Investing your CPF money, really?

There was a period of time earlier this year that I contemplated on using my CPF money to invest. I sought some advice from my financial adviser back then on how the process is like and what options were available. The idea of using money that has to be locked away for a long, long time and not having to consider much “risk” with using cash on hand was a tantalizing thought indeed.

But the idea didn’t last long with me.

If you’re not that familiar with how you can use your CPF money to invest, here’s a quick crash course. Firstly, you would have to open a CPF Investment Scheme (CPFIS) account under one of the three major banks in Singapore, namely DBS, OCBC or UOB. Then you can start trading using that account as like you would with your cash.

There is also a limit to how much you can use. For the OA, the first $20,000 is untouchable as the minimum sum required and you can invest 35% in stock and 10% in gold of whatever available above the $20,000. And as for the SA, the minimum doubles at $40,000 but there is no need to open any account. CPFIS-SA is also only limited to these product providers.

As with the recommendation of my financial adviser, it was to place some OA money into a managed fund. Here’s the catch. 3% of your investment would be charged by the fund managers before you even start investing. That of course, did not sound very appealing to me, considering that I would have effectively lost 5.5% of interest if my investment didn’t make anything on the first year. That’s $550 for every $10,000 invested!

Needless to say, the drawbacks get worse if I were to use the money in my SA instead. That loss increases to a great 7%. I wouldn’t even go near elaborating on how devastating that could impact my portfolio returns.

I should mention also (and again) that the returns are not guaranteed and “risk-free” like the default interest rates provided by CPF. I was still very new to investing, but I could understand the opportunity cost should I go through with this method. It was too distasteful for my liking.

Not to forget, the annual fees for the fund managers themselves that would be charged too, although I do not have the exact figures of that up till this point.

I know many who have taken this option. The thought of having to use money that you can’t see and handing it over to someone who you think might be able to generate better returns than you somehow seems sane. Sure, I’ve been there myself. And sometimes, not knowing the real truth about investing can be a “bliss” for them, since they probably would not know how much they have lost, or could have gained, anyway.

As with the recent article from The Business Times that show that funds under the CPFIS average returns increased 5.1% in Q1, perhaps my next question would be if those are the net returns? It is not surprising that they would do well since it has been a decent year for the SGX in 2017, and if the funds are diversified enough the overall returns would emulate something similar to the returns of the STI ETF. Data can be selective.

If you’re planning to do the same, I hope you find yourself lucky enough that you’ve read this post to be wise. Maybe even choosing to take the same CPF money and DIY yourself with lower fees could be a smarter decision – wait, it probably IS.

Thanks for reading!

Miss Niao xoxo