Archive of Our Own

March 2003, Team Spica Common Room, 7:45 PM

It had been a quiet day in the Spica common room. Perhaps too quiet — until Tokai Teio burst into the common room with a check in her hand and literal stars in her eyes.

"I won the Arima Kinen! I actually won! Look look look!" She said waving the check around like a flag. "So many zeros! This is the most money I've ever seen! In my whole life! Ever!"

Special Week looked up from her homework, ears perking. "That's amazing Teio! Your first G1 win! Congratulations!" Then her expression turned worried. "Um, what are you going to do with it?"

"I don't know!" Teio flopped onto the couch still clutching the check. "Buy stuff? Save it? My mom said I should invest it but I don't know what that even means!"

From the corner where she'd been reading, Vodka snorted without looking up. "You're going to blow it all in a week."

"I am not!"

"You bought seventeen different drinks yesterday because you couldn't pick one."

"THEY WERE IMPORTANT, VODKA! I WANTED TO GET MCQUEEN SOMETHING SHE WOULD LIKE."

Then the door opened and Gold Ship walked in carrying a laptop much too modern for 2003. She sat down at the table without acknowledging anyone then started typing.

"Golshi!" Teio yelled sitting up so fast she nearly fell off the couch. "Golshi, you know about money stuff, right?!"

Gold Ship kept typing for another five seconds then glanced up. "Unfortunately, yes."

"Can you tell me what to do with my prize money? Everyone says I should invest it but I have no idea how that works and my mom said---"

"Do you want to actually learn or do you just want me to tell you what to buy?"

Teio blinked. "Um. Both?"

"I can't do both." Gold Ship replies closed the laptop. "If I tell you what to buy, you'll panic the first time it drops and sell at the worst possible moment. If I explain how it works, you can make your own dumb decisions."

"Hey!"

"Do you want my help or not?"

Teio deflated. "Okay fine. Explain it. But like, pretend I'm an idiot."

"You're not an idiot." Gold Ship opened the laptop again. "You're uninformed. Different thing. How much money we talking about?"

"One hundred eighty-three million, one hundred and eight thousand yen."

Gold Ship stopped typing. "So you got the Arima Kinen winner's share." She leaned back in her chair. "That's quite a bit of money, Teio. You could actually set yourself up with that." She tilted her head. "Wait. Is that before or after taxes?"

"Um." Teio replies looking at the check like it might have the answer. "It just... says the amount? I don't know about taxes."

"Of course you don't." Gold Ship pulls up a calculator. "Okay, listen. Prize money is taxable in Japan. You're going to owe national income tax plus local inhabitant tax. At 183 million, you're in the top bracket."

"How much is that?" Teio was starting to look nervous.

"National income tax tops out at 37% for anything over 18 million yen. At the top end, national and inhabitant tax together can push the marginal rate to about 50%."

Teio's face went white. "FIFTY PERCENT?!"

"On the top portion, yeah." Gold Ship was typing quickly. "The tax is progressive so the first chunk is taxed lower, but most of your 183 million is getting hit at the top rate. After deductions and everything, you'll want to park about 90 million yen somewhere you cannot accidentally spend it. Your accountant will tell you the exact number after the return is filed, but assume roughly half."

"I LOSE HALF OF IT?!" Teio actually fell off the couch.

"Welcome to Japanese tax law."

Vodka had sat up now, notebook in hand. "Wait. Does Teio have to file taxes herself? She can barely file her own race registration forms."

"Hey!"

"You asked me for help last week because you couldn't figure out the checkbox for "left-handed start.""

"That checkbox was confusing!"

Special Week was looking increasingly worried. "Um, Gold Ship, is there someone who can help her with this? This sounds really complicated..."

"Yeah." Gold Ship didn't look up from her laptop. "Prize money isn't withheld at source like salary. She gets the full 183 million, then she has to file a tax return next year and pay what she owes. Which means she needs to set aside the tax money and not spend it."

"But how do I know how much to set aside?!" Teio had climbed back onto the couch and was clutching a pillow.

"Roughly 90 million. Keep it in a savings account, don't touch it until you file your taxes. Then you can invest what's left."

"Can she like... not pay some of it?" Teio asked hopefully.

"No."

"What if I just forget to file?"

"The National Tax Agency will remember for you. Then add penalties." Gold Ship glanced at her. "But if you hire an accountant who specializes in professional athletes, they can help you claim deductions for training costs, travel, equipment. Could save you 5 to 10 million in taxes."

"I should keep receipts," Teio said, writing this down very seriously.

"You should've been keeping receipts all along." Vodka turned a page. "But yeah, start now."

"And hire an accountant," Gold Ship added. "Do not try to do this yourself."

"I won't! I promise!"

