While most people consider CPF money not as theirs and ignores it as part of their retirement planning or investment portfolio, we tend to think that CPF compliments those 2 things!
We think that money in CPF is like money invested in Bonds (Terms & Conditions applied).
Even the CPF Board explains how your CPF monies are invested.
They are invested in Special Singapore Government BONDS.
Recommended Read: 5 Financial Things to do in your 20s
A standard retirement portfolio consists of bonds, stocks (equities), and cash.
In most cases, the goal is to try put as much money as possible inside your portfolio and withdraw as little as possible, allowing your money to grow over time to finance your retirement in the future.
We recommend Indexing for equities, read more about equities-indexing HERE
CPF fits into this criteria nicely - money only in, rarely out!
You can look at your Special Account like it is part of your Bond Portfolio!
1. Pays You Interest
Think of your Special Account as a bond you bought that pays you interest annually.
Even better, think of it as a long-term bond! - one that starts when you start working and ends when you reach your retirement age (kind of like a 40-year bond).
2. Pays You A High Interest
Bonds today pay little/low interest! - you are lucky if you found one paying you 3%!
Fortunately, CPF SA pays a minimum of 4%!
It comes with a bonus +2% interest too (terms & conditions applied).
Recommended Read: You Should Not Choose the CPF LIFE Basic Plan
3. High Credit Rating
The money inside is "backed" by the Singapore government!
It is the few remaining AAA rated countries left in the world.
That is essentially risk-free!
It is hard to find a high interest-paying risk-free rate of returns these days!
4. Fits Your Retirement Goal
To achieve the amount required for your retirement, not only is the returns you get important, but also the discipline to keep the money inside your nest!
It is preferable to have more money going in and less money going out of your retirement portfolio.
CPF is able to do just that - it is almost literally a one-way traffic!
5. The Disadvantage Of This "Bond"
You cannot withdraw money out from your CPF - unlike a normal bond where you can sell it for cash.
That is the drawback of getting a higher interest from a "bond".
But, since it is for your retirement goal, you really shouldn't mind the problem of not being able to withdraw it out.
6. Allows More Allocation To Stocks
Because the money in your CPF forms part of your bond portfolio, you can allocate less of your cash money into bonds and more into stocks, which allows you to earn a better rate of return.
Recommended Read: Answering the 2 Common CPF "Complaints"
Conclusion
If you are planning your retirement portfolio, you can consider setting your CPF SA balance as your "bond allocation".
It would allow you to capture a higher overall rate of return at lower volatility & risk.
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LOL! Got to give it to you guys. I regularly visit your site for financial entertainment. I feel obliged to give something in return for this endless laughter. Please read up on characteristics of money and bonds. The CPF does NOT fulfill all the characteristics to be called either money or a bond. Based on this, the rest of the article is just pure laughs. Get the BASICS right first, then MAYBE, just MAYBE you may be able to write something meaningful.
ReplyDeleteHi Playeur,
DeleteWe're glad we entertained you 😁
After all, we're all about entertaining with a little financial knowledge in between! 😁
If it's all real and serious stuff, don't think much of our general audience can sit and read it through 😉
Do subscribe to us so that we can keep entertaining you every time we post something new 👍
Cheers!