Investment Risk Assessment and Fund Return Calculation

• Think it through first: What are your investment goals, investment timeline and the maximum loss you can tolerate?
• Then look at the product: Do the risk level, fees and asset allocation match what you have in mind?
• Finally, review: Has your portfolio strayed from your goals? Has your life stage changed? Remember to review it regularly!

Everyone's tolerance for risk is different. That's why you need to complete a "Risk Assessment Questionnaire" and an "Investor Protection Assessment" first. This helps you understand your risk appetite and whether you might need extra safeguards. Your risk tolerance generally falls into one of 5 levels. Here’s how we explain them:

• Online completion: You can log on to Hang Seng Mobile App or Personal e-Banking anytime to complete the assessment. Remember to update your record regularly if your financial situation, age or investment experience changes
• Accurate information: If you fudge or omit the details, you could end up with a portfolio that's riskier than you can handle. That won't do you any favours!

• Market risk: A fund's price will fluctuate with the broader economy, political events, interest rates and stock market movements. If market conditions are poor, the fund's value could drop significantly
• Specific risk: If you concentrate your investments in a particular industry, a single country or non-investment-grade bonds, you'll face risks tied to that sector's business cycle or the issuer defaulting
• Liquidity and currency risk: Investing in overseas assets means you have to bear currency exchange fluctuations. What's more, some funds can be difficult to sell quickly during extreme market volatility
• Fee erosion: Costs like subscription charges and management fees will slowly chip away at your total returns, so always remember to deduct them when calculating your actual profit

• Quantify the risk: Compare the volatility, maximum drawdown, Sharpe Ratio and fees of different funds. The "maximum drawdown" is a key metric that tells you the biggest drop you might have to endure in extreme conditions
• Diversify and rebalance: Spreading your money across different regions, industries and asset classes can reduce concentration risk. However, this can't completely eliminate the risk of a market-wide downturn
• Responding to a downturn: You can consider buying the dip when the market falls, but only if you're sure the fund's fundamentals haven't worsened. At the same time, setting a "stop-loss" can prevent further losses
• Keep some cash on hand: Remember to set aside money for daily living and emergencies. This way, you won't be forced to sell your investments at a low point if you suddenly need cash

• Cumulative return: The total return over a specific period
• Annualised return: The average annual rate of return, calculated using compounding
• Calendar year return: For example, if Fund A's price is HKD10 on 1 Jan 2025 and it rises to HKD15 by 31 Dec of the same year, the return is: (HKD15 - HKD10) ÷ HKD10 × 100% = 50%

• High distributions don't equal high returns: A fund might pay a 10% distribution, but if its price falls by 10% over the same period, your actual return could be 0 or even a loss!
• Distributions may come from your capital: The money paid out might be part of your original investment. This would reduce the fund's unit price and the total value of your investment. You can check the fund's distribution composition information to find out more

Want to calculate it yourself? The formula is simple:

Total Return = (End Value - Start Value + Income Received) ÷ Start Value

A quick reminder: When comparing funds, be sure to deduct all fees, use the same basis for handling distributions and pay attention to your purchase timing and the power of compounding!