"Okay." Gold Ship pulled up another spreadsheet. "So after taxes you've got somewhere in the mid-90 millions to actually invest. Now here's the fun part. When you invest and make money, you also owe taxes on that."

"WHAT?!" Teio threw the pillow. "More taxes?!"

"Capital gains tax, dividend tax." Gold Ship caught the pillow without looking. "The rules on listed shares are changing this year, so the exact rate depends on what you buy and how it's structured — your accountant will sort the specifics. But the principle is: you owe something on dividends every year as they come in, and you owe something on the gains when you eventually sell."

"But I thought the whole point was to hold it forever!"

"It is. And that's exactly why holding is tax-efficient. You're only paying on dividends each year, not on the appreciation itself, until you sell. The longer you hold, the longer you defer the gains tax. So buying something broad and sitting on it for twenty years is not just a good investing strategy — it's also the right move from a tax standpoint."

Teio was starting to look overwhelmed. She'd gone from excited to stressed in about five minutes flat. "This is so many taxes..."

From the corner, Suzuka turned a page without looking up. "That's what taxes are."

McQueen had been quiet but finally spoke up. "Are there ways to structure this more efficiently? Legally, I mean."

Gold Ship glanced at her, almost smirking. "The most efficient structure is the boring one. Don't trade. Don't sell things. Every time you sell, you create a taxable event. So you can minimize tax drag by choosing funds that don't pay high dividends, or that reinvest them automatically. Some are structured to have low dividend yields and high price appreciation, which is better from a tax perspective because you defer the gains tax until the end."

Gold Ship looked at Teio. "Look, here's what you should actually do. Simple version. Take the 183 million. Park about 90 million somewhere safe for taxes. Hire an accountant to help you claim deductions for training expenses and file properly — that'll probably save you 5 to 10 million. So you'll have somewhere in the mid-90 millions left."

"Keep 10 million in cash for living expenses and emergencies. Open a foreign-securities account at a major broker and put the other 83 million into a foreign-equity investment trust that tracks the S&P 500. Pay the dividend tax as it comes. Don't trade. Don't get clever. Just let it sit for twenty years."

"That's it?" Teio asked.

"That's it. The numbers work." Gold Ship pulled up her calculator. "I'm not going to give you one exact number for what you'll have in twenty years, because I don't know and anyone who tells you they do is lying. But here's the range. You're investing roughly 83 million yen. At 6% annual return in dollar terms over twenty years, you're looking at around 230 million yen net after final taxes, at today's exchange rate. At 8%, around 325 million. At 10%, somewhere north of 460 million."

"Historically, a broad U.S. equity index has averaged around 9 to 10% annually before inflation over the long term. Right now we're sitting around 840 on the S&P 500 — down almost 45% from the bubble peak, which was 1,550 in March 2000. That's not where it stays. Past crashes have all recovered." She closed the chart. "None of those range numbers factor in currency. We'll get to that. But that's your floor and ceiling in today's money."

"So I turn 83 million into somewhere between 230 and 460 million?" Teio was bouncing on the couch now.

"At current exchange rates, in that range, after taxes. The actual number could be higher or lower. Currency moves could push it either direction significantly over twenty years."

"That's still SO MUCH MONEY!" Teio actually jumped off the couch. "Like, SO much!"

Vodka didn't even look up. "Sit down before you hurt yourself."

"I'm too excited to sit!"

"And that's with paying all your taxes properly and keeping it simple," Gold Ship continued. "No weird structures, no aggressive optimization. Just straightforward investing."

Special Week was still writing everything down, her hand cramping. "What happens if she doesn't pay the taxes?"

Gold Ship's expression didn't change. "The National Tax Agency comes after her. They assess the tax, add penalties and interest, eventually seize assets if she doesn't pay. Japan doesn't mess around with tax evasion. You do not want to fight the NTA."

Special Week went a little pale. "So definitely pay the taxes."

"Definitely pay the taxes." Gold Ship leaned back. "Hire an accountant. Claim legitimate deductions. Invest what's left. Don't get greedy. The math works even after taxes." She opened the laptop again. "Now let me explain what you're actually investing in. Do you know what the S&P 500 is?"

Teio sat back down on the couch. "Nope! No idea! Is it a race?"

Vodka snorted into her notebook.

"It's an index." Gold Ship pulled up a new spreadsheet. "A list of 500 companies that meet certain criteria. Standard and Poor's — that's a financial services company — decides which companies are on the list. When you buy a product that tracks the S&P 500, you're buying a tiny piece of all 500 of those companies at once."

Special Week had stopped doing homework entirely now. Vodka was still pretending not to listen but had angled herself toward the conversation, and from her corner, Suzuka turned a page without looking up.

"Wait wait wait." Teio held up her hands. "Why would I want to buy 500 companies? Wouldn't it be better to just pick the best one?"

