Mr MPF doesn’t profess to have all the answers but Mr MPF is curious and recent curiosity led to me to a series of stories about the “Blame Game”, how constant blaming of others rather than taking responsibility for our personal actions prevents us from gaining control of our lives. I got thinking, does the “Blame Game” reveal itself in MPF? If so, where and how, and what’s the impact on MPF members?
The MPF system has just reported its first best half yearly result since 2019. A 5.16% return is not too shabby. In fact, it’s the 6th best half yearly MPF result since MPF’s inception and over 50% higher than MPF’s average one year result!
Speaking of inception, MPF’s since inception result has been a source of consternation for MPF’s 4.75m members who often point to MPF’s since inception return to highlight a system that some critics say is inadequate to meet the retirement needs of Hong Kong workers. But is this fair? Mr MPF would suggest critics are playing the “Blame Game”, after all the MPF system is not responsible for the reported performance results rather performance is largely a direct result of decisions made by MPF’s 4.75m members. Welcome to MPF’s very own “blame game”.
Mr MPF is a strident advocate for long term and diversified retirement investing. Like you, I too am a relatively small investor, and as a small investor, there is nothing that I do that affects financial markets, but financial markets affect me. Like you, I’m a taker of returns, but I can manage investment risk, and do so by following some simple rules. Spreading investments, being patient and allowing returns to compound over time. As Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it, he who doesn’t, pays it” and it would appear to Mr MPF, MPF members are paying for it. Allow me to explain.
MPF’s total return is calculated based on asset weight. In very simple terms if more MPF members choose to invest in one particular asset class or market over another then more weight is placed on that asset class and vice versa. In other words, reported MPF returns are determined largely by MPF members because it’s the MPF member who chooses where and when to invest, switching from in and out of products, markets and asset classes trying to beat the market by making and timing their own investment decisions.
Mr MPF wants MPF members to simplify their approach. Rather than stress over the best markets and the timing of investments, choose a diversified and balanced fund run by a professional fund manager aligned to your risk profile and investment objectives. Allow the fund manager to choose which assets to invest in, after all professionals are paid to beat the amateurs, but do they?
Of the 379 funds MPF members can choose, the “median” Mixed Asset fund investing around 70% in equities and 30% in bonds has outperformed MPF’s reported cumulative return by almost 30% (See chart 1) while on an annual basis, Mixed Asset has outperformed in 16 out of 23 years (see chart 2). If the “median” Mixed Asset fund represents the average pro, and MPF’s cumulative return is based on MPF member decisions, an extra $28,700 and outperformance of 70% of the time seems like pretty compelling stats to diversify, focus on the long term and enjoy the magic of the “8th wonder of the world” rather than blame the system and try to do it yourself.
It’s a harsh but honest lesson. Don’t blame the system. Start taking responsibility for your own actions and decisions. The quicker you do it, the quicker you will regain control of your financial future.
Chart 1: Accumulated values of Mixed Asset (61-80% Equity) Median Fund vs MPF Industry (starting value = $100,000)
Source: MPF Ratings
Chart 2: Calendar year performance of Mixed Asset (61-80% Equity) Median Fund vs MPF Industry
Source: MPF Ratings
This article was written by MPF Ratings, Hong Kong’s independent provider of MPF research, views and education.
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.