Like many Singaporeans, civil servant Lynn Wee, 37, shares the burden of paying for her five-room HDB flat with her husband, while supporting two kids and two sets of elderly parents. The couple save whatever is left for the occasional luxury, like an annual holiday. “But we don’t have spare cash to invest and make our money grow,” says Lynn.
The couple knows they are already luckier than many of their peers. “We bought our flat directly from HDB for about $280,000 in the mid 2000’s and our combined monthly CPF contribution is more than enough to pay the instalments,” says Lynn, who knows friends who shell out cash, on top of using their CPF, to finance their more expensive homes.
Currently, your CPF contribution earns an interest of 2.5 per cent per annum in the Ordinary Account (OA) and 4 per cent per annum in the Special Account (SA), Medisave Account (MA) and Retirement Account (RA). But, annual inflation averages about 2.8 per cent per year, eating into your interest earnings.
To help bulk up our retirement funds, the government offers an additional 1 per cent interest per annum on the first $60,000 of the combined balances (with up to $20,000 from the OA).
Lynn has accumulated five-figure savings in her OA, SA and MA. Joking that she is more “CPF-rich than cash-rich”, she wants to start investing her CPF monies under the CPF Investment Scheme (CPFIS) to beef up her retirement fund.
If you're also keen to invest your "untouchable savings", here's how you can do it.
HOW MUCH CAN I INVEST?
You can only invest any amount in excess of $20,000 in your OA and in excess of $40,000 in your SA. Check your CPF Statement via CPF’s website to get a detailed breakdown, which will also show you what types of investments, known as CPFIS instruments, you can invest in.
But first, you must not be an undischarged bankrupt to qualify to use your CPF savings for investment. If you want to invest money from your OA, you need to open a CPF Investment Account with DBS, OCBC or UOB; this is not necessary if you are investing money from your SA.
WHAT CAN I INVEST IN?
Choose from different CPFIS instruments: shares and loan stocks, unit trusts, government bonds, statutory board bonds, bank deposits, fund management accounts, endowment insurance policies, investment-linked insurance policies (ILPs), exchange traded funds (ETFs) and gold. These are offered by vendors like CPF Fixed Deposit Banks (DBS, Maybank, OCBC, UOB), insurance comapnies, fund management companies and other banks.
What you can invest in also depends on whether you are using your OA or SA monies. Investing your OA offers more options, although there are certain guidelines to adhere to. For instance, only up to 10 per cent of your investible savings (your total OA balance plus the amount of CPF you've have used up for investment and education) can be invested in gold ETFs and gold. You can also use your CPFIS-OA funds to apply for shares, property funds or bonds offered during an Initial Public Offering (IPO).
Do note: You can use money from your OA only for investments under the CPFIS-OA scheme, and your SA only for investments under CPFIS-SA. You can’t combine them to invest in one product.
But if you're under 55, you can transfer funds from your OA to your SA and invest via your CPFIS-SA. Do think twice though as it’s irreversible; you can’t shift the money back to your OA in future to pay for your housing or education needs.
Also, the total savings in the SA, including the amount withdrawn under CPFIS-SA, must not exceed the CPF Minimum Sum after the transfer. This is currently set at $155,000 but will be raised to $161,000 in July 2015.
HOW DO I DECIDE WHAT INVESTMENT PRODUCT TO CHOOSE?
This depends on a few factors. How long do you plan to invest? What’s your objective – invest short term and maximise gains, or long term for stable yield?
Also consider your risk appetite. Lower risk investments, such as fixed deposit accounts, generally yield steady but low returns; higher-risk ones like buying stocks may gain – or lose – a lot of money over a short span of time.
More importantly, take a good look at your overall financial well-being. What other retirement savings do you have besides your CPF accounts? What other investments have you made and what are your financial commitments?
For example, if you are using your OA to pay off your mortgage loan and foresee that you may quit your job to be a stay-at-home mum, it wouldn’t be wise to max out your OA on investments. Should you stop working and thus, stop receiving monthly CPF contributions, you’ll want to stretch your OA balance as far as possible to service your bank loan, so you don’t have to pay cash up front monthly.
And if, say, you just want to make a little something extra for the next two years while waiting for your new HDB flat to be ready, you may prefer to pick a low-risk investment so as not to lose any of your OA that will affect your purchase.
STICK TO ONE INVESTMENT PRODUCT OR DIVERSIFY?
Experts usually advise you to spread out your risk by investing your money in different types of products. In case one investment bombs, the rest may do better, so it helps balance out your overall portfolio. One way of diversifying is to buy into different asset classes, such as keeping some money in the ‘safer’ (but lower yield) fixed deposits and investing in some higher-risk bonds and stocks.
You can also invest in different markets, such as buying into different types of industries, companies, geographic regions, foreign countries or currencies.
HOW DO I KEEP TABS ON MY INVESTMENTS?
If you've used your CPFIS-OA to invest, check the portfolio statement your agent bank or product provider should send you regularly. Just like investing in the stock market, it helps if the agent or broker you bought the product from is someone you trust and who looks out for your interests. He or she can advise you on the best time to buy or sell.
Operations manager Yan Tan, 36, admits that she is totally clueless. A trusted friend-cum-insurance agent advised her on some timely investments a decade ago and she made a whopping 25 per cent on her $50,000 investment when she cashed out three years later. “Till today, I don’t know what I invested in, exactly,” laughs Yan sheepishly.
Not everyone is as lucky as Yan. Ultimately, these are your retirement funds so make sure you keep up with the market’s ups and downs if you invest in the more volatile products. Otherwise, stick to low-risk ones that will earn you low but steady returns.
CAN I WITHDRAW MY PROFITS IF MY INVESTMENTS DO WELL?
Sorry, you can’t withdraw the profits made from investments under the CPFIS-OA and/or CPFIS-SA in cash, since the point is to build up your retirement nest. You can, however, use them for other CPF schemes, subject to terms and conditions. The good news is your investment profits, the interest earned from investments and dividends, will not be taxed.
WHAT IF I LOSE MONEY? DO I NEED TO TOP UP MY CPFIS-OA and CPFIS-SA IN CASH?
That just means your losses have eaten into your retirement nest egg but don’t worry, you don’t need to plug the gap.
Senior admin executive Cheryl Koh, 35, prefers not to take the risk and just lets her money sit in her CPF accounts, earning the additional 1 per cent interest per annum on the first $60,000 of the combined balances. “My SA and MA is earning 5% interest. How many investment products out there can guarantee this?” says Cheryl.
On the other hand, Lynn shares: “I am envious of friends who invested their CPF funds early and have made tens of thousands effortlessly, while my own funds were just sitting there collecting meagre interest. However, I also know friends whose investments' values stayed stagnant for years, or even dipped. They can’t sell as they don’t want to lose money.”
At the end of the day, it all depends on the current market, your personal financial management style and yes, luck. But one thing is for sure – while you may not ‘see’ your CPF funds in your pocket, it’s still your money.
“My friends admitted that they were more reckless with the CPF investments because they felt ‘more immune’ from any profits and losses, unlike investing with their regular cash savings,” says Cheryl.
If you squander away your CPF monies on bad investment choices, you may not feel the pinch now but you certainly will when you're retired and need all the savings you can get.
This article was originally published in Simply Her March 2015.