Introduction Retirement planning can be a formidable subject for a lot of people, and some financial institutions in Hong Kong have released surveys i

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Principal Retirement Guide MPF/ORSO Scheme Hotline / (852) 2827 1233 hkinfo@exchange.principal.com

1 Principal Retirement Guide MPF/ORSO Scheme Hotline / (852) hkinfo@exchange.principal.com The information in this material is for your reference only, you should seek independent financial and/or professional advice and not solely rely on the standalone information to make any investment decision. Investment involves risks. You should consider your own risk tolerance level and financial circumstances before making any investment choices.

2 Introduction Retirement planning can be a formidable subject for a lot of people, and some financial institutions in Hong Kong have released surveys in the past that point to an overall bleak picture of Hong Kong people s overall retirement readiness. At Principal, we believe that you, regardless of your current financial circumstances or how much you have already saved in your MPF account or other retirement savings products, can start taking little steps towards a future where you can live your best life. A journey of a thousand miles begins with a single step, an old Chinese saying goes. Planning for retirement is like taking a journey that will last decades. While retirement planning can be looked at through mathematical formulas and academic research, we believe that as you have already started your journey, the best decision you can make now is to be positive and learn what factors are within your control to better plan for your retirement. We hope you enjoy this Retirement Guide. Talk to your Financial Advisor, who can assist you in better managing your MPF account with us. Table of contents P.02 Introduction P.03 P.04 P P.10 P.11 What factors influence your retirement planning? Key numbers about retirement planning in Hong Kong Key investment principles Importance of asset allocation Regular portfolio rebalancing 02 Principal Retirement Guide

3 What factors influence your retirement planning? While retirement might seem far and out of reach, it is important to plan ahead and get prepared. For every person planning for retirement, we may identify factors that affect our retirement life and have at least some control, or even, full control at. In this way, we may prioritize our efforts and start working on them immediately. How much you save beyond your mandatory MPF contribution? 強積金以外有多少儲蓄? Your lifestyle after retirement 你退休後的生活模式 Asset allocation of your MPF account and other retirement savings products 你的強積金和其他退休儲蓄產品的資產分布 Full Control 全盤控制 Market returns and fluctuations 市場回報和波動 Inflation rate 通貨膨脹 Rising healthcare costs 醫療護理費用的上升 No Control 無法控制 Government regulations and policies towards retirement savings schemes 政府對退休儲蓄計劃的監管和政策措施 Your salary level (which will dictate your mandatory MPF contribution amount) 你的工資水平 ( 影響你的強積金供款額 ) Longevity after retirement (stay healthy, live longer) 退休後的壽命 ( 健康長壽 ) Your retirement age 你的退休年齡 Some Control 部份控制 Stay positive, every little step you can take helps complete the full plan. Principal Retirement Guide 03

4 Key numbers about retirement planning in Hong Kong MPF Numbers in Hong Kong HK$355 - HK$1,500 per month / HK$7,100 - HK$30,000 per month / 60* - 65 Amount of Mandatory Contributions (Employee) Relevant Income Level Retirement Age *Member may declare early retirement on or before 60 years old * 60 Life Expectancy in Hong Kong 平均 The life expectancies at birth for both sexes have steadily increased during the past 45 years, from 67.8 years for males and 75.3 years for females in 1971 to 81.2* years and 87.3* years respectively in 2015, which means there are more than 20 years to go after retire * 87.3* 20 Data Source: The Centre for Health Protection, Department of Health * Provisional figures for year 2015 : * 2015 Life expectancy at birth ( years) 出生時平均預期壽命 ( 歲 ) Year 年份 Female 女性 Male 男性 * Annualized Return of MPF Funds 8% Annualized Return of MPF Funds by Fund Type (1 December November 2015) 強積金基金年率化回報 ( 按基金類型劃分 )(2000 年 12 月 1 日至 2015 年 11 月 30 日 ) Annualized Return 年率化回報 6% 4% 2% 0% Equity Fund 股票基金 Mixed Assets Fund 混合資產基金 Bond Fund 債券基金 Guaranteed Fund 保證基金 (Average Inflation Rate: 1.8%) ( 平均通脹率 : 1.8%) 4.1% 3.9% 2.8% 1.3% 0.8% 0.6% Source: Mandatory Provident Fund Schemes Authority MPF Conservative Fund 強積金保守基金 Money Market Fund & Others 貨幣市場基金及其他基金 04 Principal Retirement Guide

5 Key investment principles One key factor which has a big influence on your retirement planning is asset allocation of your MPF account and other retirement savings products, and you have full control of this. While asset allocation may sound complicated to you, there are several simple investment principles that you should know before understanding the importance of asset allocation. 1 Compound interest Albert Einstein once called compound interest "the greatest mathematical discovery of all time". While we are certainly not as smart as him, we also think that compound interest may be one of the most important investment principles for retirement planning. Assuming you have invested $10,000 today in certain investment, if that investment grows at just 3% every year, your $10,000 investment will be more than doubled in 25 years. MPF System has achieved an annualized rate of return of 3.1%, which is higher than the average inflation rate 1.8% over the last 15 years. (December November 2015) 13% % 1.8% What can 40 years of investment do? Assume an initial investment of $10,000 with 3% return per year 40 $10,000 3% $35,000 3% p.a. growth 3% 年率複式增長 $30,000 $25,000 $20,000 Double 雙倍 $15,000 $10, Year 年 Principal Retirement Guide 05

