Today, we are going to share with you how to invest your CPF investment money in a no-brainer way.
The best part?
You need not be financial savvy to do this. A beginner can do it!
And I’ll reveal the exact step-by-step process, which you can follow easily.
What is CPF Investment Scheme (CPFIS)?
It is to provide option to CPF members to invest their CPF savings in your Ordinary Account (OA) and Special Account (SA) in various instruments such as insurance products, unit trusts, fixed deposits, bonds and shares in Singapore.
The Average CPF Interest Rate is 2.5% to 4% for Ordinary Account. Check their latest CPF interest rate here. Below is the latest CPF rate (1st Oct to 31st Dec 2019).
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Who can invest CPF Savings?
– 18 years old or older,
– are not an undischarged bankrupt
– have more than $20,000 in your OA; and/or
– have more than $40,000 in your SA
How much of your CPF Savings can you invest?
– After setting aside $20,000 in Ordinary Account (OA), you can invest up to 35% in stocks and up to 10% in gold. AND/OR
– After setting aside $40,000 in Special Account (SA), you can invest up to 35% in stocks and up to 10% in gold.
What instruments can you use for your CPF Investment (CPFIS)?
Here’s the link to the list of instruments you can invest in. We will be using ETF as our recommended investment tool. The other investment tools like insurance products, unit trusts, fixed deposits and bonds, are either too risky or you have to pay high commission, or their ROI is not worth it.
Find out your CPF Account Statement
- Go to https://www.cpf.gov.sg/, and sign in with your Singpass ID and password.
- Enter the 6-digit One-Time Password (OTP) sent to your mobile number that’s registered with CPF.
- Click “My Statement”.
- Scroll down to “Section C”. This is the part where CPF computes the latest amount you can invest using CPF Investment Scheme.
How to Start Investing Using Your CPF?
Below are the steps to go about starting your CPF investment;
First, you need to set up a CPF investment account with one of the Singapore banks below, I have listed the bank rates with links for your reference too;
Bank Charges For Trading of CPF Approved Stocks
- DBS Bank Ltd (DBS), (DBS rates)
- Overseas-Chinese Banking Corporation Ltd (OCBC) (OCBC rates)
- United Overseas Bank Ltd (UOB) (UOB rates)
When you invest on your own, you pay the broker their commission at much lesser range from SGD2 to SGD25 per transaction depending on the platform you are using. And there will be a quarterly bank charges of $2 per counter for holding to the stock(s)/counter(s).
If you have difficulties in setting up the CPF investment with the 3 local banks, it will be best to visit their head branch. Below are their addresses;
– DBS Head Branch Address: 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Level 3, Singapore 018982
– OCBC Head Branch Address: Raffles City Shopping Centre , 252 North Bridge Road B1-08, Singapore 179103
– UOB Head Branch Address: 80 Raffles Place UOB Plaza 1, Singapore 048624
Things to bring along: NRIC or passport.
Reasons why you need to invest on your own for your CPF?
Since your CPF savings can only be use after 55 years of age, we recommend that you grow it before you reach 55.
We also recommend NOT TO USE third party like insurance companies to invest your CPF savings into . Even when the sales charges will decrease and eventually goes to zero in 1st October 2019.
Because the percentage of commission pay to these companies and agents can go from 10% to 50% in the first year. So in theory, you are only using 50% to 90% of your intended investment! Making it an instant loss when you purchase them. That is why they always say you need a certain number of years to see that the policy is breakeven.
Straits times shared that 40% of those who used CPF investment made losses, only 15% made profits larger than 2.5%. Read more here. The 3 main reasons for the low ROI is due to;
- High Fees in Financial Products (the main culprit, which I shared above.)
- Switching Financial Portfolio Too Often.
- Not Being Updated or Lack of Concerns on their CPF Investments.
Read more on “Don’t buy Endowment Policy Plan“.
Here goes the reasons…
Reason #1: Using your CPF Savings to Buy Home.
Most Singaporeans will use their CPF savings to purchase new home. So it makes sense, once you have more than $20,000 in your normal CPF account, you should start investing early so you can put a comfortable downpayment for your new home.
Fact: You will need to return the CPF amount you used to purchase the home when you sell it, plus the interest! Source from HDB.gov.sg
Reason #2: Use CPF for retirement in the future.
I know this is a lousy idea, but there’s not much one can do until you are 55 years of age. So might as well grow as much as possible and as early as possible. So that once you reach 55, you will have a monthly comfortable amount to draw out.
How to grow your CPF Investment Account?
Instead of gaining the yearly CPF interest of 3.5% to 5% in Singapore, why not use it to invest in assets that have higher percentage of CPF investment returns that’s better than what the CPF interest is offering?
We have found out that the past 30 years our STI index are in a general uptrend since 1987, and has a consistent yearly growth with dividend payout of about 9.5%.
