How to choose fund investments
According to the latest statistics, MPF Authority has approved 42 master trusts and 243 authorized pooled funds. Each service provider offers a range of funds from a minimum of 3 funds (Zurich-Eagle Star) to a maximum of 28 funds (Standard Chartered).
In my previous article, I have mentioned a certain issues which employers should be aware of when they select a service provider. In the next few articles, I would like to raise some of the issues that an employee should consider when they choose a fund or a range of funds to invest.
Before deciding which fund(s) to invest, we should ask ourselves a few questions:
1. What is our investment time period?
2. Is there a specific objective on our investment?
3. What is the level of risk acceptable to us?
4. What is our expected return?
For the first question, if our age is 25, our investment time period will be 40 years as we can only withdraw our benefit at the age of 65. The longer we can invest the higher risk we can take, as risk tends to fall with time.
For the second question, our investment objective would be to maintain our living standard after retirement. However, should be decide to emigrate to another country after retirement, then our investment should bear in mind the currency of liability of the country which we intend to emigrate.
For the third question, if we cannot tolerate short-term capital loss, then we may need to take a more conservative approach on investment. However, this may affect our long-term return of our investment.
For the last question, our expected return may be, say two-third of our current salary income in real term, i.e. salary inflation adjusted income. Please note that you have to adjust the average annual salary increase as well as inflation rate in Hong Kong in order to calculate the correct figure.
Once we have answered these questions, we can then start constructing an appropriate investment strategy for our investment portfolio.
As a conclusion, the following are some of the factors we need to consider when constructing a portfolio: