This is part of our new series where we compare CPF against other financial assets.
Today, we are comparing CPF SA against SATS (S58.SI) because while we were building our SIA comparison, we found SATS to be a much more interesting story than SIA.
Don't worry, we will publish our SIA comparison soon, just as you requested
If there are other assets you would like us to compare against next, let us know in the comments below.
About SATS:
SATS Ltd. was founded in 1972 and is based in Singapore.
The company was formerly known as Singapore Airport Terminal Services Limited.
It is Asia’s leading provider of food solutions and gateway services.
It operates in three segments: Food Solutions, Gateway Services, and Others.
The company serves the airline, hospitality, healthcare, food, and air freight and logistics industries, as well as the government.
Source: Yahoo Finance!
CPF Assumptions:
- From Jan 2000 to Dec 2019, $100 is contributed into CPF via the Retirement Sum Top Up Scheme (RSTU).
- The money earns 4% p.a. interest and the extra CPF interest is excluded for simplicity sake.
In reality, the CPF returns would be higher than what is calculated due to the extra bonus interest (up to 6% in total).
- From Jan 2000 to Dec 2019, $100 is contributed into a Regular Shares Savings (RSS) plan every month to buy SATS (S58.SI).
- Shares are bought at the end of the month closing price and the plan charges a 0.88% transaction fee (OCBC Blue Chip Investment Plan).
- Money uninvested will be refunded back to your bank account.
- Results include both dividends reinvested and not reinvested into SATS.
Comparison
Recommended Read: Is CPF A Scam?
Analysis:
From May 2000 to Dec 2019, SATS returned 13.20% p.a. (dividends reinvested) and 13.54% p.a. (dividends not reinvested).
This is higher than the 4% return given by CPF.
Out of 240 months, SATS total portfolio value is lower than the CPF balance less than 10% of the time.
Over the long-term, SATS has proved to be a better investment than CPF.
Rolling Annualised Returns of SATS:
We calculated the 5-year and 10-year rolling returns of SATS share price (excluding dividend returns).
There were a total of 177 rolling 5-year periods and 117 rolling 10-year periods.
SATS share price returned between 4% or more the majority of the time.
That means that the dividends paid by SATS probably make up A fairly huge part of the total returns of SATS.
Conclusion:
The goal of investing is to increase wealth over the long-term.
The SATS grew at rates triple the 4% p.a. given by CPF.
Investing in SATS over the long-term should maximise your money.
Of course, past performance is no indication of future results.
SATS may, in the next 10 years, underperform the fixed returns given by CPF SA.
Also, if you have no stomach for volatility, and is risk-averse, then maybe CPF SA might be a better retirement plan for you than SATS.
Recommended Read: If You Invested Right After DBS's IPO
Side Note:
Rolling annualised returns with dividends
While we managed to calculate rolling annualised returns for SATS's share price, we were still not able to factor in dividends as part of the calculation.
If you have a way to use Excel to calculate the rolling rate of return with dividends via XIRR, please let us know.
We will work on the calculations and publish it for you.
Tax benefits with topping up to CPF SA via RSTU
Every dollar you contribute into your CPF via the RSTU is eligible for a tax deduction - if you haven't maxed out your tax deductions.
So you'll get tax deductibles of $1,200 per year based on the above scenario.
However, if you need money, you can't withdraw it from CPF.
For investing in SATS, there is no tax benefit associated unless you contribute that $100 into your Supplementary Retirement Account (SRS), and then build your RSS with the money that's in your SRS.
If you need money, you can sell your SATS shares and get back cash.
However, if you withdraw before your retirement age, 100% of the amount withdrawn will be subjected to tax.
Uninvested money returned to your bank account
If SATS shares were trading at $22.80, only 4 unit of shares would be bought, which translate to a cost of $92.00 ($22.80 x 4 units + 0.88% commission).
That results in $8.00 uninvested and going back into your pocket.
Disclaimer:
Do not make any investment decisions based upon materials found on this website.
Investment Stab is not a registered investment advisor, broker-dealer, and is not qualified to give financial advice.
Investors are reminded to do their own due diligence and invest according to their risk appetite.
Recommended Read: Answering 2 Common CPF “Complaints”
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