How to invest in the Hang Seng Index
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If the answer to the above question is ‘yes’ – then it’s a good idea to look into Hong Kong’s Hang Seng Index (HSI). On this page, we’ll walk you through all the different ways you can gain exposure to the Index. That way you can be prepared to make smart decisions when the time comes to investing your money.
Where can I buy into the Hang Seng Index?
What is the Hang Seng?
The Hang Seng Index is an index of the 50 largest stocks (by market capitalisation) in the Hong Kong Stock Exchange, and also functions as the main indicator of overall stock market performance in the country. Started in 1969, the Hang Seng includes leading companies from the banking sector (HSBC), utilities sector (Hong Kong and China Gas Company), real estate sector (Sino Land Company), and other industries.
Is it a good investment?
That’s for you to decide, but it certainly can be if one considers all of the positive factors in the HSI’s favour. For one thing, Hong Kong represents one of the most robust economies in the world, birthing a number of powerful companies whose stocks have delivered robust gains. For another, the Hang Seng offers a diversified portfolio of 50 different blue-chip stocks, which helps limit the risk that would come with owning just one or two stocks.
As with investing in any index, the biggest risk factor is the overall condition of financial markets. A bear market can wreak havoc on stocks of all stripes, potentially causing big losses for investors, but when markets are bullish investing in indices can generate high and consistent returns.
How do I invest in the Hang Seng?
Here are the three steps to follow:
- Choose an investment type
- Use our top tips to succeed
- Choose a platform to invest with
1. Choose investment type
There are lots of ways to own a piece of an index, and so your first decision will be which option you want to go for. The key is being inspired by all of those choices, rather than intimidated by them. To narrow down your investment type choices, consider factors such as the relative size of transaction fees for each approach, as well as the level of customer service that you want when investing.
Here are quick summaries of some of the most popular:
An ETF (exchange-traded fund) is an investment fund that can be traded on a stock exchange in a manner similar to an individual stock. You can trade ETFs any time during regular stock market hours. A Hang Seng ETFs usually include numerous different assets at once, such as stocks, bonds, commodities, and can also be structured to track an index such as the Hang Seng Index. An ETF can be a smart, low-fee way to invest, as it gives you a diversified portfolio of 50 blue-chip stocks, and still maintain the ability to trade your investment on an exchange. Just remember to avoid buying stock index ETFs during a bear market.
If there’s a downside to a Hang Seng ETF, it’s this: when you buy a large batch of stocks such as the Hang Seng Index, you’re holding both the best- and worst-performing stocks within that group of 50. More selective investors might thus choose the next investment method on our list instead.
If you want to focus on the top-performing stocks in the Hang Seng Index rather than gaining exposure to the entire index, you can buy shares of the 50 individual stocks that the index tracks in separate trades instead. This allows you to evaluate each stock as you go, then decide which Hang Seng Index stocks you want to keep and which ones you want to sell – something you can’t do when you invest in the index as a whole.
The problem with buying 50 individual stocks is that you must make 50 separate trades to buy each one (plus even more trades when you sell each one), which leads to big transaction fees and lots of time spent on Hang Seng trading. Beginner investors with smaller budgets and less time on their hands should consider a different approach.
A mutual fund is an investment fund run by a professional money manager that collects capital from many different investors, then invests that large sum of pooled money into different assets. A Hang Seng fund (also commonly known as an index fund) allows you to invest in all 50 of the Hang Seng Index’s stocks at once, which mitigates your risk since you’re holding a large, diversified batch of stocks. A mutual fund is bought through a broker, or directly from the company that administers a Hang Seng fund.
One downside of a mutual fund is that it can only be bought at the end of the stock market’s trading day, meaning you won’t be able to start Hang Seng trading during regular market trading hours as is possible if investing using an ETF. Another is that mutual funds charge higher fees than ETFs do. So you’ll probably want to buy and hold for a longer stretch of time, since it’s more difficult and more expensive to trade than an ETF.
2. Use our top tips to be a successful investor
When investing in the Hang Seng Index, be sure to keep these tips in mind to improve your chance of financial success:
- Do your research. Investing takes time, hard work, and patience to do well – and a lifetime to master. If you’re considering an investment in the Hang Seng Index, you’ll want to consider all the pros and cons of that investment. You’ll also want to build a sound investment plan, which will improve your chances of success and enable you to keep your cool, even when the stock market turns volatile.
- Set a budget. The budget you set should account for your personal level of risk tolerance, as well as how much money you can afford to lose without affecting your financial and emotional well-being. If you let your losses pile up, you could end up hurting both your confidence and your ability to make future trades.
- Select the right platform. Choosing the right platform to start Hang Seng trading can be very different for different investors. For instance, one investor might choose a platform based entirely on the size of its transaction fees, while another might focus a lot more on the quantity and quality of investment advice they can get. Whatever your goals might be, shop around, pick a platform, and then don’t be afraid to switch if you’re not happy with the first one you choose.
- Grow your investments gradually. As a beginner investor, it’s best to start by investing a smaller amount of money. You can always invest more as you become a more experienced, more successful investor. That gradual progression will help prevent big losses, and allow you to maximise your gains over time.
- Think long-term. To succeed long-term, you can buy and hold an ETF or mutual fund related to the Hang Seng Index, aiming for bigger gains. That strategy is only advised during a bull market, though, since investing in a bear market can cause big losses.
3. Choose a platform to invest with
Once you have decided how you want to invest in the HSI, you’ll need to find a platform where you can do so in that fashion. Here are some of the best options:
- Brokers & trading platforms. A broker is often the best way to invest in the Hang Seng Index quickly, easily, and inexpensively. However, online stock brokers don’t usually offer in-depth investment advice. So if you’re looking for more thorough investing advice to guide your decisions, there are other options you should consider.
- Robo advisors. Robo advisors are algorithm-powered trading platforms which execute trades automatically. Some robots will also allow you to discuss your investment strategy with an actual human advisor. Combine that guidance with relatively low trading fees, and you have an attractive investing option for many investors. Robo advisors are still a more hands-off investing approach than what you get when investing with a dedicated financial advisor, though.
- Financial advisors. Financial advisors offer the most investment advice to investors. They’ll discuss your financial goals with you in great detail, and explain how every different investment option and decision can fit with those goals. With that level of service, it’s no surprise that financial advisors charge a premium for their services. That can sometimes be worth the price given the high level of customer service they provide. That said, it isn’t very complicated, so it probably isn’t worth paying high fees in this case unless you’re also planning on making other investments through your financial advisor.
- Banks. Your bank gives you the convenience of having all of your financial instruments in one place, such as your checking account, savings account, and other investments. The problem with this option is that banks tend to charge high fees without providing the level of service that top financial advisors offer. That means that banks often won’t provide the combination of service and affordability that you’re seeking.
Here’s our top recommended broker
What should I do now?
Ready to invest? Log into your online broker’s website, pick the investment asset you like most as a way to buy into the Hang Seng Index, and buy. After you’ve made your investment, keep track of the HSI’s performance so you can make informed decisions about whether to hold or sell.
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