MPF in a downturn: don’t crystallise losses at the bottom

Eleven years after launch, MPF’s annualised dollar-cost return to end-June 2011 was still nearly 2% positive. But August 2011’s crash saw European equity funds fall 10.98% and China equity funds 10.12% in a month — every equity category in the red, with only global and Hong Kong-dollar bond funds positive.

Should you sell out in a falling market?

No — don’t crystallise losses at the bottom. Convoy’s managing director Rosanna Choi said markets had already fallen a long way; selling now turns paper losses into real ones. Holders of equity-heavy portfolios should keep their existing allocation and wait for recovery.

What should you do with new contributions?

Park new money in conservative funds and buy dips later. Choi suggested directing fresh contributions into steady parking funds (conservative funds), then switching into equity funds when the time is right. She favoured Asia over the US and Europe, which she saw entering a long economic lull.

What if retirement is near?

Gradually raise bonds to 70% and cut equities to about 30%. But mind the timing: “near retirement” means 2–3 years away — those with five years to go should not turn conservative too early; and rebalancing should be gradual, trimming equities and adding bonds on rebounds.

When choosing funds, check how they held up in past downturns and the manager’s quality. Compare fund track records with MPF fund search.