn how money works.
In an increasingly complex financial world, ignorance can be expensive.
The Opportunity Hidden in Uncertainty
Think about it.
What if I had received a proper financial education when I was a student?
What if I had understood investment horizons, compound growth, diversification, and risk tolerance from an early age?
Perhaps I could have built my assets more steadily and with far less anxiety.
At the very least, I probably would not have invested almost all my available money in a bond fund I barely understood.
But there is little point in regretting the past.
I had my own era, my own mistakes, and the lessons that came with them.
You, however, have something I can never recover.
Time.
And time may be the most valuable asset of all.
We are often told that we live in an age of uncertainty.
Prices rise. Interest rates change. Stock markets fluctuate. Artificial intelligence is transforming industries and challenging our assumptions about work, society, and the future.
Yet I cannot help thinking that uncertainty also creates opportunity.
Perhaps this is precisely the kind of age in which the difference between those who keep learning and those who do not, between those who think independently and those who simply follow the crowd, becomes more important than ever.
If you begin learning now, build an investment strategy that suits your circumstances, and continue patiently over the years, there may be opportunities ahead that you cannot yet imagine.
Naturally, no one can predict the future of financial markets with certainty.
If someone really possesses a magical formula for doing so, I would be delighted to hear about it myself.
But after a lifetime of mistakes and lessons, I think I have finally discovered one small truth.
The alchemy of an uncertain age is not the ability to predict the market.
It is the wisdom to understand yourself, make time your ally, continue learning, and live without allowing uncertainty to rule your life.
Seen in that light, perhaps the future is not such a frightening place after all.