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SCMP Reporter

INFLATION is the worst enemy for people who are planning to retire in Hong Kong. But with planning and careful management, an investment portfolio that withstands the erosions of inflation can be achieved.

  Towry Law consultant William Tatham has put together a checklist for Hong Kong Chinese or expatriates intending to stay in the territory after they have retired.

  According to the checklist, you should have a good spread of investments which provides: a rising income; capital growth which beats inflation; and tax efficiency, or investments that fit in with the tax rules of the country where you intend to retire.

  One of the first recommendations is to hold investment portfolios in US dollars because investments in Hong Kong dollars may be difficult to manage after 1997. Other currency alternatives include Singapore, Malaysia or Thailand.

  Strategies for retirement portfolios are not unlike other portfolio investments but to be effective they must generate income as well as keep ahead of inflation.

  Mr Tatham said clients were advised to keep some money on deposit and to resist the common temptation to invest all their money.

  ''If the amount of money they can set aside is greater than HK$50,000 it should be invested in a money market account or a money fund and not a bank,'' he said. ''It is a cheaper account to operate and the returns are better than those provided by banks.''   Multi-currency money market accounts provide good interest returns and give investors the opportunity to hold several currencies. One of the strongest warnings issued by Towry Law is not to play with foreign currencies. ''This is one of the fastest ways to lose your money,'' Mr Tatham said.

  A case study prepared by Towry Law uses an example of a married couple aged 55 with a government pension of $15,000 per month. The capital they have to invest totals $4 million and their gross target income per annum is GBP30,000 (about HK$346,500).

  With a reasonably large portfolio such as this, Mr Tatham said at least half of the money should be invested in an equity and bond portfolio with a global spread to reduce risk levels.

  ''The main aim here is to provide a rising income that will keep up with inflation,'' he said. Within the equity and bond portfolio, money should be spread across shares, funds and cash.

  ''The portfolio ratios and how much money you have in different countries will depend on your risk profile and the amount of income,'' he said.

  In putting together a retirement portfolio, about one-third of the equity and bond portfolio should be invested in the country that you intend to retire in. This will help to link you to the local currency and inflation rate.

  Although Hong Kong's current inflation rate of 10 per cent is high, it has far less impact on most people while they are working, especially if they have a government-linked pension.

  According to Mr Tatham, it is also important to note that Hong Kong's high inflation is likely to continue, and may get worse. ''Hong Kong is part of a high growth region and is likely to be affected by the high inflation levels in China for the next 10 years,'' he said. At its current rate, inflation will halve the purchasing power of your money every seven-and-a-half years.

  ''If conservative estimates are applied to a retirement portfolio over a five-year period, then investors should be looking at an annual return between 10 and 15 per cent,'' Mr Tatham said. If you take out the 10 per cent for inflation, retirees are leftwith just five per cent of the return on their investments to use as income.

  A comfortable retirement in Hong Kong is obviously not an affordable option for everyone, especially when it is considered that retirement portfolios are supposed to be conservative. ''But returns like those in 1993 and in other good years do help to balance out portfolios,'' Mr Tatham said.

  Index-linked pension plans help to offset inflation but it becomes clear why many people retire outside of Hong Kong in countries where they can have a better standard of living. If you have a smaller amount of money to live off when you retire in Hong Kong, it is likely that your portfolio will have to expose itself to more risks in order to maximise gains.

  Larger investments can afford to be more conservative. ''However, where you retire is more often a decision of the heart and not the head, which is why forward planning is so important,'' said Mr Tatham.



Laying the foundations for a comfortable retirement