MPF is an essential part of our retirement savings, we should build MPF portfolios carefully to protect our financial support in twilight years. Here are 5 tips on building an MPF portfolio:
1. Investigate features of different types of funds
Equity Funds, Mixed assets funds, bond funds, guaranteed funds, and MPF conservative funds are the most common types of MPF funds. Each of them has specific features, investment objectives and risk levels. In fact, returns and risk go hand in hand, investment products with greater returns usually have a higher level of risk associated. For instant, equity funds that aim to have capital appreciation and returns greater than inflation in the long run, generally have higher annualized rates of return, however, the risk levels of the fund are relatively greater than the others.
2. Decide asset allocation
For our MPF investment portfolio, age can serve as an important point of reference. As scheme members normally withdraw their MPF benefits at age 65, the investment horizon for a young person may be up to 40 years, which is long enough to levitate the effect of short-term market volatility. Therefore, young scheme members are suggested to invest more in aggressive funds in exchange for capital appreciation. For scheme members with shorter investment periods, preserving capital should be the major goal.
3. Understand the risk levels of the funds
Some funds may have different risk levels from others, even if they belong to the same asset class, we should adjust our investment strategies accordingly. For example, sector equity funds usually have a higher risk level than other types of equity funds. Geographic location is also a major consideration as your investment returns are highly dependent on the domestic market if you invest too heavily in one single market. Therefore, we are suggested to diversify risk by investing in different markets and sectors.
4. Compare fees of different funds
As MPF is a long-term investment, our net investment returns may be greatly affected by the level of fees. For example, the Fund Expense Ratio varied from 0.65% to 2.64% in 2017; also passively managed funds generally have a low level of expenditures compared with actively managed funds. We should consider the level of fees when purchasing funds.
5. Analyze the past performance of the funds
Scheme members can take references from the fund’s past performance and evaluate the future returns before purchasing.
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