Passive investing with a diversified portfolio still best for most

Our topic today is 'The Benefits of Passive Investing and Diversification'. Investors in Hong Kong and mainland China stocks have experienced a challenging period over the past few years. This unfortunate situation also applies to account holders of the Mandatory Provident Fund (MPF), a pension fund that covers 4. 7 million individuals in the city. The losses have been significant, with an investment loss of HK$35. 2 billion (US$4. 5 billion) in the third quarter erasing all gains made in the first half of the year. If the fourth quarter doesn't bring improvement, the retirement fund will face an unprecedented three consecutive years of losses. The MPF offers 413 investment funds, which reported an average loss of 3. 1 per cent in the July-to-September quarter, translating to HK$7,500 per person. On average, each MPF account holder has lost HK$600 over the past three quarters. Last year, the MPF reported a 15. 7 per cent decline. The worst performers were Hong Kong and mainland stock funds, which account for 25 per cent of all MPF assets. These funds lost 8. 6 per cent in the first nine months. However, investors who diversified their portfolios outside China may have fared better. Global funds were the second-best performers, with an average gain of 9 per cent. US equities were the top performers, with an 11. 9 per cent return in the first nine months. European stock funds gained 7. 6 per cent in the first nine months. However, emerging markets, including China, have underperformed this year. So, what's the best course of action? Perhaps doing nothing isn't the worst advice. Attempting to time the market is a risky strategy. Your losses are only on paper unless you're retiring, in which case, it's a painful reality. A report by Manulife Provident Funds Trust found that its MPF account holders increased their fund switches by 60 per cent last year compared to before the pandemic in 2019. However, most of these switches were ill-timed and failed to take advantage of market conditions. Passive investing with a diversified portfolio over a long period remains the best strategy for most individuals.