Recently the regulator of Hong Kong’s mandatory pension fund (MPF) system, the Mandatory Provident Fund Schemes Authority (MPFA) released “provisional data on MPF investment returns” and in doing so reiterated that “MPF is a long-term investment spanning over 40 years”, encouraged scheme members to “not adopt a short-term investment approach” while also imploring MPF’s 4.75m members not to “try to time the market”. Sensible guidance designed to help scheme members build their retirement nest egg and one which reminded me of a recent story brought to the attention of Mr MPF by leading Hong Kong financial advisor, Belvest Investment Services.
Ronald Read lived to 92 and was born into an impoverished farming family. Throughout his life Read worked menial and often low paying jobs including as a petrol station attendant and department store cleaner. He lived frugally on a modest income and prioritized saving over spending, a habit often overlooked today. Despite his modest income when Ronald Read passed away in 2015 it was revealed that his estate was worth US$8 million.
Read had no financial educational background and was no mathematical genius so how did he do it?
Firstly, he prioritized saving but Read’s investment strategy was also refreshingly simple. Most of his assets were invested in the stock market and he followed a disciplined approach, buying high-quality blue-chip stocks at reasonable valuations and holding them for decades. He focused on companies paying attractive dividends, always reinvesting the income to further compound his returns. At the time of his passing he held stock in 95 companies. During the global financial crisis, he even held Lehman Bros shares but due to his diversification it failed to derail his portfolio.
Read recognized the importance of saving before spending, a principle often neglected in today’s society. Prioritizing saving and living within one’s means creates an environment for wealth accumulation. Moreover, an investment strategy focused on quality over quantity, allows investments to grow and compound over the long term. Too often the temptation is for quick gains which leads to speculative trading and higher risks. Indeed, last year’s best performing MPF asset class was US equities. MPF’s most popular asset class by fund flows in 2023? You guessed it, US equities too.
Ronald Read’s modest lifestyle, commitment to disciplined investing and long-term wealth accumulation set him on the path of extraordinary wealth creation. Indeed, while Read had no financial education, his approach to investing has been evaluated. A study by University of California finance professor Brad Barber and economics professor Terrance Odean analysed the trading records of thousands of individual investors. What they uncovered was both surprising and illuminating. The accounts with the highest returns belonged to inactive accounts, a phenomenon often termed the ‘Dead Man’s Portfolio’ underscores the power of a hands-off approach to investing. These forgotten accounts, left to quietly accumulate wealth over the years, outperformed those of active traders. It’s a reminder that the allure of constant tinkering with one’s investments may often lead to inferior returns, while the patience and discipline of a long-term strategy can yield remarkable results.
There are compelling lessons to be learned from the story of Ronald Read. Financial discipline, patience and compounding are the cornerstones of wealth accumulation. Key messages in the MPF’s recent press release. By instilling these values in MPF’s 4.75m members we can aspire to make Read’s story MPF’s norm rather than the exception and in doing so ensure that the MPF system maximises its strength as a robust and secure platform for wealth creation in both a pre and post-retirement world.
This article was written by MPF Ratings, Hong Kong’s independent provider of MPF research, views and education, in association with Belvest Investment Services, a leading Hong Kong based independent financial planning and wealth advisory group.
The information contained in this blog is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.
