Golden age

Let's start with the good news. Advances in health care and economic development have improved living standards and pulled millions of people out of poverty. As a result, we are all living better and longer than our parents or grandparents.

But the good news comes with a challenge. A longer life span means more years in retirement, and that requires more money from pensions and personal savings to fund those years. After years of economic uncertainty, many institutions and individuals today face a wide gap between what they have and what they will need to meet their obligations.

How do we close that funding gap? How do we pay for our additional 'golden years?' To start, we have to identify the real issues we are confronting.

Increasing longevity, combined with lower birth rates, isn't just a Western phenomenon - it is true throughout Hong Kong and mainland China too. According to the latest Hong Kong census figures, the median age rose from 36.7 in 2001 to 39.6 in 2006 and, further, to 41.7 last year. While the population aged 65 or above exceeded 900,000 last year, it is anticipated that this number will reach more than 2.1million in 20 years' time. And in mainland China, about one in four people will be over 65 by 2050, forecasts say. Further, in Hong Kong, the overall labour force participation rate dropped from 61.4per cent in 2000 to 59.6per cent in 2010.

All of this will have a tangible impact not just on our later years but also on our way of life, our focus on family and on the ways we save. It may mean that expenditures typically borne by families, such as funding children's education or buying property, will be reevaluated as parents and grandparents hold onto savings to pay for their lasting needs.

Savings and investment patterns will need to change; pension plans and social safety nets are strained by fewer workers paying in and more retirees collecting payments; and labour costs and capital investment trends will change as workers in countries with once plentiful labour become more scarce and expensive.

This comes at a time when excess household and public-sector leverage in Western economies have created uncertainty in global financial markets. Governments, businesses and individuals around the world are reducing both their debt and the risk they are willing to take with their investments.

Putting these developments together brings the retirement funding challenge into sharp focus: Lower growth and lower investment returns are making it much more challenging for us to fund our retirements from our savings, and for corporations and governments to meet their promises to their employees and citizens. So what do we do about it?

To turn this potential problem into a potential opportunity requires a fundamentally different approach to how we accumulate and preserve wealth in Hong Kong. In essence, it means turning short-term savers into long-term investors for a new world.

Household savings rates in Asia remain among the highest in the world, but traditionally conservative views on investing have resulted in many Asians holding a very large portion of their savings in bank deposits and other cash-like investments. However, even at low inflation rates, cash savings are likely to lose half of their purchasing power over the course of a typical retirement.

That is of special concern today when inflationary pressures in Asia are building. For example, Hong Kong's inflation rate averaged 5.3per cent in 2011 - significantly up from 2.4per cent in 2010.

For that reason, now is the time to consider long-term investment strategies that have the potential to generate meaningful growth and income. Today's portfolios have to look farther for new sources of income, including to Asian debt markets that can offer higher yields. They should include passive investing (managed index funds and exchange-traded funds) along with active investments in a broader range of asset classes and global markets.

I also believe that, for investors in Asia, it is vital to seek out opportunities with a bias towards our home markets. Asian and other emerging markets have provided major investment opportunities over the past decade, with much of the capital being imported from the West and the resulting gains flowing back there. In the future, capital flows from the US and Europe may not be as great as they once were.

This creates opportunity - and I believe some responsibility - for Asian investors. Right now, Asian economies are among the few places with significant growth in gross domestic product. Sustaining that growth requires a steady supply of capital that Asians are in the best position to provide.

These are challenging times for investors and the major trends shaping our world will continue to create uncertainty. It makes answering the question of where to put your money all the more important.

For Hong Kong investors, I believe the clear answer is to move off the sidelines, build diverse and dynamic portfolios, and take full advantage of opportunities close to home. By changing the way we save, we can help create the growth we need to build real wealth and better shape our destiny.

Hong Kong is coming of age. Hong Kong investors must ensure they do, too.

Mark McCombe is Asia-Pacific chairman at BlackRock