"Because you don't know which one is the best one." Gold Ship pulled up a chart. "Nobody does. Even professional investors get it wrong most of the time. Over the last fifty years, about 80% of professional fund managers who tried to pick the best stocks did worse than just buying the entire S&P 500. They spent all day analyzing companies and still couldn't beat the average."

"That seems really bad at their jobs!"

"It's not that they're bad. Beating the market is really hard when everyone has access to the same information. By the time you hear about a company doing well, the stock price already reflects that. You're always competing against people who do this full time." Gold Ship leaned back. "So for most people, the smart move is to not try to pick individual stocks. Just buy the whole market and let it grow over time."

"Okay, that makes sense. So how does the S&P 500 actually work?"

"Good question. Let's start with how companies get added to the index." Gold Ship pulled up another document. "There's a committee at Standard and Poor's that meets regularly. They decide which companies to add and which ones to remove. The criteria are:"

She started listing them:

"First, market capitalization. That's the total value of all the company's shares. A company needs to meet a minimum market cap to be eligible — that threshold shifts over time based on overall market size."

"Second, liquidity. The company needs to have enough shares traded each month that you can actually buy and sell the stock easily without moving the price around too much."

"Third, public float. A meaningful portion of the company's shares need to be available to public investors. If founders or private equity firms own too much, the company doesn't qualify."

"Fourth, financial viability. The company needs to have positive earnings. Specifically, positive earnings in the most recent quarter and positive total earnings over the trailing four quarters. So unprofitable companies can't be in the S&P 500."

"Fifth, it has to be a U.S. company. Well, technically it has to be domiciled in the U.S., but there are some exceptions for historical reasons."

"And sixth, the stock needs to trade on NYSE or NASDAQ. No over-the-counter stocks."

Teio was staring at her. "That's a lot of rules."

"Yeah. And here's the thing — those rules mean the S&P 500 is not just "the 500 biggest companies." It's "the 500 biggest companies that are also profitable, liquid, publicly traded, and meet all these other criteria." Every company in the index has already survived long enough and succeeded enough to get included."

"So I'm not buying the companies that might become big, I'm buying the companies that already are big."

"Exactly. Which is fine! Most companies that might become big end up failing instead. By the time a company is in the S&P 500, a lot of the risk has already been filtered out."

Vodka spoke up from the couch. "So how often do they change which companies are in it?"

"Whenever they need to. Sometimes a company gets acquired, or it goes bankrupt, or it stops meeting the criteria, so it gets removed. Sometimes a company grows big enough to meet the criteria, so it gets added. On average, there are maybe 20 to 30 changes per year."

"And what happens when they make a change?"

"This is where it gets interesting." Gold Ship pulled up another spreadsheet. "When the committee decides to add a company to the index, they announce it ahead of time. Usually about a week before the change takes effect. And during that week, something predictable happens. The stock price of the company being added goes up by an average of 5 to 8 percent."

"Why?"

"Because funds that track the index have to buy it. Every fund tracking the S&P 500 — which is trillions of dollars worth of assets — suddenly needs to own that stock. They all buy it at the same time. That buying pressure pushes the price up. Nothing about the company has changed. It's still the same company doing the same business. But now there's massive artificial demand because of the index inclusion."

"That seems weird."

"It is weird. But it's predictable weird, which means everyone knows it's going to happen, which means the price starts going up as soon as the announcement is made. By the time the fund actually has to buy it, the price is already up. The fund is buying high because they have no choice."

Special Week raised her hand slightly. "So if I owned that stock before it was added, I'd make money just from the index inclusion?"

"Yeah. But you'd have to know which company was going to be added before the announcement, and you don't. Nobody does except the committee. And trading on that information would be illegal."

"So the index funds lose money every time a company gets added?"

"Not exactly. They're not trying to beat the market, they're trying to match the market. If the S&P 500 goes up 10% this year and the index fund also goes up 10%, they've done their job. The index inclusion effect is just part of how indices work. It's a cost of doing business."

Gold Ship clicked to a new screen. "Now let's talk about how the index is weighted, because this is important. The S&P 500 is market-cap weighted. That means bigger companies take up more of the index than smaller companies."

"How does that work?"

"Okay, simple example. Let's say the index only has two companies. Company A has a market cap of 9 trillion yen. Company B has a market cap of 1 trillion yen. The total market cap of the index is 10 trillion yen. Company A is 90% of the index, Company B is 10% of the index."

"So if I put 10 million yen into this pretend index fund, 9 million yen goes into Company A and 1 million yen goes into Company B."

"Exactly. Now let's say Company A goes up 10% and Company B goes down 10%. What happens to the index?"

Teio frowned, counting on her fingers. "Um... Company A goes from 9 trillion to... 9.9 trillion? So that's up... 900 billion? And Company B goes from 1 trillion to 900 billion, so that's down 100 billion... So the total is... 10.8 trillion? Which is... 8% up?" She looked up hopefully. "Did I get that right?"

