Multi-Asset Funds help allocate assets
You may not understand what asset allocation is. But the moment you select your MPF funds, you have already decided your asset allocation. When you decide the allocation on equity, bond or other asset classes, you have decided the risks your investment portfolio may be exposed to.
The risk-return tradeoff is at the core of what asset allocation is all about. Each asset class has different levels of potential return and risk, so each will behave differently during different market scenarios. If you think you have a high-risk tolerance, but turns out you cannot remain invested through the short-term fluctuations of a bad market, that may mean you should reduce your exposure to risk assets. When allocating assets, the life you want to lead after retirement is as important as how far away you are from retirement. Reaching your goal while taking a balanced risk approach will help you turn your dream into reality.
Of course, if you are familiar with different investment markets and asset classes, you can allocate your assets to equities and bonds in different funds. However, if you only have an idea on the level of risk you would like to take and are not knowledgeable about specific markets, mixed asset funds may be your choice.
Mixed assets funds are also known as “balanced funds”. They invest in a combination of stocks and bonds to achieve capital appreciation. Their tolerance level ranges from medium to high, depending on the relative weight of different assets in the investment portfolio. Labelling the fund “balanced” does not necessarily imply a 50-50 split between stocks and bonds in the fund’s assets. A greater proportion of stocks is associated with a higher level of risk. Generally, younger scheme members have a longer investment horizon, usually they have a higher risk tolerance level. They may invest in a portfolio with a higher proportion in stocks in order to achieve a higher potential return.
Within the investment horizon of MPF, mixed asset funds mainly invest in global equity and bond. They can be divided into four main groups accordingly to the risk levels. The highest risk category consists of 80% to 100% equity portion. The category that follows is 60% to 80% of equity. Then 40% to 60% of equity and 20% to 40% of equity. These mixed asset funds implement a target risk approach.
There is another category. The strategy automatically adjusts the proportion of equity and bond according to your age. That is the Default Investment Strategy (DIS). If you have chosen the DIS, before the age of 50, all your MPF assets will be invested into the “Core Accumulation Fund”. This is equivalent to 60% of equity and 40% of bond. By the time you reach 50, the proportion on “Core Accumulation Fund” will be reduced yearly. When you reach the age of 65, the assets will be fully invested into the “Age 65 Plus Fund”. By that time, there will be 20% of equity and 80% of bond in your investment portfolio.
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Investment involves risks. This information is for general reference only.