How to Grow Money Through Investing: An Honest Discussion on Why It's Different from 'Earning'

1. Introduction

This is Matsumoto. This is the 9th installment of a series where I take up ‘ways to earn’ one by one like an encyclopedia, explaining them in the same format: difficulty, initial cost, realistic earnings, how to start, and points to note.
This time, the nature of the topic is a bit different: ‘Investing (New NISA/Index Investing).’ The previous eight installments were about ways to get money by ‘working, selling, and creating,’ but investing is a way to ‘have your money work for you.’ First, I will draw the most important line: investing is not income. There is no guarantee of principal, no guarantee of growth, and it is normal for it to decrease in the short term. With that premise, I will honestly explain the reality of it as a ‘way to grow money.’ Note that this article is an explanation of general mechanisms and does not recommend the purchase of any specific products.

2. What kind of method is it?

What we are dealing with here is ‘accumulation investing,’ where you continue to buy a fixed amount of investment trusts every month. Among these, the current standard approach is to hold low-cost investment trusts (index funds) that track stock indices in an account under the tax-exempt New NISA system.

• New NISA: A system where profits obtained from investments (capital gains and dividends) are tax-free. Taxes that would normally be around 20.315% are zero within the New NISA framework. The annual investment limit is 3.6 million yen (1.2 million yen for the accumulation investment quota + 2.4 million yen for the growth investment quota), the lifetime tax-exempt holding limit is 18 million yen (of which up to 12 million yen can be for the growth investment quota), and the period for which you can hold tax-free is indefinite (a system that started in 2024).

• Index Fund: An investment trust that tracks indices such as the Nikkei 225, S&P 500, or global stocks. For example, with a representative fund that tracks global stocks, you can diversify your investment into stocks around the world with just one product, and the holding cost (trust fee) is kept very low at around 0.06% per year.

The secret to how it grows is ‘compound interest + time.’ By reinvesting the profits obtained from management, the profits generate further profits. However, this only becomes effective over units of 10 or 20 years, and for the first few years, it will produce almost nothing more than the ‘size of the accumulated principal.’

Even if it is called ‘investing,’ short-term trading of individual stocks, FX, and short-term trading of crypto assets are completely different in nature. I will not cover them in this article. In particular, short-term trading is closer to ‘gambling’ than ‘growing,’ and I have judged that it is not compatible with the honest approach of this encyclopedia.

3. Who is it for / Who is it not for?

People it is for

• People who have surplus funds. It is a prerequisite that you can separate this from living expenses and money you plan to use in the near future.

• People who can think in terms of money they won’t use for at least 10 years. The time axis for investing is in years.

• People who can refrain from selling even if the price drops. There will definitely be declines along the way.

People it is not for

• People who are trying to use money they will need soon (rent, tuition, large expenses within a few years).

• People who ‘want to increase it by next month.’ Short-term price movements cannot be predicted.

• People who are trying to invest by borrowing money. This is not investing, but a dangerous gamble.

4. Difficulty, Initial Cost, and Speed to Grow Money

• Difficulty: Low to Medium. The procedures for opening an account and setting up accumulation are not difficult themselves. What is difficult is the part about ‘continuing without changing settings even during a crash,’ which is a matter of mindset, not technique.

• Initial cost: From a few thousand yen per month. Opening a securities account is free, and there are companies where you can accumulate investment trusts from 100 yen per month. You don’t need a large amount of capital, but there is a natural proportional relationship where the amount that grows is small while the capital is small.

• Speed to growth: The slowest in this guide. The effects are visible on a 10-year scale. This is not a method for those seeking ‘speed’.

5. The Reality of Returns

This is the most important part, so I will write it without exaggeration.

First, let’s look at a simulation. Suppose you invest 30,000 yen per month for 20 years at an assumed annual return of 5% (the long-term historical return of global stocks is often cited as being around 5% per year).

• Total principal invested: 30,000 yen × 240 months = 7.2 million yen

• Valuation after 20 years (at 5% annual return): approx. 12.33 million yen

• Difference: approx. 5.13 million yen

However, this is a theoretical calculation assuming a steady 5% increase every year. In reality, the market fluctuates, and there is no guarantee that future returns will be 5% per year. This is merely a simulation to show how compound interest works.

Next, let’s look at the reality of the early stages. Even with the same 30,000 yen per month at 5% annual return, the total investment in the first year is 360,000 yen, and the growth from returns will not even reach 10,000 yen. In other words, in the early stages of investing, the effect of ‘saving’ is almost everything, rather than the effect of ‘growing.’ Investing starts to take effect only after the accumulated balance becomes large; until then, the growth of your assets is almost entirely due to the power of your contributions from labor income. ‘Earning solely through investing’ is a story for those who already have a large amount of capital.

