mpf fund performance in the red: what 2011 taught Hong Kong workers

By the end of 2011, full-year mpf fund performance was in negative territory — the worst showing since the 2008 financial tsunami. Lipper data shows the MPF system had endured two deep troughs in its eleven years: a 26% plunge in 2008 followed by a 26% rebound the next year, and back-to-back losses of over 14% in 2001–2002, after which — just as most people fled into conservative or guaranteed funds — the system surged 20% in year three. History keeps proving the same point: markets are unpredictable, and recoveries from the lows often arrive astonishingly fast.

When your MPF is losing money, should you switch to a conservative fund?

When MPF returns turn negative, the worst move is trying to time the market; the right one is to keep contributing monthly through dollar-cost averaging, in line with your goals and risk tolerance. When markets consolidate, the same contribution buys more fund units, lowering your average cost — over a decade or more, that discipline weathers short-term volatility better than any lump-sum bet.

Why keep contributing when markets keep falling?

MPF’s monthly contributions are dollar-cost averaging by design: you buy fewer units when markets rise and more when they fall, smoothing your cost over time. It is Warren Buffett’s “be greedy when others are fearful” in practice — those who dismissed quantitative easing after Lehman’s collapse missed the market’s violent rebound the following year. Even HSBC languishing at HK$38–40 looked hopeless at the time, yet in hindsight it was just one wave in a long river. Nervousness amid global uncertainty is human, but shifting all accrued benefits from equity to conservative funds crystallises paper losses and forfeits the chance to buy low.

How to position for 2012

Forecasts for 2012 were all over the map — heaven and hell — but global markets do not stay stormy forever. Rather than guessing tops and bottoms, use the new year to review last year’s MPF returns, reposition to your goals and risk capacity, and stay invested. Compare long-term fund data at browse MPF funds or read the strategy guides in the MPF education hub.