6 Key investment principles 2 Long-term investment Stock markets go up and down every day, and financial crises, geopolitical issues and natural disasters could also have an outsized impact on the short-term performance of any stock market. However, when you still have some years to retirement, it is worth bearing in mind that while stock markets can fluctuate considerably in the short-term, over the longer-term stock markets offer good opportunity for wealth accumulation. 40-year of stock, bond markets and HK deposit rate Hang Seng Index: 45.6X 恒生指數 :45.6 倍 2007 Subprime Mortgage Crisis 美國次按危機 2015 China Stock Market Crash 中國股市暴跌 S&P 500: 20X 標普 500 指數 :20 倍 Hong Kong Deposit: 3.9X 香港銀行存款 :3.9 倍 US Treasury*: 16X (since 1978) 美國國庫債券 *:16 倍 ( 自 1978 年 ) WTC Attacks 911 世貿中心襲擊 2000 Dot Com Bubbles 科網泡沫爆破 1997 Asian Financial Crisis 亞洲金融風暴 Gulf War 波斯灣戰爭 nd Oil Crisis 第二次石油危機 1987 Global Market Crash 環球市場崩潰 Source: Bloomberg * BofA Merrill Lynch US Treasury (since 1978) * Principal Retirement Guide

7 Key investment principles 3 Dollar cost averaging While you do not have any control over stock market fluctuations, you still have control as to how to mitigate the negative effects of stock market fluctuations. Your control is how much and when you are investing. As an MPF member, you invest a fixed amount every month. By doing so, you will be buying less units when the fund price is higher (in other words the market is doing well), and you will also be buying more units when the fund price is lower (in other words the market is not doing well). The net effect is that you will smooth out the stock market fluctuations when you invest a fixed amount at regular intervals. This effect is called dollar cost averaging. Lump Sums VS Regular Investments ( , 15 years) Fix Amount 定額 Lump Sum Payment 一筆過支付 Regular Investment 定期投資 Lump Sum Investment 一筆過投資 Remarks: S&P 500 Index 500 Source: Bloomberg Principal Retirement Guide 07

8 Key investment principles 4 Stay calm While dollar cost averaging can help smooth out the stock market fluctuations, there are times that stock markets can really fluctuate wildly. The most common reaction when this happens is to sell your investment in the stock markets, put that into safe investment like cash or money market funds, then wait for the stock markets to calm down before investing again. This reaction may turn out to cost you considerable returns over the longer-term. Mr. Panic: $10,000 initial investment, withdrew in panic during market turmoil, and re-joined when the market returned to the last peak. 緊張大師 : 一開始以 10,000 元投資, 於市況急促向下時悉數售出套現, 其後當市況返回上次高位時, 再次投資入市 S&P 500 Index 標準普爾 500 指數 Action 行動 Invested at peak (2008 market down 57%) 於高位買入 (2008 年市場下降 57%) Panic 恐慌 Re-joined when index returned to the peak of 2007 於市場重回 2007 年高位時再次買入 Redemption 套現 $4,322 Market value 市值 $10,000 $0 $4,322 $5,630 Mr. Calm: $10,000 initial investment, sticking to his investment strategy during market turmoil. 冷靜先生 : 一開始以 10,000 元投資, 於市況急促向下時, 維持原定投資策略 S&P 500 Index 標準普爾 500 指數 Action 行動 Invested at peak (2008 market down 57%) 於高位買入 (2008 年市場下降 57%) Redemption 套現 Market value 市值 $10,000 $4,322 $10,000 $13, % return difference over 8 years! 八年回報相差 131%! Source: Bloomberg 08 Principal Retirement Guide

9 Key investment principles 5 Understanding risk and return Over the longer-term stock markets can offer good opportunity for wealth accumulation, dollar cost averaging can help smooth out stock market fluctuations, and staying calm during market crises may be better over the longer-term. However, these are just general investment principles, and you are entitled to look at risk and return based on your preference. Your investment time frame until retirement is also an important factor when it comes to balancing the risk you want to take with the potential of the return for your investment. There is no absolute best investment in MPF or in other retirement savings products, but there will be a well-structured portfolio out there that best fits your life. Risk and Return Among Assets ( ) Annualized Return 年度化回報率 10% Saving - Hong Kong 儲蓄 - 香港 8% High risk, high return 高風險高回報 Bond - Hong Kong 債券 - 香港 6% Bond - Global Government 債券 - 環球政府 Equity - Hong Kong 股票 - 香港 4% Equity - US 股票 - 美國 2% Low risk, low return 低風險低回報 Equity - Asia Pacific (ex Japan) 股票 - 亞洲 ( 日本除外 ) Equity - World 股票 - 環球 0% 5% 10% 15% 20% 25% Risk 風險 Source: Bloomberg Principal Retirement Guide 09

