Investing with CPFIS – Keep It Simple
After reading TurtleInvestor’s blog post on investing with his CPF money, I felt compelled to write my own post about my experience with investing using my CPF money.
Sometimes, it’s best to leave things which is meant for a certain purpose alone – in this case, I’m referring to the CPF social security savings plan. The original idea for CPF when it was first introduced was to save for retirement, but as time passed by, it seems that one can now use it to buy a flat, invest in shares, unit trusts and even gold – within certain limits of course, otherwise there won’t be any money left in the CPF to give to retirees if every uncle and auntie threw their entire life savings into financial instruments. Being the sometimes-cynical type, I like to call this my “virtual demo trading account”.
So with the relaxed rules, one can theoretically invest in whatever you wanted, assuming you’re not near retirement. However, not all CPF investments make money, so some caution must be exercised – in my experience, unit trusts and probably gold are not worth throwing money at, as unit trusts (either by direct purchase through a provider, or via ILP) take a huge chunk of your returns to pay the fat cats running the funds, and gold barely keeps up with inflation and also has the problem of being a semi-commodity. Shares are fairly risky, as the CPF-OA account gives you a nice “risk-free” rate of about 2.5% at this point in time of writing, and beating 2.5% is an issue if you are planning to buy more than a few counters, as the quarterly fees on your CPFIS account which the “big 3” banks are charging will eat into your returns! And after all that, you still need to consider which counter to buy! Finally, using CPF money to buy a flat is alright, but as I’m not eligible to buy a home of my own, I am neutral on this.
So given these constraints and issues, what’s the best plan should you want to invest? In my opinion – keep it simple, buy the STI ETF. This solves the issue of getting good returns, being charged quarterly fees from the “big 3” banks and is an easy way to track your investments. Additionally, risk is kept at a minimal level through diversification by virtue of the index reviews (and rebalancing if needed by the ETF manager) done quarterly. Although the STI ETF is not really diversified in a sense, at least you’re investing in your home country, which is the point of the CPF anyway – to retire with enough money to get by in Singapore.
As always, after the theory lessons comes the practical one. I bought 2 lots of the STI ETF during the stock market plunge in January & February this year, and since I was low on cash (99% of my savings have been deployed for investment in the stock market) at the start of 2015 till date, for the first time in my life, I decided to deploy my CPF to buy the STI ETF.
My CPF IA account is with OCBC, since I had two ILPs with Great Eastern (a subsidiary of OCBC). I liquidated both my CPF-OA and CPF-SA ILP last year (lost about $50 over 5 years, not including the quarterly charges), and the account was about to be closed (due to some regulation or bank policy about inactive accounts). Since I didn’t want to incur execution risk by waiting two to three weeks by closing the account with OCBC and opening one with UOB (I hardly patronize UOB, so why not give them business?), I decided to link my OCBC CPF IA with one of my brokerage accounts, and then execute the trade, as I thought the STI wouldn’t fall below 2750 (I was wrong). Thus, I bought two lots at different times in January & February in order to average down on my purchase price, for a roughly 1% hit in brokerage commissions, GST and SGX clearing fee. On top of that, since I bought one lot before the XD date, I was able to pocket the $51 dividend which was declared, which is enough to pay for my quarterly fees for holding just the STI ETF for the next 6 years or so.
The result? As you can see from the screenshot taken just a while ago below, I’m pretty happy with the returns so far.
Note that the average cost is auto-magically calculated based on my two separate purchases, and the market value is pulled directly from SGX.