How to choose the right MPF funds: ask yourself three questions

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

(Note: parts of the original text were garbled; they have been conservatively reconstructed from context.)

Many workers know little about fund investing — picking on tips, at random, or not at all. But MPF is a major part of retirement assets and deserves serious thought. Three questions to find the right fit.

How to choose MPF funds, question 1: how many years until retirement?

The closer to retirement, the less investment risk you should take, to avoid market swings causing losses you cannot recover. Near-retirees should lean conservative; young workers with 30–40 years ahead can choose bolder portfolios and let long-term compounding work.

How to choose MPF funds, question 2: what lifestyle do you want in retirement?

It ranges from daily feasts and multiple holidays to a simple life — and the required savings differ enormously. 2011 government statistics put male life expectancy at 80 and female at 86; retiring at 60 means funding 20 years for men and 26 for women.

Many trustees offer accrued-benefit calculators to project your MPF wealth, factoring in assumed returns and inflation. If the projection falls short, consider a bolder mix — and don’t forget medical costs rise with age; if your spouse doesn’t work, budget for two.

How to choose MPF funds, question 3: what other retirement savings do you have?

Mandatory MPF contributions should be only part of retirement reserves. If you already save, invest, hold insurance, or invest regularly, your MPF mix need not be overly aggressive.

How to match funds to your risk appetite?

Broadly: conservative, guaranteed, money-market and bond funds sit at the cautious end with lower risk; equity and index-tracking funds, invested across stock markets, are bolder with higher potential risk. Even within a category, risk varies with the actual portfolio and markets — read the principal brochure and fund fact sheet.

Two final tips: don’t put all eggs in one basket — mix funds across categories and markets to diversify; and review regularly — finances and burdens change, so no single portfolio lasts forever. Consider voluntary contributions too, letting small monthly sums compound.