Climate change: a sustainable investing megatrend
We discuss five megatrends related to climate change and the investment implications.
As autumn begins and your children are back in school, now may be the time to think about your own retirement.
In school, your children would need a lesson plan and do their homework to stay on track to achieve an A+. Similarly, it is equally important for you to have a plan to stay on track to achieve your retirement goals. When it comes to retirement planning, the mantra is ‘the earlier the better’.
The proportion of people aged 65 or above in Hong Kong rose to 17%3 in 2018, compared with 7%4 in 1983, according to Hong Kong Census and Statistics Department.
Meanwhile, the United Nations population statistics5 forecast the proportion of people aged 65 or above in Hong Kong will increase to 22.1% by 2025. By then, Hong Kong will join Japan as a super-aged society.
Source: United Nations, Department of Economics and Social Affairs, Population Division (2019). World Population Prospects: The 2019 Revision. According to the World Health Organization, the proportion of a society’s population that is composed of persons aged 65 or older is called the “aging rate”. If a society’s aging rate exceeds 7%, it’s an “aging society”. If the rate surpasses 14%, it’s an “aged society”, if over 21%, it’s a “super-aged society”.
Another trend is that Hong Kong’s 7.5 million population is leading the world in life expectancy. The average lifespan for men was 82 years and 88 years for women in 20176, topping global rankings. In fact, there are around 3,000 centenarians5 in the city! This raises the concern that the city’s residents could outlive their assets, resulting in a lower standard of living.
To help Hong Kong residents better prepare for retirement, the government introduced the Mandatory Provident Fund (MPF) scheme in 2000 which mandates employers and employees to each contribute 5% of the employee’s relevant income to the scheme. However, the total maximum of mandatory contributions is capped at HK$3,000 per month, which may not allow individuals to build a big enough retirement nest egg.
As a gauge of how much savings you need to maintain your current lifestyle in retirement, a good starting point is to reference the checkpoints in our Principles for a successful retirement 7. It provides an estimate based on your age and household income. As an example, a 65-year-old with monthly household income of HK$50,000 needs to have HK$8.2 million invested specifically for retirement today. With this as an initial guide, you can further personalise your goal based on your lifestyle and when you want to retire.
A J.P. Morgan Asset Management survey1 found that only 43% of the Hong Kong investors have made detailed plans about their retirement despite 71% of the respondents think they need to start investing early for retirement. Separately, 54% won’t take action until they reach a certain age.
But the time to start is now, because life is a one-way ticket with no return. So, take action by starting to save and invest. Saving a little today could make a difference tomorrow.
Our survey8 also found there is a strong correlation between engagement and retirement confidence. Those who save monthly for retirement reported higher levels of confidence (75%) as compared to those who save only twice per year (50%).
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Meanwhile, things and circumstances often change in life and you have different needs and face different risks at different points in life. It’s important to understand the appropriate level of risk for your portfolio and dynamically adjust it as you move into different phases of your life, as the chart9 shows. Accordingly, be sure to review and update your portfolio over time as your circumstances change.
Time could be a double-edged sword when it comes to investing for retirement. For those who only save, but don’t invest, time could be viewed as an enemy because inflation would erode the real value of savings over time.
For those who save, invest and dynamically adjust their investment portfolios, time could be viewed as a friend. This is because harnessing the power of compounding could help accumulate wealth for retirement goals at a lower cost.
So, as you prepare your children to take on the world, it’s also important to prepare yourself for the retirement chapter of your life.
1. Source: “J.P. Morgan Asset Management Retirement Planning Strategic Research – Hong Kong Report”, May 2019. The survey was conducted between 16.11.2018 and 16.12.2018 with a sample size of 519 end investors.
2. For illustrative purposes only based on current market conditions, subject to change from time to time. Not all investments are suitable for all investors. Exact allocation of portfolio depends on each individual’s circumstance and market conditions.
3. Source: Hong Kong Census and Statistics Department, Hong Kong in Figures 2019 edition.
4. Source: Hong Kong Census and Statistics Department, Demographic Trends in Hong Kong 1981-1996.
5. Source: United Nations, Department of Economics and Social Affairs, Population Division (2019). World Population Prospects: The 2019 Revision.
6. Source: Hong Kong Census and Statistics Department, as of 26.08.2019.
7. Source: J.P. Morgan Asset Management, “Principles for a successful retirement”, 2019.
8. Source: J.P. Morgan Asset Management, “Hong Kong Investor Confidence Index”, May 2019.
9. Source: J.P. Morgan Asset Management. For illustrative purposes only. Bonds are subject to interest rate risks. Bond prices generally fall when interest rates rise. The price of equity securities may rise or fall because of changes in the broad market or changes in a company’s financial condition, sometimes rapidly or unpredictably. Equity securities are subject to stock market risk, meaning that stock prices in general may decline over short or extended periods of time.
Investment involves risk. Not all investments are suitable for all investors. Investors should consult professional advice before investing. Investments are not similar to or comparable with fixed deposits. The opinions and views expressed here are as of the date of this publication, which are subject to change and are not to be construed as investment advice. Estimates, assumptions and projections are provided for information only and may or may not come to pass. This document has not been reviewed by the SFC. Issued by JPMorgan Funds (Asia) Limited.