MPF fund performance crashed in Q3 2011: three self-defence moves for members

As of the end of September 2011, MPF fund performance had just suffered its worst quarter on record, with the scheme down 12.25% — an estimated HK$19,000 wiped off the average account. Unlike a retail monthly stock plan, MPF contributions cannot simply be paused when markets crash. What could members do? Experts at the time offered three self-defence moves.

Can you stop MPF contributions during a crash?

No. MPF contributions are statutory: employees and employers must keep paying a share of income every month, however ugly markets look. Experts argued members should focus on the three things they could control instead: where new contributions went, when to withdraw, and whether to ditch persistently weak funds.

The three moves

1. Redirect new contributions to safer havens. Equity funds were the epicentre of the losses, so members could steer fresh money into bond funds, which were holding up far better. But experts warned against dumping all equities for bonds — switching means selling equity funds at depressed prices, which can easily do more harm than good.
2. Retirees could delay withdrawals. Members aged 65, or those qualifying under the five statutory early-withdrawal grounds, were entitled to take their money — but cashing out in a deep slump locks in the losses. Deferring the claim, where possible, avoided shrinking the pot at the worst moment.
3. Cut loose hopelessly weak funds. Dollar-cost averaging smooths out market swings, but it is no miracle cure. Lipper data showed Japanese equity funds down more than 8.06% over the previous decade while MPF overall gained nearly 60% — in a market stuck in long-term decline, averaging down only deepens the hole. Better to redirect new money to equity funds with brighter prospects than to bet on a dead rebound.

Is dollar-cost averaging foolproof?

No. Its “little-by-little” compounding magic only works in markets that trend upward over the long run. In a market lost for a decade, like Japanese equities then, it simply averages members into bigger losses — which is why careful fund selection mattered most.

Compare MPF funds by fees and returns with the MPF fund comparison tool.