"Yeah." Gold Ship nodded. "Even though one company went up and one went down by the same percentage, the index went up overall because the bigger company has more influence. The S&P 500 works the same way, just with 500 companies instead of two."

Gold Ship pulled up a list. "Right now in 2003, the biggest companies in the S&P 500 are Microsoft, General Electric, ExxonMobil, Pfizer, and Citigroup. Those five companies alone make up about 12% of the entire index. So if you buy a product tracking the S&P 500, you're putting 12% of your money into just five companies."

"Wait, so it's not actually 500 equal companies?" Teio looked confused.

"No. It's market-cap weighted, remember? The bigger companies take up more space. That's a feature of how it works. The winners get bigger portions of the index."

"So... you're buying more of the stuff that already went up?" Teio was trying to follow along.

"Yes. That's called momentum. And historically, momentum works. Stocks that have gone up tend to keep going up, at least for a while. But it also means if there's a bubble, market-cap weighted indices get more and more exposed to that bubble. Tech stocks in the late 90s, for example. By 1999, tech was like 35% of the S&P 500 because those stocks had gone up so much. Then the bubble popped and the index got hammered."

"So it can go down a lot?"

"Yeah. Nothing is risk-free. The S&P 500 has gone down 20%, 30%, even 40% in bad years. But over long periods, it's gone up more than it's gone down. Since 1926, the average annual return has been about 10% before inflation. Some years it's up 30%, some years it's down 30%, but over decades it averages out. We're sitting in the crater left by the dot-com crash right now — around 840 on the index, down from 1,550 at the bubble peak. That's not where it stays."

"How do they keep track of all this?" Teio asked.

"Good question. Market cap changes every single day as stock prices move. For a market-cap-weighted fund, most of that is automatic — prices move and the weights drift accordingly. The fund doesn't have to trade just because Microsoft went up 5% and now represents a slightly bigger share. The main reasons a fund trades are constituent changes — companies added or removed from the index — inflows and outflows of investor money, and corporate actions like mergers or stock splits."

"So they're not constantly buying the winners and selling the losers?"

"No. If Microsoft went from 2% to 2.5% of the index because its stock went up, the fund's Microsoft position automatically became 2.5% of the fund's value too. The math follows the prices on its own. They only have to act when something external changes the composition."

Teio scratched her head. "How do they actually calculate the index number itself?"

"Okay, this gets technical but I'll walk you through it." Gold Ship pulled up a formula. "The S&P 500 is calculated using a divisor. Here's how it works:"

"First, you take the market cap of every company in the index. Add them all up. Right now, the total market cap of the S&P 500 is about $7.5 trillion in U.S. dollars. That's roughly 890 trillion yen at current exchange rates. That's the sum of the market cap of all 500 companies."

"Second, you divide that by a special number called the divisor. The divisor right now is about 8.9 billion. So $7.5 trillion divided by 8.9 billion equals about 840. That's the current level of the S&P 500 index."

Teio looked at her. "Wait, that's the same number you mentioned before."

"Right. That's the point. The index level and the math line up." Gold Ship closed the formula. "Historical reasons is why it's set up this way. When the index started in 1926, it was set at a value of 10. Over time, as companies were added and removed and split their stocks and did all kinds of corporate actions, they adjusted the divisor to keep the index continuous. The actual number doesn't matter. What matters is how it changes over time. If the total market cap goes from $7.5 trillion to $8.25 trillion, and the divisor stays the same, the index goes from 840 to 924. That's a 10% increase."

"Got it." Teio was actually following along now. "So when I buy a fund that tracks the index, what am I actually buying?"

"You're buying shares in a fund that owns all 500 stocks in the proportions I just described. The fund doesn't own exactly 500 shares of each company. It owns different amounts of each stock to match the market-cap weighting."

"Let's say the fund has 100 billion yen in assets. Microsoft is 2% of the S&P 500. So the fund puts 2 billion yen into Microsoft stock. If Microsoft's stock price is $50 per share and the exchange rate is 119 yen to the dollar, that's about 5,950 yen per share. The fund owns about 336,000 shares of Microsoft."

"General Motors is 1% of the S&P 500. So the fund puts 1 billion yen into General Motors. If GM's stock price is $40 per share, that's about 4,760 yen per share. The fund owns about 210,000 shares of GM."

"And so on for all 500 companies. The fund is constantly adjusting its holdings as prices change and as money flows in and out of the fund."

"What do you mean money flows in and out?"

"When you buy shares in the fund, you're giving the fund cash. The fund uses that cash to buy more of the underlying stocks. When you sell shares, the fund has to sell some of its stock holdings to give you cash back. If lots of people are buying the fund, it has to buy more stocks. If lots of people are selling, it has to sell stocks."

