All-in-one products and services are trend-setters and popular among modern urbanites. They are particularly suitable for wage earners leading a hectic life in Hong Kong. Take air fryers as an example. Air fryers have become a popular kitchen gadget in recent years. As a small drawer-like box with multiple cooking functions, an air fryer can meet the many different dietary preferences of friends and relatives. In fact, the “all-in-one” merits exist not only in home appliances and entertainment products, but also in MPF as a retirement investment. Whether it is about the selection of constituent funds, the voluntary contribution arrangements or the transparency of fees, members will find their needs met by one solution.
Diversified asset classes: Investments and savings can take many forms. For savings, what instantly comes to the mind of most people are current and time deposits and insurance policies with savings element. As for investments, most people would think of stocks, unit trust funds and so on. In fact, MPF can become your ideal partner in retirement investment. With just one account, you can invest in MPF constituent funds of different asset classes (including stocks, bonds, hybrid funds, cash, etc.) at different risk levels in markets around the world. It is both convenient and flexible. However, you should note that the mandatory contributions in an MPF account can be withdrawn only when members reach the retirement age of 65 or qualify for early retirement. Members need to regularly adjust their investment portfolios based on market conditions and their needs at different stages of life, contrary to time or saving deposits where money is put in the account to receive interest payments automatically.
Additional voluntary contributions to bridge savings gap: MPF is one of the important pillars when it comes to retirement savings. Nevertheless, the mandatory contributions at 10% alone are unlikely enough to cover retirement needs. According to the Mandatory Provident Fund Schemes Authority’s calculation based on an Organisation for Economic Co-operation and Development report, if members rely solely on mandatory MPF contributions as a saving tool to recover all their retirement needs, after 40 years of mandatory contributions calculated at the median domestic income, the reserves available for monthly withdrawal upon retirement would be equivalent to only 34% of their previous monthly salary1.Therefore, we could actively consider making additional voluntary contributions, such as special voluntary contributions (SVC) and Tax Deductible Voluntary Contributions (TVC). Members can make voluntary contributions flexibly without going through their employers. Contributions can either be made on a monthly or a one-off basis, with an amount as low as just several hundred dollars. The withdrawal of SVC is also highly flexible and members can withdraw the funds as needed at any time, without reaching the age of 65 or qualifying for early retirement. Alternatively, members can make TVC which are entitled to tax deductions, but they cannot withdraw the funds until they reach 65 or qualify for early retirement. Of course, investment involves risks and market fluctuations. Members are advised to choose the best investment vehicles based on their preferences.
Transparent fees and low threshold of voluntary contributions: It is the ultimate goal of many individuals to buy a home. Given that accommodation is a necessity of life, properties can be something to rely upon for retirement. However, property investment requires a handsome down payment, which is something not everyone can afford. The stamp duty and the realtor’s commission make the threshold even higher. As for buying stocks, the minimum subscription fee can vary greatly from several hundred dollars to tens of thousands. Apart from the brokerage commission, there are other fees such as the deposit transaction charge and the government stamp duty. By contrast, all the costs of MPF are reflected in the fund prices, with no further charge. Meanwhile, there is no charge for switching constituent funds or changing the investment ratio. Members do not have to worry about additional investment costs which may eat into their returns when selling or buying funds.
With affordable charges and diversified constituent funds, MPF is suitable for members with different risk profiles. Members are advised to first understand their investment objectives and risk appetites, and to make voluntary contributions as necessary. Remember, early retirement planning contributes to a desirable retirement life.
The COVID-19 pandemic is still haunting the world. With a string of uncertainties, investors who want to avoid losses may tend to ignore their own risk profiles when making investment decisions. For example, they may place excessive emphasis on short-term market fluctuations and frequently switch their portfolios of long-term investments. Alternatively, they may misunderstand their realistic risk tolerance level and opt for asset allocations with risk levels lower than they are willing to tolerate. How can you, as a MPF member, make reasonable and rational investment decisions based on your retirement needs by means of effective risk management? And how can you prevent yourself from switching your portfolio too often in face of short-term market fluctuations?
Reduce investment risks with “dollar cost averaging”: When you have eight or ten years of work experience, you may understand that the ups and downs in an investment market are inevitable. MPF is a long-term investment. You make regular and mandatory contributions for fund subscriptions as per your selected investment portfolios, regardless of prices. In the long run, it means buying more units when the fund price is low and fewer units when the price is high. By smoothing out the peaks and troughs of prices, you can average out the cost of fund subscription. In a volatile market, you can build up your retirement pot with the “dollar cost averaging” strategy and reduce the impact of market fluctuations.
Gradually reduce risks when approaching retirement：When you are getting closer to the retirement age, you are advised to consider converting some of your MPF funds to those of lower risk classes by stages, so that your MPF savings accumulated over decades would not be compromised by market volatility. Apart from converting constituent funds on your own initiative to reduce investment risks, you may also resort to the “Default Investment Strategy” (DIS) for the same mechanism and philosophy, with automatic reduction of investment risks according to your age. To be specific, the percentage of equities in your DIS portfolio will be reduced on a yearly basis, gradually from 60% on your 50th to 20% after the age of 64. As a result, the portfolio and investment risks can be re-adjusted every year to counterbalance the risks.
MPF is a long-term investment. Before making investment decisions or asset allocations, you may first consider your long-term investment strategies and retirement needs, so as to avoid frequent adjustment of your investment portfolio because of short-term market fluctuations. Meanwhile, you are advised to select the right fund types that suit your investment objectives and risk tolerance.
Investment involves risks. Past performance is not indicative of future performance. The value of financial instruments, in particular stocks and shares, and any income from such financial instruments, may go down as well as up. For further details including the product features and risks involved, please refer to the MPF Scheme Brochure.
The content shared in this article should not be viewed as investment recommendation and advice. You should seek professional analysis and advice before making any decisions related to the information shared in this article.