Saturday, 27 June 2015

Better Way to Grow your CPF Monies

Just giving some suggestions and ideas with regard to your CPF monies instead of leaving them there earning 2.5-4% interest rates. I'm not exactly sure of the CPF interest rates, they keep changing until I get confused, but anyway, from what I understand, you get 2.5% (or the major local banks from Feb to Apr of that year, whichever is higher) interest rate on money in your Ordinary Account (OA) and 4% on money in your Special Account (SA), Medisave Account and Retirement Account. There is an additional 1% on the first $60,000 of our savings, $20,000 of which can come from OA.
CPF also has a scheme where you can invest some of your money (amount after setting aside $20,000 in your OA and after setting aside $40,000 in SA, I think they are separate so if you have say, $10k in your OA but $50k in your SA, you can invest $10k from your SA). This is called the CPF Investment Scheme (CPFIS), where you can use the money to invest in CPFIS-approved investments, max 35% of investible savings in stocks and 10% in gold.

Here's just a rough summary of the information, more on the nitty-grtties here:
CPF Investment Scheme (CPF Website)

Anyway, that's all for the background info, here's for the main part of this post: What's a better way to grow your CPF money? No matter how many Singaporeans like to complain about not getting their CPF money, we will get it back one day through the monthly payouts, to our beneficiaries, etc. and would still like to maximise the growth of our money even though they are being held in CPF. So, here's some suggestions on how to maximise the return on your CPF investments through the CPFIS

Singapore Government Bonds (SGS)
I'm not sure if the new Singapore Savings Bonds would be open for investment through the CPFIS, but the current Singapore Government Bonds offer better returns than the average 2.5% interest (seems unlikely that local banks interest rate would increase above that, it is currently at 0.21%). For 20-year and 30-year bonds, ideal for those between 25-35 years old, the yields stand at around 3.09% and 3.10% respectively. If there is an interest hike by the Fed, these rates would be even better and definitely outpace the interest rate on your OA monies for almost no extra risk (end of the day, CPF money is with Singapore Government as well).

Exchange-traded funds
For those that would like to take more risk and invest in the Singapore stock market, but do not know where to start or do not want to put in time to do tons of research, this is a good in-between among the government bonds and unit trusts. As covered in my post on Thoughts on Indexing, exchange traded funds are good as they provide diversification and have low expense ratios as opposed to buying individual shares and unit trusts. The Singapore stock market has also provided good returns on investment, around 7%. But there is more risk in investing money in the stock market and to prevent yourself from buying at peaks, you may want to do dollar-cost averaging as well. More info on dollar cost averaging at my posts here: Thoughts on Dollar Cost Averaging

CPF-approved funds
These include unit trusts and equity funds approved by CPF for investment using the CPFIS. These funds are able to outperform the market, but then as mentioned in my posts on Thoughts on Indexing, if you added up the returns of all investors, their gross returns would only match those of the market, but they would have to pay management fees, leading to high expense ratios which eat into their returns. However, the CPFIS-included funds have been able to deliver a return of 5.17% in the first three months of this year, outpacing that of the market. But then again we should note that 40% of CPF investors have lost money and only 15% made more than the 2.5% guaranteed interest rate last year. There's both promise and despair if you choose to invest here. (Statistics from Straits Times)

There are ways to get a better return on our CPF by investing through the CPFIS sceheme. One of my favourite is the SGS due to the increase in returns, without the inclusion of much more risk, good for the OA money which can be invested. Anyway, maybe next time we should consider paying more attention to our CPF money when we invest.

If you have enjoyed this post and would like to receive notifications on new posts, please subscribe to my blog via email

No comments :

Post a Comment