"Does that affect the stock prices?"

"A little bit, yeah. If a fund gets 10 billion yen of inflows in a single day, it has to buy 10 billion yen worth of stocks in the right proportions. That's 200 million yen of Microsoft, 100 million yen of GM, et cetera. That buying pressure can push prices up slightly, especially for smaller companies where 50 million yen matters more. But it's spread across 500 companies so the effect is usually small."

Vodka leaned forward. "You said most people should just buy the broad index and hold it. But how do I actually do that? Like, mechanically."

"You open a foreign-securities account at a major broker. In Japan that would be something like Nomura or Daiwa. You deposit money. Then you buy a foreign-equity investment trust that tracks the S&P 500. You tell the broker how much you want to invest, and they execute the purchase."

"And then what?"

"Then you wait. That's the hard part. The market will go up and down. You'll see your account value change every day. Some days you'll be up, some days you'll be down. The key is to not panic and sell when it's down. If you buy a broad index product and hold it for twenty years, historically you've made money basically every time. If you buy it and sell it six months later because it went down 10%, you've probably lost money."

"Why?"

"Because you locked in the loss. Let's say you buy 10 million yen of the fund. It goes down to 9 million yen. If you sell, you've lost 1 million yen. But if you hold on, it will probably go back up eventually. Maybe it takes a year, maybe it takes three years, but historically it goes back up. The only way you actually lose money is if you sell when it's down."

Teio nodded slowly. "Okay. So the strategy is: buy it, don't look at it for twenty years, hope it went up."

"Pretty much, yeah. The less you look at it, the better. Every time you look at it, you're tempted to do something. And doing something is usually wrong."

"What about dividends?" Special Week asked. "Don't companies pay dividends?"

"Yeah, most S&P 500 companies pay dividends. Usually quarterly. The investment trust collects all those dividends and either pays them out to you as cash or automatically reinvests them by buying more shares. Most people reinvest them, which makes the compounding work better."

Gold Ship pulled up another chart. "Here's an example. Let's say you invest 100 million yen in the S&P 500 and it grows at 10% per year. After one year, you have 110 million yen. But let's say the companies paid out 2% in dividends that year, and you reinvested them. Now you have 112 million yen instead of 110 million yen."

"That doesn't sound like much."

"Over one year, it's not. But over thirty years, it makes a huge difference because you're compounding on a bigger base." She pulled up a new calculation. "One hundred million yen at 10% per year for thirty years becomes 1.74 billion yen. But if you reinvest 2% dividends every year, you're getting 12% total return, and that becomes 3 billion yen. The difference is 1.26 billion yen just from reinvesting dividends."

"Holy shit," Teio breathed. "That's a billion yen difference just from the dividends?"

"Just from reinvesting them instead of spending them, yeah. Compound interest is powerful. Einstein supposedly called it the most powerful force in the universe, though that quote is probably made up. But the math is real. The longer your time horizon, the more compounding helps you."

Vodka had her own notebook out now. "What are the downsides? There have to be downsides."

"Sure. First, it's boring. You're not going to beat the market. You're going to match the market. If your friend picks some stock that goes up 200%, you're going to feel like an idiot for earning 10%. But most people who try to pick stocks end up with worse returns than the index, so boring is actually good."

"Second, you have no control. You're stuck owning whatever's in the index, even if you think some of those companies are bad. If the committee adds a company you hate, you own it. If they keep a company you think is overvalued, you still own it. You can't customize it."

"Third, it's not actually "the market." It's the 500 biggest U.S. companies that meet the criteria. You're not getting small companies, you're not getting international companies, you're not getting bonds or real estate or anything else. It's a specific slice of the market. So you're taking on concentration risk."

"Fourth, fees. Even investment trusts charge fees. They're small, usually a fraction of a percent per year, but they add up over time. If you have 100 million yen invested and the fund charges 0.2% per year, that's 200,000 yen the first year. Doesn't sound like much. But as your money grows, the fees grow too. After thirty years, when you have 1.74 billion yen invested, you're paying 3.48 million yen per year in fees. That's real money."

"And fifth, taxes. But we already covered that."

Special Week was writing all of this down. "So for Teio's situation, with about 83 million yen to invest after taxes and keeping some cash, what should she actually do?"

Gold Ship looked at Teio. "You've already got the framework. Keep 10 million liquid for living expenses and emergencies. That's your safety net. Open a foreign-securities account at a major broker and put the other 83 million into a foreign-equity investment trust that tracks the S&P 500."

"Second, hire an accountant before you do anything else. Someone who specializes in professional athletes. They'll help you structure this properly, claim all your legitimate deductions, and file your taxes correctly. Don't cheap out on this. A good accountant will save you more than they cost."

