How to invest in the Nikkei 225
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Investing in the Nikkei 225 Index (NI225) gives you access to a diversified investment across some of Japan’s largest companies. There are many different ways to get involved. Use this guide to get to grips with the entire process so that you’re fully prepared and confident for when you make your move.
Where can I buy into the Nikkei 225 Index?
What is the Nikkei 225?
The Nikkei 225 (often referred to simply as the Nikkei or Nikkei Index) is the benchmark index for the Tokyo Stock Exchange. The Nikkei consists of 225 different stocks hailing from 35 different sectors, with electronics the most heavily represented of those sectors. The Nikkei 225 Index is one of the most widely-used indicators of the performance of the Japanese economy.
Is it a good investment?
That depends on your investment goals, but it can be. Japan’s overall economic growth has been slower in recent years than many of the world’s other major economies. Still, there are plenty of large-cap stocks on the Nikkei that offer growth potential. That said, remember that bull markets send a signal to buy Nikkei stocks, and bear markets send a signal to stay away.
How do I invest in the Nikkei 225?
Here are three steps to follow:
- Choose an investment type
- Use our top tips to succeed
- Choose a platform to invest with
1. Choose investment type
The investment type you select will depend on multiple factors, such as how much each approach charges in terms of transaction fees, and the quality and quantity of investment advice you feel you need in order to succeed. The following is a rundown of some of the top methods that you can use:
An ETF (which stands for exchange-traded fund) is an investment fund that’s traded on a stock exchange during regular stock market hours, the same way individual stocks are. Unlike individual stocks, however, ETFs consist of a collection of assets such as bonds or commodities, or a collection of stocks such as the stocks you’ll find in the Nikkei 225. A Nikkei 225 Index ETF gives you access to a large, diversified batch of stocks, without having to pay high transaction or management fees, and with the flexibility of being able to sell your investment at any point in the day’s trading. Buying ETFs allows you to gain exposure to different assets and might be the right choice for you,
If you want to focus on the top-performing stocks in the Nikkei 225 Index, you can buy Nikkei stocks (each one of them) in separate trades. This allows you to evaluate each stock, then sell to reduce your holdings until you own only the index’s top-performing stocks.
The problem with buying individual stocks is that you’ll incur huge transaction fees making 225 separate trades to buy Nikkei stocks, followed by a bunch more when you want to sell the stocks you have decided not to keep hold of. So unless you have tons of money and tons of time to spare, it’s probably best to consider another option.
A mutual fund is an investment fund that’s run by a professional money manager. You can buy a mutual fund either through a broker, or through the company that administers the fund. The money manager pools capital from many different investors, then invests it into different assets. A Nikkei 225 Index mutual fund (also called an index fund) allows you to invest in a way that sees your capital rise and fall in value with the Nikkei 225 Index.
One problem with mutual funds is you can only buy them at the end of the stock market’s trading day, not during regular market trading hours. Another is that mutual funds charge higher fees than ETFs do. So if you’re going to invest in a fund, it’s generally advised only if you plan to buy Nikkei stocks and hold for a long time, since a mutual fund is more difficult and more expensive to trade than investing in the ETF.
2. Use our top tips to be a successful investor
Before you start, review Invezz’s top investment tips. Keeping these in mind will help you make the best possible investment choices.
- Do your research. Becoming a successful investor takes time, patience, and perseverance. Study the Nikkei 225’s recent and historical performance, and how the index stacks up against other investments. After that, decide the types of gains you’re hoping to achieve in a given time period, as well as the size of the losses you’re prepared to absorb. The more prepared you are to invest, the better equipped you’ll be to cope with volatile market conditions.
- Set a budget. The investing budget you set should take into consideration your risk tolerance, as well as how much money you can afford to lose. Above all else, consider setting stop-loss orders to keep your losses small. If you let your losses escalate, you could hurt both your confidence and your ability to afford future trades.
- Select the right platform. Pick an investing platform based on your specific investment goals. If all you care about is getting the lowest transaction fees, that’s a very different approach than if you’re pining for personally tailored investment advice. So it’s vital that you figure out your goals before you look for a platform to handle your investments.
- Grow your investments gradually. If you’re a beginner investor, start slowly by investing a small amount of money at first. As you gain experience and find success, you can start increasing the size of your investments.
- Think long-term. If you’re trying to land the biggest possible gains, buying and holding the Nikkei 225 Index long-term could work out great for you. But if you’re going to try that strategy, invest during bull markets and not bear markets, as in unfavourable market conditions indices tend to fall sharply.
3. Choose a platform to invest with
Here’s a rundown of the options you can use:
- Brokers & Nikkei 225 trading platforms. The best way to invest in the Nikkei 225 index is usually through a broker. Brokers offer easy-to-use tools that make the process seamless. What online brokers don’t offer, though, is in-depth investment advice. So if you’re looking for high-level investment guidance, you might consider other options.
- Robo advisors. Robo advisors execute trades using algorithms, which keeps transaction costs relatively low and avoids the need for human interaction at that stage of the process. Despite their automated trade execution function, some robo advisors will still allow you to discuss your investment strategy beforehand with a human being to craft a plan. Still, robo advisors don’t usually offer the same level of investment guidance that a top financial advisor does.
- Financial advisors. Financial advisors offer the highest level of investment advice of any of the options available to you. They’ll review your financial goals, explain a variety of different investment strategies, and help make sure you stay on track well after your initial investment has been made. Financial advisors charge more for their services than what other investment service providers do. That extra cost can sometimes be worth it, since financial advisors provide a very high level of customer service. However, it probably isn’t worth the expense in this case, as the process is pretty simple to do yourself.
- Banks. Nikkei 225 Index investing through your bank gives you the convenience of storing all your financial ventures (e.g. checking and savings accounts, mortgage, line of credit, and investments) with one institution. The problem is that banks usually charge high fees without providing the level of service that top financial advisors offer. So unless convenience is an absolute must for you, you can usually do better with a different approach.
Here’s our top recommended broker
What should I do now?
If you’re ready to go, then just log into your chosen platform’s website, decide whether you want to buy an ETF, a mutual fund, or every individual stock in the Nikkei 225 Index in separate trades, then click buy. Your work isn’t done at that point, though. You’ll want to track your investment closely after that, as market conditions can shift dramatically and you want to be able to react to take advantage.
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