I would recommend using ETF (Exchange Traded Fund) to invest into the STI index. You can do it monthly or yearly. This is a dollar cost averaging strategy, and it requires to be long term. That means 10 years or more to see the compounding effect.
Note: The dividend payout has to be reinvest back into the STI ETF.
What is Dollar-Cost Averaging (DCA)?
It is an investment strategy that buys a certain investment in a regular schedule (weekly, monthly or yearly) and fix amount of money, regardless of the price of the investment. DCA is usually used in stocks investing. The investor will buy more stock when stock price is low, and buy less stock when the price is high.
Since most would want to focus on their job or business, this is a great passive way to grow your CPF savings. Below are the list of Singapore companies in the STI Index as of 16th Oct 2019, taken from sginvestors.io.
|Company Name||Sector||Index Weight (%)|
|DBS GROUP HOLDINGS LTD (D05.SI)||Finance||16.10%|
|OVERSEA-CHINESE BANKING CORP (O39.SI)||Finance||11.40%|
|UNITED OVERSEAS BANK LTD (U11.SI)||Finance||10.90%|
|JARDINE MATHESON HLDGS LTD (J36.SI)||Holding Firms||5.20%|
|CAPITALAND LIMITED (C31.SI)||Real Estate||3.80%|
|KEPPEL CORPORATION LIMITED (BN4.SI)||Engineering Services||3.60%|
|ASCENDAS REAL ESTATE INV TRUST (A17U.SI)||Real Estate||3.10%|
|SINGAPORE EXCHANGE LIMITED (S68.SI)||Finance||3.00%|
|HONGKONG LAND HOLDINGS LIMITED (H78.SI)||Real Estate||2.90%|
|JARDINE STRATEGIC HLDGS LTD (J37.SI)||Holding Firms||2.90%|
|CAPITALAND COMMERCIAL TRUST (C61U.SI)||Real Estate||2.50%|
|WILMAR INTERNATIONAL LIMITED (F34.SI)||Agribusiness||2.30%|
|MAPLETREE COMMERCIAL TRUST (N2IU.SI)||2.30%|
|CAPITALAND MALL TRUST (C38U.SI)||Real Estate||2.20%|
|THAI BEVERAGE PUBLIC CO LTD (Y92.SI)||Food & Beverages||2.20%|
|SINGAPORE TECH ENGINEERING LTD (S63.SI)||Engineering Services||2.10%|
|GENTING SINGAPORE PLC (G13.SI)||Real Estate / Tourism & Leisure||1.90%|
|COMFORTDELGRO CORPORATION LTD (C52.SI)||Transportation & Logistics||1.80%|
|SINGAPORE AIRLINES LTD (C6L.SI)||Transportation & Logistics||1.80%|
|UOL GROUP LIMITED (U14.SI)||Real Estate||1.60%|
|VENTURE CORPORATION LIMITED (V03.SI)||Technology||1.50%|
|CITY DEVELOPMENTS LIMITED (C09.SI)||Real Estate||1.50%|
|SATS LTD. (S58.SI)||Transportation & Logistics||1.40%|
|SINGAPORE PRESS HLDGS LTD (T39.SI)||Media & Publishing||1.20%|
|YANGZIJIANG SHIPBLDG HLDGS LTD (BS6.SI)||Shipbuilding||1.00%|
|SEMBCORP INDUSTRIES LTD (U96.SI)||Energy & Utilities||0.90%|
|DAIRY FARM INT'L HOLDINGS LTD (D01.SI)||Grocery Stores||0.90%|
|GOLDEN AGRI-RESOURCES LTD (E5H.SI)||Agribusiness||0.40%|
So in theory, if you were to use $5,000 from your CPF every year to invest in STI index (at 9.5%) using ETF for 30 years, you would end up with $825,539 at the end of 30 years. See below.
Taken from https://www.moneysmart.gov.au.
You can see that the total deposit that you would have invested is $150,000, yet your total interest earned is $669,539.
Can I use CPF Investment to trade?
Yes, you could!
Our “The Systematic Trader” can help you to pinpoint which company to trade in and when to get out too. We do conduct previews almost weekly, do email to cyrus[at]collinseow.com to find out more.
There’s hundreds of CPF investment approved stocks to trade on. Here’s the list of CPF approved shares, and from the list you can use it to trade using our Systematic Trader system.
Note: You can only trade Singapore company when using your CPF investment.
So here you go, the “CPF Investment: Passive Income Guide for All Singaporeans”.
This strategy requires consistency in investing and time (10 year or more) to see results. It works great for retirement plan, for child’s future education. For those who just want to set it and focus on their business/work.
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If you have any questions regarding your CPF investment, do use the comment below and our team will do our best to answer you.