Disappointed by MPF returns? Avoid the three great enemies of investing

This article is a rewrite of a report from August 2012.

MPF drew constant fire for poor returns — even earning the nickname “MPF loses money”. But why do some steadily build wealth while others can’t preserve capital? A Towers Watson consultant wrote then that MPF returns often hinge on dodging three great enemies.

Enemy one: impatience

MPF is long-term investing, not short-term trading. Many members are hasty and speculative; when short-term results disappoint, they declare the system broken and ignore long-run compounding. Next to single stocks, MPF funds look “dull” with smaller swings — but on risk-adjusted returns (return per unit of risk; higher is better), diversified fund portfolios mostly succeed at spreading risk.

Remember: risk tolerance comes first when managing your portfolio; performance is often fleeting — “past performance is no guarantee of future results”. Don’t neglect the account just because monthly contributions look small; small sums plus compounding need time to work.

Enemy two: laziness

Neglect is the biggest risk. Many are too busy or too lazy to manage their MPF. Fund managers run the funds, but choosing the right mix and reviewing it regularly remains your job. Check the account and related information on a schedule.

Enemy three: prejudice

Having lived through the dot-com bust, SARS and the financial crisis, many members with loss-making experiences assume MPF returns must lag and fees must be high. That’s mostly prejudice and hearsay.

Whether fees have room to fall is a fair debate; but MPF operations carry monthly-contribution and statement-printing admin costs that don’t compare directly with other tools. The numbers spoke: from launch in 2000 to June 2012, MPF’s annualised return was 2.7%, above the 1.2% annualised composite CPI change — average returns beat inflation.

Dodge the three enemies, invest reasonable care and time, and MPF can deliver solid protection at retirement — perhaps even a surprisingly comfortable one.