[New NISA] Ryo "God King" Explains "Why I Don't Buy Mutual Funds" | The Pitfalls of Index Investing and a Professional's View of the Future

Are you thinking, “Now that the new NISA program has started, I’ll just buy some popular mutual funds (index funds) for peace of mind”?

Ryo Shinoh, a professional investor who is also active in the media, has sounded the alarm, stating, “I generally don’t buy mutual funds. Index investing can also be risky, depending on the circumstances.”

Why Do Professional Investors Avoid Mutual Funds?
What factors have driven the rise in stock prices over the past 10 years, and what are the “pitfalls of index investing” lurking in the new NISA era?

In this article, we’ll clearly explain the risks of mutual funds and the differences in investment strategies as pointed out by Ryo, the “God of Investing,” as well as the practical investment approach that beginners and intermediate investors should adopt when starting to manage their assets under the new NISA program.

The Fundamental Differences Between Mutual Funds and Index Funds

When starting to invest, people often confuse “index funds” with “general mutual funds (such as actively managed funds).” Mr. Shinohara states that it is
first necessary to clearly distinguish between these two.

Characteristics of Index Funds

These are financial products designed to track the price movements of specific market indices, such as the Nikkei 225, the S&P 500, and the All-Country Index.

• Because it is operated
  under a merit-based system, the fees (trust management fees) are very low.
• Even beginners with little
  knowledge of the target market can easily achieve performance on par with the market average.

Characteristics of Active Mutual Funds

This is a financial product in which investment professionals—known as fund managers—carefully select and trade securities with the goal of achieving returns that exceed the market average.

• Disadvantages
  : Because of labor and research costs, trust fees (commissions) are set relatively high.
• Performance is heavily influenced by the skill and market insight of
  the hedge fund manager.

Mr. Kamio has taken a clear stance, stating, “Index investing is a viable option as long as the necessary conditions are met, but you should generally avoid actively managed mutual funds, which have high fees and unstable returns.”

“The Essence of Index Investing,” Explained by Ryo, the God-King

In recent years, the notion that “you can’t go wrong by simply investing in the S&P 500 or an all-country index” has become widely accepted as the ultimate strategy for index investing.
However, not many people understand the structural reasons behind why index investing has delivered such strong results over the past 10 years.

Mr. Kamio points out that there were “three major environmental factors” behind the steady upward trend in U.S. stocks over the past 10 years.

1. Corporate Share Buybacks
   : U.S. companies had been buying back their own shares on the market to prop up the price and increase the value per share.
2. Large-scale monetary easing by the central bank led to a massive influx of funds
   into the economy (creating a surplus of money), and those funds flowed into the stock market.
3. With low interest
   rates, it was easy to raise capital, creating an environment conducive to corporate growth.

In other words, the rise over the past 10 years was not driven solely by “corporate performance”; rather, it was largely bolstered by global financial and environmental factors.

We need to take a level-headed view of the fact that “just because the past 10 years have seen steady growth, there’s no guarantee that the same conditions will continue over the next 10 years.”

Three Reasons Why “God King” Ryo Doesn’t Buy Mutual Funds

It appears there are three structural reasons why Mr. Shinohara, a professional investor, avoids purchasing conventional mutual funds.

Reason 1: Trust fees (commissions) continuously erode assets

With mutual funds, a fixed “management fee” is charged annually simply for holding the fund, regardless of whether the fund’s performance is positive or negative.
Continuing to pay a fee of 1% to 2% per year over the long term is a major negative factor that significantly hinders the power of compound interest.

Reason 2: Lack of transparency regarding the fund manager’s capabilities and organizational structure

Even though these funds are managed by professionals, there can be significant differences in the individual abilities of fund managers.
Furthermore, even if a fund has a strong track record, there is a risk that the manager may have changed or that the fund’s investment strategy may have shifted.
Entrusting your valuable assets to products where “it is difficult to see who is managing them and how” is considered a high-risk move.

Reason 3: When the entire market declines, there’s no way to protect your investments

Even with mutual funds managed by professionals, their prices will still fall when the overall stock market crashes.
There is basically no guarantee that “professionals will skillfully prevent such a decline.”

The Key Difference Between Beta and Alpha Operations

In the world of investing, there are two investment strategies known as “beta (β) investing” and “alpha (α) investing.” Understanding
the difference between them reveals the limitations of mutual funds.

Investment Style	Overview	Behavior During Market Downturns	Primary Target Audience
Beta (β) Operation	Investment strategies that aim to track the overall market (index)	If the market falls, it will fall just as much.	A wide variety of mutual funds and index funds
Alpha (α) Management	Aiming for “absolute returns” regardless of market fluctuations	Aiming for a Profit Even When the Market Falls	Hedge funds, etc.

Most conventional mutual funds employ “beta-based investing.”
For example, if the Nikkei 225 rises 5% and the fund rises 5.1%, it is considered a strong performer; however, if the Nikkei 225 falls 20%, the fund will also fall by about 20%.

Mr. Kamio points out that “investment trusts, which are in beta operation, will not protect individual investors’ assets when a bear market hits.”

Points to Keep in Mind When Choosing Mutual Funds Under the New NISA

More and more people are starting regular investment plans by taking advantage of the new NISA (tax-exempt investment program), which launched in 2024; however, when selecting mutual funds under the new NISA, it’s important to be aware of “a critical前提.”

The point is that the moment the assumption that “stock prices will continue to rise steadily over the long term” is proven wrong, even index investors will find themselves saddled with unrealized losses.

If U.S. and global stocks remain flat (in a range-bound market) or enter a long-term downtrend over the next 10 or 20 years, even if you’re investing regularly using dollar-cost averaging, there will be a long period during which your assets won’t grow.
It’s dangerous to invest a large portion of your assets based solely on the overly optimistic belief that “if you just buy now, you’re sure to make a profit in the future.”

A Realistic Investment Approach for Beginners to Adopt Going Forward

So, how should beginners who want to start building their wealth approach investing?

Based on Mr. Shinohara’s advice, I have put together a practical action plan.

Dollar-cost averaging with small amounts is a valid “learning opportunity”

Setting aside a manageable amount each month—ranging from a few thousand to a few ten thousand yen—is an extremely beneficial way to develop a feel for market fluctuations and price movements.

Avoid putting the majority of your income into mutual funds

It’s far too risky to pour a large portion of your available funds—such as a quarter or half of your monthly income—into mutual funds simply because “everyone else is doing it.” Always consider the balance between your
investment portfolio and your emergency fund.

Never neglect “learning about investing” by thinking for yourself

The attitude that “it’s safe to leave it to financial professionals or AI” doesn’t hold water in the world of asset management. The only way to protect and grow your assets over the long term is to take the initiative to study
economic mechanisms, corporate financial statements, and how to read charts—and to develop your own judgment.

Summary: The Risk That Successes from the Past Decade Won’t Hold Up in the Next Decade

In the world of investing, there is a principle that “past performance is no guarantee of future results.”

• The past decade
  was the “golden age of index investing,” supported by low interest rates, monetary easing, and share buybacks.
• Given the changes in interest
  rates over the next 10 years and the uncertainty surrounding the global situation, it is unclear whether the upward trend seen in the past will continue.

There is certainly nothing wrong with using the new NISA to make regular investments.
However, it is important to think critically about questions such as “Why have stock prices risen in the past?” and “Will these conditions continue in the future?” and to proceed with asset management only after fully understanding the risks involved.