"Third, figure out your risk tolerance. How would you feel if your account went down 30% in a single year? If the answer is "I'd panic and sell everything," then maybe you shouldn't put all 83 million in equities. Maybe you should do 60% equities and 40% bonds, which is less volatile."

"Fourth, pick an appropriate fund. Since you're investing from Japan, you need to understand currency risk. This is important. The S&P 500 tracks U.S. companies, and those companies are priced in U.S. dollars. But you're in Japan, earning yen, and will eventually spend yen. So there's a currency conversion happening."

Teio blinked. "I don't understand."

"Okay, let me walk through this step by step." Gold Ship pulled up a new spreadsheet. "Right now, the exchange rate is about 119 yen to 1 U.S. dollar. That means if you have 119 yen, you can exchange it for 1 dollar. If you have 119,000 yen, you can exchange it for 1,000 dollars."

"When you invest in the S&P 500 through Japan, you have two choices. You can buy a yen-denominated fund, or you can buy a dollar-denominated fund. They're different."

"What's the difference?"

"A yen-denominated fund is managed in Japan, by a Japanese fund company, and the shares are priced in yen. You give them yen, they handle all the currency conversion internally, and you see your account value in yen. The fund owns the same U.S. stocks, but you don't have to think about dollars."

"A dollar-denominated fund means you're directly buying U.S. stocks or a U.S.-based fund. You have to convert your yen to dollars first, then buy the fund in dollars, and your account is denominated in dollars. When you eventually sell, you get dollars back, and then you have to convert those dollars back to yen."

Vodka leaned forward. "Why does that matter?"

"Because exchange rates change. Right now it's 119 yen to the dollar. But in twenty years, it might be 90 yen to the dollar, or it might be 150 yen to the dollar. That changes your returns in yen terms even if the U.S. stock market itself hasn't moved."

Gold Ship typed into her calculator. "Example. Let's say you have 11.9 million yen right now. At 119 yen per dollar, that's 100,000 dollars. You invest that 100,000 dollars in the S&P 500. Twenty years later, your investment has grown to 670,000 dollars. That's a 6.7x return in dollar terms."

"But now you need to convert it back to yen to actually spend it. If the exchange rate is still 119 yen per dollar, your 670,000 dollars becomes about 80 million yen. You made 68 million yen in profit."

"But what if the yen got stronger? What if the exchange rate changed to 90 yen per dollar? Now your 670,000 dollars only converts to 60.3 million yen. You still made a profit, but it's smaller. The dollar gains got partially eaten by currency movement."

"And what if the yen got weaker? What if the exchange rate changed to 141 yen per dollar? Now your 670,000 dollars converts to 94.5 million yen. Your profit is bigger because of favorable currency movement."

Teio was staring at the numbers. "So the currency can make me money or lose me money even if the stocks themselves do well?"

"Exactly. This is currency risk. And it works both ways. If you invest in U.S. stocks and the yen weakens against the dollar, you make extra money from currency gains. If the yen strengthens against the dollar, you lose money from currency losses, even if the stocks went up."

Teio looked even more confused. "So... which one should I buy? The yen one or the dollar one?"

"Yen-denominated is simpler for you." Gold Ship pulled up another chart. "If you want to avoid currency risk entirely, buy a yen-hedged fund. These are funds that track the S&P 500 but hedge out the currency exposure. They use derivatives to lock in the current exchange rate, so you only get the stock market returns, not the currency fluctuations. Your returns in yen will match the dollar returns of the S&P 500."

"If you want currency exposure, buy an unhedged fund. You'll get the stock market returns plus or minus whatever happens with the yen-dollar exchange rate. This adds volatility, but historically, over long periods, currency effects tend to be smaller than stock market effects."

"Most people who are investing long-term in foreign stocks don't hedge. The hedging costs money, usually about 0.3% to 0.5% per year in fees, and over twenty or thirty years that adds up. Plus, if you believe the U.S. economy will grow faster than Japan's economy, you probably expect the dollar to strengthen relative to the yen, which means you'd want the currency exposure."

McQueen had been quiet but now spoke up. "How does the currency conversion actually work mechanically?"

"Good question." Gold Ship grinned. "Let's say you're buying an unhedged, dollar-denominated S&P 500 fund. Here's what happens:"

"Step one: You deposit yen into your brokerage account in Japan. Let's say 11.9 million yen."

"Step two: You place an order to buy shares of the fund. The broker looks at the current exchange rate — 119 yen per dollar. They convert your 11.9 million yen into approximately 100,000 dollars. There's usually a small fee for this conversion, maybe 0.25% to 1% depending on the broker, so you might actually get 99,750 dollars after fees."

"Step three: The broker uses those dollars to buy shares of the S&P 500 fund on a U.S. exchange. If the fund is trading at $100 per share, you buy about 997 shares."