10 Importance of asset allocation Asset allocation is the implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor's risk tolerance, goals and investment time frame. At this point hopefully you will have some understanding of several key investment principles, and now we discuss a key factor which has a big influence on your retirement planning, and one that you have full control. Asset allocation. We can spend many pages going into very technical details about asset allocation, but we will just use the Wikipedia s description (on the left). Annualized Return 年度化回報率 10% 8% 6% 4% 2% Saving - Hong Kong 儲蓄 - 香港 Bond - Hong Kong 債券 - 香港 Bond - Global Government 債券 - 環球政府 Equity - Hong Kong 股票 - 香港 Equity - US 股票 - 美國 Equity - Asia Pacific (ex Japan) 股票 - 亞洲 ( 日本除外 ) Equity - World 股票 - 環球 Portfolio 1-100% Bond 投資組合 1-100% 債券 Portfolio 2-25% Equity, 75% Bond 投資組合 2-25% 股票, 75% 債券 Portfolio 3-50% Equity, 50% Bond 投資組合 3-50% 股票, 50% 債券 Portfolio 4-75% Equity, 25% Bond 投資組合 3-75% 股票, 25% 債券 Portfolio 5-100% Equity 投資組合 5-100% 股票 0% 5% 10% 15% 20% 25% Risk 風險 Remarks: Portfolio 1 = 75% Global Government Bond + 25% HK Bond Portfolio 2 = 75% Portfolio % Portfolio 5 Portfolio 3 = 50% Portfolio 1+ 50% Portfolio 5 Portfolio 4 = 25% Portfolio % Portfolio 5 Portfolio 5 = 40% US Equity + 40% Asia Pacific ex Japan Equity + 20% HK Equity : 1 = 75% + 25% 2 = 75% % 5 3 = 50% % 5 4 = 25% % 5 5 = 40% + 40% + 20% Source: Bloomberg 10 Principal Retirement Guide

11 That s it. The one key word here is balance, the balance between risk and reward, the return of your overall investment. This balance is decided based on your risk tolerance, goals and investment time frame. Going back to the scatter chart of the last page, what should you invest in? If you have moderate risk tolerance, and you are investing for your retirement that is still some years away, perhaps a equity / bond balanced portfolio (3) will offer you that balance between risk and reward. (3) Too risky, how about the balanced portfolio (2)? Or maybe balanced portfolio (4) instead if you are willing to be exposed to higher risk with potential for higher return? (2) (4) Regular portfolio rebalancing So you have selected a balanced portfolio that fits you, but at the end of the year, you find that the weighting of each asset class in your portfolio has changed! What happened? Over the year each asset class within your portfolio has moved up and down in prices, resulting in a weighting change. Rebalancing your portfolio will help you maintain your original asset-allocation strategy. Comparison of portfolios with rebalancing and no rebalancing ( ) No Rebalance 沒有進行再平衡 Rebalance 有進行再平衡 +11.5% / / / / / /2015 Finding and managing a balanced portfolio that best fits your life is very achievable, and you have full control of a little step towards this, and towards a future where you can live your best life. Principal Retirement Guide 11

12 Disclosure: 1. This material is the property of Principal Trust Company (Asia) Limited ( PTC ). No part of the material may be modified, reproduced, transmitted, stored or distributed to any other person or incorporation in any format for any purposes without PTC s prior written consent. 2. The information in this material has been derived from sources believed to be accurate and reliable. The content is for informational purpose only and is neither a recommendation to buy or sell any securities nor a solicitation to deal in the products referred to therein. The information is subject to change without notice. PTC will not warrant or guarantee the accuracy and/or completeness of third-party content. Subject to any contrary provisions of applicable law, neither PTC nor any of its employees or directors warrants or guarantees the accuracy or accept any responsibility arising in any other way for errors or omissions in this material. 3. This material has not been reviewed by regulatory authorities in Hong Kong. 4. Investment involves risks. The value of the funds may go up or down. Past performance is not indicative of future performance. Investors should not invest solely in reliance on this marketing material. Investors should consider their own risk tolerance level, investment objective, individual needs and financial circumstances before making any investment choice. Investors should read the Principal Brochures of relevant Principal MPF schemes and the related offering document for further details (including investment policy, risk factors, fee and charges of the constituent funds) before making any investment choice. 1. ( PTC )PTC 2. PTC PTC ) This marketing material has not been reviewed by the Securities and Futures Commission. Copyright 2016 Principal Trust Company (Asia) Limited. Issuer of this material: Principal Trust Company (Asia) Limited and Principal Asset Management Company (Asia) Limited 2016 PRG/CORE

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Microsoft Word - SH090330.doc 2009 年 3 月 30 日環球指數上周收市價一星期變化百分率四星期變化百分率恆生指數 14,119.50 +1285.99 +10.02% +1307.93 +10.21% 國企指數 8,481.22 +985.26 +13.14% +1578.38 +22.87% 上海綜合指數 2,374.44 +93.35 +4.09%