Three moves against inflation: protecting your MPF’s purchasing power

In July 2011 Hong Kong inflation hit 7.9%, a 16-year high. Inflation is like a tiger — blink and it devours you. With prices rising and purchasing power falling, how could workers protect MPF returns from being eaten away? The “MPF Eagle Eye” column offered three basic moves.

Move one: think long-term

Retirement money is long-term money — exploit MPF’s long horizon. Young members, decades from retirement with higher risk tolerance, could run more aggressive strategies with heavier equity weightings for potential returns; the nearer retirement, the more conservative the strategy should become, gradually raising bond and cash weightings to dampen volatility’s impact.

Move two: dollar-cost averaging

No need to follow the market. Fixed monthly MPF contributions buy more units at lower prices in downturns, stabilising returns. Casual fund-switching risks drifting from the original strategy and backfiring — members who moved from Hang Seng index funds to conservative funds in early 2009 missed the index’s subsequent 40%-plus rally.

Move three: contribute more

Harness compounding. A 22-year-old earning HK$10,000 who raised the contribution rate by 2.5% (HK$250 a month) could end up with about HK$1.2 million more at retirement than contributing 5% alone, assuming 10% annual returns over 40 years.

How many of the three are you doing? Review your MPF mix with MPF fund search.