After a full year in the markets, it is time for the annual ritual every MPF member should do: portfolio rebalancing. Why does it matter so much, and what are the steps? Here is a practical walkthrough.
Why Rebalance? Look Forward, Not Back
Different asset classes move at different speeds. Over twelve months, the winners swell beyond their original allocation and the laggards shrink, so a portfolio quietly drifts away from the risk profile its owner signed up for. Left alone, the portfolio ends up over-concentrated in whatever did best last year.
Rebalancing means buying and selling funds to restore the original asset mix. It does two things: it brings the portfolio’s risk-and-return character back in line with your long-term goals, and it stops you from piling ever more money into last year’s winners.
Many investors make rebalancing a backward-looking exercise — basking in past glories or brooding over last year’s mistakes. Reviewing the year is useful, but the real point of rebalancing is forward-looking: when setting your strategic weights, consider not only your own risk appetite but also the market outlook for the year ahead.
The Five Steps at a Glance
| Step | Action | How |
|---|---|---|
| 1 | Set a target weight for each asset class, based on your risk appetite | Start from the MPF fund categories: money market, guaranteed, bond, mixed-asset, equity and others. Equity can be split further by region — US, Europe, Japan, Asia-Pacific, Hong Kong and mainland China |
| 2 | Calculate the current market value of each category | Add up all funds in the same category |
| 3 | Work out each category’s actual weight | Divide its value by the portfolio total |
| 4 | Compare actual weights with target weights, then top up or trim | Reduce overweight classes, add to underweight ones, restoring the original mix |
| 5 | Too many accounts? Consolidate | Use the Employee Choice Arrangement to consolidate accounts into two or three MPF providers for easier management |
What It Means for Members
The biggest misconception is treating rebalancing as a market-timing game of chasing winners and dumping losers. It is the opposite: the discipline of rebalancing forces you to sell what has risen too far and buy what has lagged — a mechanical “buy low, sell high” that takes emotion out of the decision.
Another misconception is that rebalancing means switching horses — swapping into the latest hot fund. True rebalancing does not change your long-term strategy at all. You keep the same funds; only the weights change.
Action List
- Pull out your annual statement, list the current value of each asset class and calculate the actual weights
- Compare with your original target weights and spot the biggest drift
- Buy and sell to restore the target mix
- Accounts scattered across providers? Consider consolidating into two or three via the Employee Choice Arrangement
- Record this year’s target weights, and repeat the exercise at the same time next year
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