3 awful consequences of trying to invest your CPF money

From Oct 2018 to Sept 2019, only 46 per cent of people who invested their CPF Ordinary Account (OA) savings under the CPF Investment Scheme (CPFIS) were able to beat the standard interest rate.

32 per cent of them lost money by investing it, and the others either profited a little or the same as people who left their CPF uninvested.

Here’s an opportunity for a lesson to learn, and consequences you want to avoid happening to you.

Wait, what are CPF investments?

If you are at least 18 years old, and have at least $20,000 in your CPF Ordinary Account (OA) and $40,000 in your Special Account (SA), you can invest your CPF savings under CPFIS.

The introduction of CPFIS is meant to give Singaporeans more control over how their CPF savings are used. Having said that, you can only purchase CPF-included investment products and depending on which CPF savings account you are using to invest, investment products and amounts will differ.

Most Singaporeans use the CPFIS for two reasons:

• To try and generate returns higher than the usual CPF interest rate of 2.5 per cent p.a. for OA and 4 per cent for SA.
• To put money into their investment linked insurance policies through CPF (this money is usually untouchable).

Unfortunately, many CPF investors would have made more money just leaving their CPF alone.

To put things into perspective, over the financial years of 2014 to 2019, 60 per cent managed to beat CPF’s interest rates, 20 per cent made profits less than or matched the interest rate and 20 per cent made losses.

Not all benefit from trying to control their own CPF money, and that ought to be a lesson to DIY investors. Bear in mind the consequences of losing cash on the CPFIS:

1. Losses are not replaced by the government

If you lose your invested CPF money, you are not required to top it up.

This is one of the main reasons that investors get reckless — they don’t feel the immediate loss of the money, as it seems like they never had it in the first place.

However, any money lost from the CPFIS will not be replaced for you. What you lose is gone for good, and this can affect your immediate bank account.

When you need to make a $20,000 down payment on your flat for example, the sum that could pay for it may have been thrown away on a poorly chosen mutual fund — and then you’ll be reaching into your pockets or taking a loan.

2. The CPF is critical to owning a home

Most people think of home ownership as the main purpose of the CPF. This isn’t actually CPF’s only purpose, but they are quite close.

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When taking out a HDB loan, 10 per cent of your flat’s value – the minimum down payment – can be drawn from your CPF. If you don’t have the CPF funds for it, you’ll be paying in cash.

Think long and hard about that, before deciding to treat your CPF monies like a casino pass.

The CPF is also used to make regular home loan repayments (again, you’ll be paying this in cash if you don’t have the funds), and to pay for the legal paperwork when buying a house or refinancing (this can cost around $1,500 to $2,000).

Unless you’re happy to bear these costs out of pocket, don’t mess with your CPF money.

3. The CPF is your most guaranteed source of retirement funds

You may not agree that the CPF alone is sufficient for retirement. You could be right, as there are financial advisers and other experts who feel the same way. But that being said, the CPF is still a crucial aspect of retirement planning.

The CPF is the only source of funds you have that are guaranteed. Short of the entire government of Singapore collapsing, you can always count on it being there. Treasure it and guard it because when everything else fails, it will be all you have.

So, when should you invest your CPF money?

If you are acting under the advice of a qualified wealth manager (e.g. an independent financial adviser who is overseeing your entire portfolio), then you should consider taking their advice and doing so.

Otherwise, it is best not to attempt to invest the money yourself. While most of the approved investment products have been screened to remove any toxic options, they all still carry a degree of risk.