KP Cheng: MPF Is Long-Term — Miss the 5 Best Days and You Lose Half Your Return

The Hang Seng Index jumped 700 points in two days toward 25,000 — tempted to move 100% of your MPF into Hong Kong equities? Fidelity Hong Kong managing director KP Cheng warns: timing the market is impossible; MPF is long-term, don’t let short-term noise shake your plan.

How costly is missing the best market days?

Miss 5 days, lose nearly half. HK$10,000 invested in the Hang Seng in 1990 and left alone grew 14-fold to HK$144,000 by end-October 2010. But switching along the way and missing the 20 years’ 5 best up-days nearly halves the return to HK$74,000; missing the 10 best days leaves just ~30% — HK$48,000.

Why does “stop-loss” switching backfire?

Markets are forward-looking: by the time things look worst, the bottom is in; rebounds typically precede official recovery data. When most people finally see the rally, the best days are gone. Workers flipping between “in on rallies, out on falls” end up with far lower cumulative returns. Those near retirement especially shouldn’t go all-in on equities — a reversal wipes out retirement income.

How does dollar-cost averaging help?

No market timing needed. Invest a fixed sum regularly whatever the price: buy more units when cheap, fewer when dear, while earlier units appreciate — lowering risk. MPF’s regular fixed contributions are exactly dollar-cost averaging. At the time there were 39 schemes with 403 constituent funds in six categories: conservative, guaranteed, bond, mixed, equity and others (e.g. target-date funds). Your allocation should follow your risk tolerance and years to retirement. Learn the fund types at MPF fund comparison.