Diwali, the festival of lights, is considered an auspicious time for making investments and financial decisions. People often start new ventures, make stock market investments, open savings accounts or at the very least rush over to their local jeweler to buy gold as a sign of good fortune and prosperity.
With a festival that is rooted in wealth growth and savings for a better future – not only for our own benefit but for generations to come, a vast majority of us think having a financial plan is optional or can be done at some dreamy perfect time in the future. For some reason, we think it’s optional to have an emergency fund prepared as early as our 20’s or have a game plan in place for the next 10-20 years, let alone have a retirement plan sorted.
Why is that?
While the answer is more of a personal one and requires some internal contemplation, the information overload and many unsolicited subject matter experts on social media and other platforms may force us to steer clear or cloud our thoughts. While they are speaking to millions, we know financial planning is far from one size fits all. Also, with advancement in technology and AI, there are a multitude of options and platforms to pick up information from. And guess what? When it comes to money (and investing) everyone has an opinion- especially our close family and friends. So where does that leave a beginner?
What are we up against today?
According to the Center for Health Protection, the average life expectancy for males and females in 2023 is 82.5 years and 87.9 years respectively. That is 20- 30 years of retirement to plan for and approximately $8.6M HKD in savings for a comfortable lifestyle. Hong Kongers face the biggest gap between their savings and their target (which is a savings gap of $6.3M HKD)- globally! And hence, most expect to work after retirement according to a study by HSBC. Then there are healthcare costs that come with living longer- which means heavier insurance premiums at an older age. Unlike North America, Hong Kong lacks comprehensive social security measures, making personal financing strategies even more vital as we face longer life expectancies.
A recent survey also showed that 40% of Hong Kong people have insufficient savings to cover three months of expenses. Some may attribute it to the American way of living- work, get the money, spend, work. Because why worry about our future selves, it doesn’t even seem real!
The general picture combined with the current scenario – we are seeing a 35% surge in bankruptcy cases this year compared to last according to the Official Receiver’s Office, with tighter loan recalls from the banks.
But wait, we have MPF?
Many consider MPF (Mandatory Provident Fund) as their first step towards retirement planning. Here is some data to consider – the total assets of the MPF scheme have reached HK$1.14 trillion as of Dec 2023 as stated by the Mandatory Provident Fund authority. This means the average account balance for MPF members stands at HK$242,800, a stark contrast to the HK$8.6 million we would need for retirement.
Nonetheless, MPF is definitely a great addition to the many pots and if managed well, can add to the retirement pool.
What can be done?
The popular go to asset classes like the stock market, the property market and mutual funds – well, the less said about those in the current economic times, the better!
Where to begin?
1. Define your goals » Short term- Emergency Fund, vacation fund » Long term- Retirement, education for children
2. Evaluate your current financial situation » Total household earnings » Monthly Expenses (constantly evaluate these, especially in a place like Hong Kong where you can spend a fortune with a blink of an eye) » Loans, credit cards and mortgages
3. Create a Budget » Which includes tracking the above, identifying areas to save or cut back. Because what you earn doesn’t matter, it’s how you manage your finances that matters
4. Build an emergency fund » Aim to save at least 3 to 6 months’ worth of expenses
5. Manage Debt » Prioritize paying off highinterest debt first
6. Invest for the future » Consider a diversified portfolio of high risk versus principal guaranteed plans.
7. Plan for Retirement » Contribute regularly to retirement accounts » Explore employersponsored retirement plans
8. Secure Insurance » Health, Life and Property insurance are essential for protection
9. Educate yourself and your family » Stay informed about financial matters. “Because risk comes from not knowing what you are doing”- Warren Buffet » Consider financial literacy workshops or online courses
The Do’s and Don’t on the road to financial security
» Start small, start early – can’t emphasize this enough. I often see people fearing investment plans due to the perceived notion of large upfront funding. But it doesn’t have to be! For instance investing $2,000 HKD monthly at a 6% annual return could grow to over $1.5M HKD in 30 years. While these are just reference numbers, the key is to understand how to make time and compound interest your allies. Compound interest is called the 8th wonder of the world by Einstein. Talk to your financial advisors and planners as early as possible about this.
» Add money to the dinner menu – Make it a dinner table conversation at home, without feeling the judgment that comes with it. If we can’t have a lighthearted discussion around our finances with closed ones, we are bound to fall prey to some scammy advice outside.
» Many Eggs, Many Baskets there is no substitute for diversification. Hence nothing at 100% – not cash, not property and definitely not Birkins!
» People can be sincere and be sincerely wrong– watch where you get your advice from. » ETF’s – when in doubt, consider index funds.
» Markets are bipolar – don’t try to time it, you may just lose your shirt!
» Money for nothing – if you own a business, consider government grants. You will be surprised how much there is out there that you don’t know of.
» Watch your bottom – protect yourself against all downsides. While most high-risk takers may never worry about this, as they feel in the long run they will always win, this is not always true. In tough economical periods, the losses may be too high a cost to pay for the family, and quitefrankly in that case may not be of any use in the long run. Look up the story of Adolf Merckle.
» Look ahead – losers react, leaders anticipate. » More money for nothing – look into VHIS and Annuity plans for better tax savings
» Success leaves clues – follow those that have done it right, time and again. Observe the investors in the market that have consistently performed for over a decade, they have a system in place.
» Give to receive – find a way to do more for others than anyone else does. Giving has always been the reason why the affluent continue to attract more wealth.
The changing trends – a positive outlook According to the latest HSBC Quality of Life Report, statistically we are seeing Gen Z’s invest at an average age of 23, 10 years earlier than baby boomers- and this would definitely help with the overcast we discussed above with retirement issues. We are seeing on average, Gen Z and millennials are allocating 27% of their net income to investing, higher than Gen Z’s at 24% and Baby Boomer’s at 22%. 73% of affluent individuals in Hong Kong agree with the importance of legacy planning.
Women’s role in financial decision making Women’s wealth is growing which in turn is having a positive impact on financial involvement at home. However, we are far from an ideal situation. A study done by BNY calculated that if women invested at the same rate as men, there could be more than USD$3.22 trillion of additional capital to invest globally with over 1.87 trillion flowing into more responsible investing.
It’s no brainer then that more women should be regular investors and be part of financial decision making at home but why aren’t they? It seems women prefer to save as opposed to invest, which could be due to lack of knowledge and exposure. A study done by JP Morgan Asset Management in Europe suggested that women are looking for an investment product which looks and behaves like a savings product. The study also goes on to show that women who invest and have a financial plan are more confident and more secure, and those with investments also tend to save more.
They also have a very different risk appetite to men, which may not be considered well when they are shopping for investments. Only 3% of women are comfortable taking risks to get a good return as opposed to 26% of men, according to a survey by Nutmeg.
Women are advised to reach out and speak to trusted sources around them, to look for a good balance of risk and return.
Plan Plan Plan In Hong Kong, where housing, education and healthcare expenses are significantly high, having a well structured financial plan can make the difference between financial security and instability. And if you need immediate gratification (which saving for a future self won’t give you) think of the peace of mind that you receive as a gift today from securing your future.
As for financial advice, just like you wouldn’t do your own surgery or fight your own cases in court- don’t do finances on your own. Leverage the knowledge and expertise of a trusted professional, a simple conversation can be a game changer.
Lastly, all this information is of no-good use at all without action. Because knowledge isn’t mastery, execution is! So, start where you are, with the current circumstances, and it will definitely kick start your journey to a prosperous financial future.