My wife was recently given 5 million yen from her grandfather in Japan. We're waiting for the value of JPY to raise again before we actually transfer it over to USD. It's currently extremely low, meaning that 109 JPY = 1 USD. However, the November, 2012 it was around 79 JPY per USD and began to climb from there, never going back down. We're planning on waiting for JPY to spring back in value, so we don't take a complete bath in transferring it over. I'd like to wait for it to be close to a 1:1 value, where as 1 JPY = 1 cent USD.
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This is actually pretty risky market timing, as you're speculating on currency exchange rates -- which is a great way to lose a lot of money. I'd think of it this way: you may take a relative hit in exchanging JPY into USD, but you get a discount on buying international stocks. Also keep in mind that the Japanese economy has been doing poorly for over a decade, so it's not entirely clear what kind of surprising demand for exports would drive up demand for their currency beyond what is already priced into the exchange rate.
Now, on to investments. I've heard that a Vanguard account is a great way to go. I'm not terribly interested in playing with the stock market myself, so I'd much rather leave this in the hands of someone else. Would anyone recommend going the Vanguard route, or should we try something else?
Yep, Vanguard index funds are the way to go. They have the lowest fees in the industry and track their benchmarks with high accuracy (as do other large funds), which is all you can get out of an index fund. Which ones to pick is going to depend on what the purpose of this money is. Saving for retirement? Saving to build wealth? In the former, a target-date retirement fund is a good call (just pick the one closest to the year you plan to retire, or maybe one a little later). What they do is they invest heavily in stocks early on (to maximize expected return) and as you get closer to retirement, they shift assets into less risky investments, to minimize the risk of large losses when you actually need/want to withdraw.
If the goal is to invest to build wealth, you can pick more aggressive funds. Personally, I have 50% in VTI (Vanguard Total Stock Market Index) and 50% in VXUS (Vanguard Total International Stock Market Index). The two symbols are for the ETF versions (non-permanent residents can't open an account with Vanguard), but they're essentially identical to the mutual fund version.
We also currently overpay our mortgage by around $400 every month, just to pay it down. I'm happy doing so, but in the home buying thread, someone mentioned that they're earning roughly 12% interest by investing that small amount of money every month. Earning ANY interest at all theoretically, would be a bonus, so how should I go about doing all of this?
Paying off your mortgage quicker provides you a guaranteed return equivalent to the interest rate on the mortgage, and paying off the house sooner may have other benefits. Investing it elsewhere comes with some risk: yes, 12% isn't far from the long-term average of a 100% stock portfolio, but the gains can vary tremendously year over year. The past couple years have seen returns above 20% per year, but you also have to expect that some years will have negative returns.
You should think of this as investing with borrowed money. Would you go to the bank, take a loan at the interest rate of your mortgage, and invest that money in the stock market? If yes, invest the $400/month. If not, pay off the mortgage faster. Personally, I would invest the extra money in a regular brokerage account with Vanguard (i.e. not in an IRA/401(k
-- that way you can realize the higher expected gains, with the understanding that this may not quite work out, and if you do actually need help making mortgage payments down the road, you can withdraw that money and use it to make payments.
I currently have a Money Market, Savings & Checking account with my local bank. I've had these accounts for probably 20 years, and the bank has since been bought out by National Penn. So that's where my finances rest. I don't really have any sort of savings to speak of, except for a 401k. We got ourselves pretty heavily in to debt early on, and we've been slowly working our way back out of it. I actually opened up 3 0% APR credit cards to pay off a much larger bill, and I've been paying them off. The game plan is to pay off each of them 1 month before the final payment is due, thus we'll never get hit with any interest beyond the initial balance transfer fee.
Does your employer offer any matching for your 401(k) contributions? If so, do you contribute enough to get the maximum matched amount? That's by far the best investment you can make: matching is a 50% or 100% (depending on the employer) instant return, which is just impossible to beat. You do want to look at how your 401(k) contributions are invested, though: a lot of people lose a LOT of money that way. Make sure you have low-cost index funds rather than actively managed mutual funds here.
Next, you could consider an IRA/Roth IRA. The choice here depends on your current tax rate and what you expect your tax rate in retirement to be. If you think your tax rate will be lower in the future, pick an IRA; if you think it will be higher, pick a Roth IRA. As a rule of thumb, I think the younger you are, the better off you are with a Roth IRA. Do keep in mind that you can always open both types of accounts, but you can contribute only $5,500 in both of them combined. Which of the two you pick is actually not such a big deal unless your tax rate is going to be MUCH higher/lower upon retirement. So I wouldn't stress too much about the choice here, but do contribute the max to one of them.
Lastly, there's a regular brokerage account: no tax breaks, but unrestricted access to the funds. You can also do this via Vanguard and pick index funds. They actually have lifecycle funds that diversify across stocks and bonds depending on the level of risk you're comfortable with. Stocks have the highest expected rate of return, but also very large variance: one year they can return 30%, the next year they can lose 20%. I think a 100% stock portfolio is nice for a "building wealth" fund just because it's money you don't expect to need anytime soon. You might as well just leave it there and not look at how the market's doing. In 20 years, you're likely much better off than with any other investment -- and over 35 years, I don't think there's a period in history when you would have done better with anything other than 100% stocks. Do diversify across US and international stocks, though. 50:50 is an allocation based on the fact that the US makes up roughly 50% of global GDP, so you're essentially weighing investments by their share of the world market (which is how indices work). There are global stock indices, but I think their fees are higher than when you just build it yourself. Some analyses (including that of Vanguard) suggest you should overweight stocks in your currency (in this case US Stocks), because of the currency exchange risk. So Vanguard's funds use about a 60:40 split in favor of US stocks. Again, the difference here is going to be pretty small... either is a perfectly valid choice.
Some of the stuff is just min-maxing that is worth thinking about a little, but shouldn't hold you off from making a decision. The worst thing that can happen is to be discouraged by the complexity and not do anything... nobody can tell you for sure whether an IRA or Roth IRA is going to be better, for example. But either is better than forgoing the tax break entirely.
