University students’ first MPF battle: is 100% Hang Seng Index Fund wise?

This article is a rewrite of a report from September 2012.

Many university students worked part-time, some holding multiple MPF accounts they never managed. Two students shared their portfolios, with guidance from an AIA Pension and Trustee executive — John’s case even touched on MPF voluntary contributions.

Can youth carry the risk? John’s 100% Hang Seng Index Fund

A fresh HKUST mechanical engineering graduate, John backed his youth and risk tolerance: 100% in the Hang Seng Index Fund, about HK$1,000 a month in contributions, planning to add lower-risk global bonds only at 30.

While many felt MPF was too restrictive and fee-heavy versus buying stocks directly, experienced investor John disagreed: “A well-managed MPF account is a decent investment for retirement; I’ll add voluntary contributions when I have spare cash.”

A government-department part-time job during his studies had the same all-HSI mix, though he once rotated contributions to a China equity fund when the index ran hot. His current employer used Bank of China as trustee; he planned to move the employee portion to a lower-fee trustee later.

Expert advice: watch the volatility when betting on Hong Kong stocks. The executive said mandatory contributions alone wouldn’t fund retirement — voluntary top-ups helped — but check affordability and mechanics: at AIA, extra contributions started at HK$300 a month, could stop anytime, with four balance-withdrawal chances a year.

On John’s all-in HSI position: Hong Kong equity funds gained 5.5% in the first eight months of 2012 but lagged global equities’ ~7%; over ten years, Hong Kong funds rose nearly 1.8x versus global equities’ 83% — bigger swings either way.

Why did Isa’s part-time MPF accounts go unreviewed?

Isa, a third-year textiles and design student at PolyU, had held four part-time jobs and, like most students, barely touched her MPF. A summer sales job contributed about HK$600 a month, split 50/50 between a Fidelity Asia-Pacific equity fund and an international bond fund — “I knew little about investing and never read the prospectus; I asked colleagues.”

An AIA account from a job two years earlier held 28% Hong Kong equities, 21% MPF conservative fund and 16% stable capital portfolio — mediocre performance. “The balances were too small to matter, so I never reviewed them,” she said, preferring to buy stocks herself rather than pay fees.

Expert advice: judge funds over the medium to long term. The executive advised consolidating her preserved accounts first. Under semi-free choice from November, Isa could move current employee contributions plus preserved balances to a chosen trustee — but only once per calendar year, so choose carefully.

Consider fund breadth, overall performance, platform usability and fees. Don’t judge on one or two years: look medium to long term — three to five years is medium, ten is long. “For someone Isa’s age, far from retirement, the stance can be more aggressive.”

On fees, don’t just chase management-fee promotions — watch the fund expense ratio: total expenses as a percentage of assets. Lower is better; don’t let costs eat returns.