Please excuse my ignorance, and the long post… TLDR = the questions in bold toward the bottom. Any help much appreciated.
I have been on this sub for a while now, and thanks to everyone here I'm confident I have a pretty firm grasp on investing my savings in Japan (I'm using iDeCo, NISA, and as of this year, also a 特定口座). I get how investing in stocks & mutual funds work, how to read the graphs, how to compare the fees etc). At the moment I'm basically 95%% in eMaxis-slim All-Country & 5% in eMaxis-slim TOPIX.
But I really don't understand bonds at all… A lot of (older) long term investing advice online is based around splitting your investments between stocks and bonds, and increasing the ratio of bonds as you close in on retirement to de-risk your portfolio and avoid the dreaded sequence of returns risk in the event of a market crash/downturn as you start to use your savings.
Recently I see more and more people advocating for just sticking with 100% stocks, and seeing unimpressive returns (I gather these are called yeilds) from Japan government bonds has made it easy for me to stay 100% stocks. But now that we are seeing interest rates rise, and apparently bond yeilds with them, I'm thinking more about following that older advice and having some of my portfolio in bonds (in the future, if not now).
But I really don't understand even the very basics of bonds.
In terms of bond funds, I found an "eMaxis-slim Developed Countries ex-Japan" bond fund. When I checked the graph, it was up 15% in the last year, way higher returns than I would expect from what I have read about bonds. I assume that is due to the weakening of the yen. But if a bond fund is so exposed to fx risk, does that not negate the point of using it as a 'protection'? Is there an equivalent bond fund to the 'go-to' eMaxis-slim All-Country, that people in Japan commonly use to de risk a portion of their portfolio in retirement?
When I searched for a Rakuten Japan Gvt. Bond mutual fund, it seems that is not something that exists. You have to buy the actual bonds. I have no idea how that works… If I buy a ten year bond, is that something I have to hold for 10 years? Like a time deposit? How does buying (and holding) bonds physically work? Am I right in thinking that holding these gvt. bonds would protect from fx swings. Would they be a better option for my use case than the above mutual fund?
Thanks in advance for any information and advice, or if you can point me somewhere where I can read about this!
by Hearthian-Wanderer