"Step four: Your account now shows roughly 1,000 shares of the fund, valued in dollars. Every day, as the U.S. stock market opens and closes, your account value changes based on the fund's price in dollars."

"But if you're looking at your account on a Japanese brokerage website, they'll usually show you the yen equivalent. They take your dollar value and multiply it by the current exchange rate. So if your shares are worth 100,000 dollars and the exchange rate is 119, your account shows 11.9 million yen in value. If the exchange rate moves to 124, your account shows 12.4 million yen even if the stock price hasn't changed."

"Step five: Twenty years later, you want to sell. Your shares are now worth 670,000 dollars. You place a sell order. The broker sells the shares and you have 670,000 dollars in your account."

"Step six: You convert the dollars back to yen. At whatever the current exchange rate is. If it's 141 yen per dollar, you get 94.5 million yen minus the conversion fee."

Vodka looked up from her notes. "Wait, so there's a fee when you buy AND when you sell?"

"Yeah. That's part of the cost of foreign investing. You can minimize it by choosing brokers with low forex fees, but it's always there. Some brokers charge as little as 0.25% per conversion, others charge 1% or more. Over a round trip, that can cost you 0.5% to 2% total, which eats into your returns."

"This is why some people prefer yen-denominated funds. The fund handles all the currency conversion internally, and because they're doing it at scale with tens of billions of yen, they get better rates than you would as an individual. The cost is built into the fund's expense ratio, but it's usually more efficient."

Teio scratched her head. "Okay, so practically speaking, what should I buy?"

"For you? Yen-denominated, unhedged foreign-equity investment trust that tracks the S&P 500, through a Japanese broker like Nomura or Daiwa. You give them yen, they handle the conversion, you see your returns in yen. You get both the stock market returns and the currency exposure, but you don't have to manually convert anything. It's simpler and the fees are usually lower than doing it yourself."

"The fund will have an expense ratio, probably around 0.1% to 0.3% per year. That covers the fund's operating costs, including their internal currency conversions. You'll still have currency risk — your returns will fluctuate based on the yen-dollar exchange rate — but that's okay. Over twenty years, the stock market returns will probably be bigger than the currency fluctuations."

"If you wanted to hedge, there are yen-hedged funds too, but they cost more, usually 0.3% to 0.5% extra per year for the hedging. Not worth it in my opinion for a twenty-year investment, but some people prefer it."

Special Week looked up from her notes. "What if the yen collapses? What if it goes to 200 yen per dollar or something crazy?"

"Then you make a lot of extra money on your U.S. investments. Your stocks go up in dollar terms, and then you get a huge currency gain when you convert back. The 670,000 dollars would become 134 million yen instead of about 80 million yen. Currency risk cuts both ways."

"The flip side is if the yen gets super strong and goes to 80 yen per dollar, your returns get crushed. Your 670,000 dollars only becomes 53.6 million yen. You still made money, but way less than you expected."

"This is why diversification across asset classes and currencies can make sense, but honestly, for most people investing for twenty or thirty years, you just accept the currency risk. It's noise compared to the long-term growth of the stock market. Don't overthink it."

"Fifth, buy it all at once if you can. People think they should buy a little bit each month to reduce risk, but statistically you're better off investing everything immediately because the market goes up more often than it goes down. Time in the market beats timing the market."

"And sixth, forget about it. Check it once a year maximum, just to handle your tax paperwork for the dividends. Don't check it when the market crashes. Don't check it when your friends are talking about stocks. Just let it sit."

Teio stared at her check. "That's it? That's the whole strategy?"

"That's it. It's simple but not easy. The hard part is not panicking when it goes down."

"How often does it go down?"

"About one year in four has negative returns. But three years out of four have positive returns. And almost every ten-year period has positive returns. The longest period in history where the S&P 500 didn't make money was about thirteen years, from 1968 to 1981. But that's an outlier. Most of the time, if you hold it for ten years, you make money."

Vodka closed her notebook. "You've convinced me. I'm investing my next prize money."

"Me too," Special Week said.

Teio looked at the check again. "Okay. I'll do it. But I have one more question."

"Shoot."

"What's stopping me from just copying whatever the S&P 500 holds and buying those stocks myself? Wouldn't that save me the fees?"

Gold Ship grinned. "Technically, yes. But you'd have to buy shares of 500 different companies in the exact right proportions. And then you'd have to track all the additions and deletions to the index and handle every corporate action yourself. And you'd pay trading commissions on every single buy and sell, which would probably cost more than the fund's management fee."

"Oh."

"The fees exist for a reason. The fund is doing work, they're just doing it efficiently enough that the fees are small. You're paying for convenience and automation."

"Fair enough."

Gold Ship closed her laptop. "Any other questions?"

The room was quiet for a moment.

Then Special Week raised her hand. "Why do you know all this?"

