MPF equity fund returns reward the patient: don’t dump stocks in a slump

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

With the eurozone debt crisis unresolved and the global economy uncertain, short-term volatility was expected. But an MPF business development director at a financial advisory firm cautioned: MPF is a long-term investment — market headlines move stocks only in the short run, and members shouldn’t reshuffle portfolios in a panic.

What’s the cost of selling low?

Take the Hang Seng Index: it gained 5 per cent in the first half of 2012 but swung 3,494 points between high and low along the way. Anyone who dumped all equity exposure in the dip would have missed the subsequent climb. Over the previous decade, MPF’s cumulative return was still about 59 per cent, beating inflation.

How should MPF equity fund returns be positioned?

His advice was to allocate by years to retirement:

He acknowledged the criticisms — MPF had lagged the market since its launch, and mandatory contributions forced even non-investors to be “invested”, with members losing over HK$10,000 in the past year through no action of their own. But precisely because it is long-term, short-term swings shouldn’t trigger constant switching.