EDIT, OCT 7: Since CPF put a cap on the fund fees (0.4% p.a), there have been fears that Financial Advisory firms might sell more expensive funds to get past this change. That said, ENDOWUS has been charging low fees from the start. They’ve also added access to new passive funds to their portfolio mix. TWS has remained invested since this article was first published on Feb 25, 2020 (yes, even through the huge market dip in March).
BIG SPONSORED POST DECLARATION: THIS IS A SPONSORED POST for ENDOWUS. They are the only “robo advisor” allows you to invest through the CPF Investment Scheme. This post is also written from the perspective of someone who’s 30 and can still stomach significant risk. If you plan on using or withdrawing your CPF OA in the next 3 years, this approach may not make sense for you.
For the longest time, I’ve pretended that the money in my CPF OA (Ordinary Account) didn’t exist, since I only intended to use it as a way to buy my home.
I try not to fuss and obsess about it. Focus on the big wins, amirite?
After all, ignoring my CPF OA in my mid-twenties made sense, because there was never a lot of money in it (<$20,000).
But as the amount in my CPF OA gets more substantial, I can no longer do that. Because significant opportunity cost if I don’t invest via the CPF Investment Scheme.
Here is my thought process on why I decided to invest $13,250 from my CPF Ordinary Account.
I hope it helps you decide whether or not to invest.
Step 1: Do you believe in investing?
Plus, I’m 30 years old with a long investment horizon. Apart from my 20s, this is the best time to take the risk.
That’s why I invest up to 70% of my cash in the stock market. The remaining 30% I keep as emergency savings in my OCBC 360 account, earning somewhere around <2%.
The way I see it, money in my CPF is something like my OCBC 360. It only earns slightly more interest at 2.5%. So it’s not exactly great at growing wealth, only preserving it.
As you can see, the stock market can possibly provide much higher returns if you are willing to take more risk.
So, if I were to leave all my money in CPF OA, it would kinda be like leaving all my cash in my savings account and not investing.
So the answer was clear.
If I were to treat my CPF like how I treated my cash, I needed to invest it.
Step 2: Do you have enough to invest?
With cash savings, we’d usually advocate people don’t invest money they need in the next 5-10 years. With CPF, we think you shouldn’t invest money you’d possibly be using for a home – after all, most Singaporeans buy homes with their CPF.
I’m no different, so I should leave some money in there to pay for the downpayment. (However, my single af Endowus counterpart has invested all his investable CPF OA, since he won’t be buying a house anytime soon.)
I’ll need to pay $43,750 ($87,500 / 2) assuming I split it evenly with my girlfriend.
At present, I’ve got approximately $77,000 in my CPF. Assuming I buy the flat with my girlfriend, subtracting the downpayment means that I will have $33,250 (because $77,000 – $43,750) of my CPF to invest with.
So, should I invest the entire $33,250?
Well not exactly.
For starters, I’d like to have six months of mortgage payments in my CPF OA in case I lose my job. That way, I could still pay for my hypothetical flat if I become jobless.
That said, CPF has already added safeguards that. You can only invest the excess of $20,000 in your CPF OA. With that, the amount that I can invest for my CPF despite my housing commitments will be at $13,250.
Step 3: How should I invest that sum?
In my situation, my investing strategy – whether using my CPF or not – I want to:
- Spend as little time as possible monitoring the market (and more time living life).
- Expose myself to appropriate risk (and therefore, returns).
Now, in the real world I usually advocate a passive investment strategy, such as buying a combination of the STI-ETF using a RSP as well as US ETFs such as Irish Domiciled S&P 500 ETFs (VUSA, CSPX, IUSA etc) via a platform such as Interactive Brokers.
(You can read more about this here)
However, for less effort and slightly more cost, there are roboadvisors such as DBS DigiPortfolio, MoneyOwl, StashAway, AutoWealth,Endowus and Syfe that attempt to play the same passive investing game.
That’s actually how I arrived at using Endowus to invest my CPF
It was a pretty straightforward pick. They’re the only CPF-approved roboadvisor at the moment. I also qualify for the minimum deposit for Endowus, which is $10,000.
Wait wait wait, hold up – why didn’t you put that money into your CPF Special Account to earn a guaranteed 4% interest instead?
There has been lots of talk about emptying your Ordinary Account to your Special Account to earn that guaranteed 4 % interest.
We’re not shitting on the strategy, but as our friends Dr Wealth always says, investing is like a religion. What works for some people – like this very impressive dude – might not work for us.
Our main issues are:
4% guaranteed interest is amazing for a bond. But it pales in comparison to stocks. Our rule of thumb is this: the younger you are, the more risks you should take. The older you become, the safer you should become.
We just turned 30, so we still think that’s pretty young. Maybe when we turn 50 we’ll start liquidating our CPF investments and shift them to our Special Account.
We like having money, and we hate locking stuff up away for long periods of time. Now, don’t get us wrong, we are big believers in CPF – we’ve even stuck our neck out there to say it before and have gotten shit for it.
But the process of putting OA into SA is irreversible. To put a significant amount of our net worth away for the next 30-odd years?
We simply don’t feel comfortable with that.
Because CPF might guarantee 4% today, but it’s heavily affected by government policy. What if it’s 3% in 2030, 2% and in 2050? I’ll still be stuck with lots of money in there, unable to use it for my housing needs.
And there’s no guarantee our government in 20 years will be the same as the government today.
Best not to be too dependent on it, after all, a huge chunk of our hard-earned salary and bonuses are at stake.
Stay woke, salaryman.
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