I should also talk about market declines. In the past, there have been periods during major crises when the valuation of the stock market dropped by as much as half. It is possible that your balance, after 10 years of investing 30,000 yen per month, could temporarily drop by hundreds of thousands of yen. If you panic and sell at that time, you lock in your losses. ‘Do not sell even if it drops, and do not stop contributing’ is almost the only technique for this method, and it is the most psychologically difficult part.

In summary, the reality of investing is as follows:

• Short-term (a few years): It’s basically just saving. Even if it grows, it’s within the margin of error, and there are years when it decreases.

• Medium to long-term (10–20 years): Compound interest begins to take effect, and the difference from the principal may become visible.

• Things that can happen at any time: Temporary significant declines. The possibility of ending with less than the principal is not zero.

6. Steps to Get Started

1. Separate your emergency fund first. As a guideline, keep several months’ worth of living expenses in a separate savings account, not in investments. Until you have done this, you are not at the stage to start investing.

2. Open a new NISA account at a brokerage firm. Opening an account is free. Since each person is limited to one NISA account and changing financial institutions requires a yearly procedure, it is common to choose based on fees and product selection, such as online brokerages.

3. Consider starting by buying ‘low-cost index funds’. Candidates include funds that track indices like global stocks or US stocks and have an annual trust fee significantly below 0.1%. Since costs are guaranteed to be deducted, this is the only number you can control when returns are unpredictable.

4. Set your monthly investment amount to an ‘amount you can comfortably afford’. Set it up for automatic withdrawal on payday, and prioritize not stopping it midway. You can always increase the amount later.

5. Do not watch price movements too closely. Checking daily only leads to poor decision-making. Checking once a month or a few times a year is sufficient.

6. Share the premise with your family. Make sure everyone who shares the household budget understands the premise that ‘this is money we do not plan to use for at least 10 years, and it may temporarily decrease significantly’.

7. Check system changes through official sources. NISA limits and conditions are subject to change. The Financial Services Agency’s special website is the primary source of information.

7. Points of Caution, Common Mistakes, and How to Spot Suspicious Schemes

Investment scams come disguised as ‘ways to grow your money’.
Social media-based investment scams are seeing a rapid increase in victims, with National Police Agency statistics estimating annual damages exceeding 100 billion yen. The Financial Services Agency has also issued warnings regarding fake advertisements impersonating securities companies and celebrities. The way to spot them is clear.

• Promising ‘principal protection,’ ‘guaranteed profits,’ or ‘monthly returns of X%’ → There is no such thing as principal protection for stocks or investment trusts. Once these words are used, it is either a scam or illegal solicitation.

• Solicitations from people met on social media or LINE groups, or advertisements using photos of celebrities → These are typical entry points.

• The deposit destination is a personal bank account, or you are told to ‘pay fees or taxes first’ when trying to withdraw → This is the final stage of a typical scam.

• The firm you are dealing with cannot be found on the Financial Services Agency’s list of registered businesses → Do not trade with them.

Common Mistakes

• Investing money needed for living expenses or near-term use, forcing you to sell during a market downturn when you need the cash.

• Being unable to withstand a decline and selling at the bottom, then jumping in during a rise and buying at the top (repeatedly selling low and buying high).

• Buying high-fee products (such as monthly dividend funds or funds with trust fees exceeding 1% per year) without understanding how they work.

• Thinking that ‘if I don’t use up my NISA limit, I’m losing out,’ and rushing to invest an unreasonable amount. While annual limits cannot be carried over to the next year, the lifetime limit of 18 million yen does not decrease just because you don’t use it.

A note on this article itself
What I have written here is a general theory of how things work. Which products you should buy depends on your income, family structure, and timing. If you are unsure about major decisions, consulting an independent professional who does not earn money from sales commissions is also an option.

8. Summary + Next Preview

Investing is the only method in this guide to ‘grow assets independently of labor,’ but at the same time, it is the slowest method and one with no guarantees. A monthly investment of 30,000 yen is essentially just savings in the first year, and it is only after 20 years of continuing that you begin to see the effects of compound interest. ‘Earning power (Parts 1-8)’ and ‘Growing power (this part)’ are not opposites but two wheels of the same cart, and the honest order is ‘earn and save first, then invest the surplus.’ Just be sure to avoid anything that mentions principal protection without exception.

Next time, we will cover “how to earn money through live streaming.” It is a world similar to, yet distinct from, video posting, where income is determined by tips and ranking systems. I will honestly explain the mechanics behind those numbers.