"I read a lot. And I like understanding how systems work." Gold Ship stood up and stretched. "Finance is interesting because it's all just information and incentives. Once you understand the incentives, the behavior makes sense."

"That was actually really helpful," Vodka said. "Thank you."

"No problem. Just don't tell anyone I gave useful advice. I have a reputation to maintain."

"What reputation?" Teio asked.

"Chaos."

"That's not a reputation, that's just who you are."

Gold Ship grinned and left without another word, laptop under her arm.

Teio looked at her check one more time, then carefully folded it and put it in her pocket. One hundred eighty-three million, one hundred and eight thousand yen. After taxes, something in the mid-90 millions. After keeping cash for emergencies, 83 million to invest. If Gold Ship was right — and Gold Ship was weirdly always right about these things — it could become somewhere between 230 and 460 million yen net after all taxes in twenty years, depending on how the market performed. More if the yen weakened. Less if it strengthened. A range, not a number.

Any of it was enough to never worry about money again.

"You're really going to do it?" Special Week asked, still looking worried.

"Yeah!" Teio jumped up, suddenly energized again. "I'm gonna be rich! Future rich! Long-term rich!"

"You're going to forget about it in a week and check it every day," Vodka said, not looking up from her notes.

"I will not!"

"You absolutely will."

From the corner, Suzuka turned another page. "The hardest part will be not panicking."

"I won't panic!" Teio declared. "I'm very calm! The calmest!"

McQueen finally looked up from her own notes. "You panicked when your shoelace came untied this morning."

"That was different! I had a fracture once!"

"Six months," Gold Ship shouted on her way out. "Don't check it for six months."

"Okay!"

"I'm serious, Teio."

"I KNOW!"

Six Months Later

Teio checked her account to find It was down 8%.

She stared at the number for a very long time. Seven-point-something million yen, just gone. The little graph on the Nomura website had a mean little downward slope and she'd refreshed it four times as if the number might change. 

"Don't." shouted Goldship appearing seemingly out of nowhere.

"I haven't even said anything yet!"

"You were going to ask if you should sell."

"...maybe."

"No."

"But it's down eight percent! That's like seven million yen that just—"

"It's a paper loss, you haven't lost anything yet. If you sell, you will have lost something."

"But what if it keeps going down?"

"Then it will eventually go back up."

"But what if it doesn't?"

"Teio."

"WHAT IF IT DOESN'T, GOLSHI?"

Gold Ship was quiet for a moment. "If you sell, I will personally walk to the NTA's offices and remind them that first-time winners frequently underreport deductible training expenses and that this might warrant a closer look at your filings."

The line went very quiet.

"...you wouldn't."

"I have their number memorized."

"WHY DO YOU HAVE THE NTA'S NUMBER MEMORIZED?!"

"Close the browser, Teio."

"...fine."

"Close it. Step away from the computer and go do something physical. The market does not care that you're watching it."

Teio closed the browser then went for a run — a long one, long enough that she stopped thinking about the graph and the little dot. By the time she got back she was too tired to care about seven million paper yen.

She didn't check again for another fourteen months.

By then it was up nineteen percent. She left it alone. She hired an accountant just as Gold Ship had suggested and dug up the receipts and invoices for her past purchases, mostly anyway. Her accountant called again and again about the missing documents, scolding her that without them he could not justify the entries on the books. She found most of them eventually. The ones she couldn't find she let go.

For the next twenty years, the money sat there doing exactly what Gold Ship said it would do. She checked it maybe once a year, on the Nomura site, for exactly as long as it took to confirm the number was larger than the last time. Then she closed the browser and went back to her life.

By December 2023, the 83 million yen had become approximately 750 million yen before tax.

The S&P 500 had gone from around 840 when she bought in to 4,769 at the close of the year — roughly a 5.7-fold gain in price alone, or about 8 times over with dividends reinvested. Then the currency had moved. She'd bought in at 119 yen to the dollar. By the time she sold, it was 141. That extra yen depreciation had added roughly 18 percent on top of the dollar return, all of it invisible until the moment of conversion. Gold Ship's 10-percent scenario had estimated somewhere north of 460 million net. The actual number before tax was 750 million, because the yen had spent twenty years quietly weakening in a way nobody had predicted in 2003.

She sold it. She paid 136 million yen in capital gains tax — 20.315 percent of the 667 million yen gain, which had been Japan's flat rate on listed securities since 2014. She walked away with 614 million yen net.

Total taxes across twenty years — income tax on the prize money, dividend tax on annual distributions, and the final capital gains tax at the end — came to well over 200 million yen. The government got its share. She got hers. She sat in front of the Nomura screen for a long moment after the transaction cleared, the final balance sitting there in clean digits, doing nothing.

Gold Ship never called the NTA. Probably.