Should you switch MPF funds when markets turn volatile? What long-term MPF fund performance tells us

At lunchtime, the bank branch near the office was packed, every head tilted up at the Hang Seng Index. The 2011 European debt crisis had set global markets swinging, and a colleague who had never touched stocks was getting nervous: with MPF fund performance dented by the sell-off, should he cut his equity fund holdings to stop the bleeding?

Should you switch MPF funds when markets are volatile?

When markets turn volatile, members should not rashly switch their MPF investment mix because of short-term movements. The MPF is a long-term investment: regular monthly contributions harness dollar-cost averaging — when fund prices fall, the same contribution buys more fund units, which helps average down costs and ride out short-term volatility over time.

Dollar-cost averaging works like this:

1. Contribute a fixed amount each month, buying MPF fund units at the prevailing price.
2. When fund prices rise, the contribution buys fewer units.
3. When fund prices fall, the same amount buys more units.
4. When markets recover, the larger holding of units delivers a better return.

The MPF has weathered storms before

Over the previous 10 years, Hong Kong lived through the 2003 SARS outbreak and the 2008 financial crisis — yet MPF fund performance across the system still averaged 5.5% a year, according to the MPFA, showing the MPF could withstand those storms and grow members’ contributions. Like any investment the MPF is not risk-free, but short-term price swings are no reason to switch.

When to review your mix

That is not an excuse never to adjust. Members should consider changes in personal circumstances — risk tolerance, years to retirement — review their portfolio regularly, and adjust as needed. The key: let life-stage changes, not market headlines, drive the decision.

For the basics of MPF investing, see the MPF education hub.