How much can I invest in ETF using my CPF Monies

For an updated version, refer to the article HERE.

Today's post will be on: how much can I invest in ETFs using CPF monies.
This question is posted by one of our readers.
We would like to thank him/her for reading and interacting with us by posting a question for us to answer.

1) What is an ETF?
An ETF is an Exchange Traded Fund, a fund traded on financial markets (SGX, NYSE etc) like a stock. For more information on what ETF is, please read our posts HERE

2) Am I Eligible to CPF Investment Scheme (CPFIS)
All members are eligible if you
    a) are at least 18 years old
    b) are not an undischarged bankrupt
    c) have more than $20,000 in your Ordinary Account or more than $40,000 in your Special Account
*Your first $60,000 in your combined CPF account earns an extra 1%, which is why the CPF recommend you to invest the only amount in excess of that $60,000.

3) What can I invest in?
What you can invest in shown in the table below:

*Source from https://www.cpf.gov.sg/Assets/members/Documents/INV_InstrumentsunderCPFIS.pdf

4) How much can I invest in ETFs using my CPF monies?
Yes, you may invest your CPF money in Singapore listed ETFs.
However, there are some rules & regulations regarding this.
You may only
    a) use your CPF OA for investing in ETFs
    b) use funds in excess of $20,000 in your OA
    c) invest in 3 ETFs (currently approved):
              i) SPDR Straits Times Index ETF
              ii) Nikko AM Singapore STI ETF
              iii) ABF Singapore Bond Index Fund

5) What is the cost associated with using my CPF for investments in ETFs?
There are 2 costs associated with investing in ETFs with your CPF.
    a) Your brokerage fees
         Your account will have to be opened with 1 of the 3 banks in Singapore (DBS, OCBC, UOB). You will also incur service and transaction charge as per below in addition to your normal brokerage fees.
*Source from https://www.cpf.gov.sg/Assets/members/Documents/INV_Annexd.pdf
    b) Your ETF fund fees
         This depends on which ETF you are buying. Most ETFs charge a low fee. The fees are used to pay the fund management team for providing the product.
          i) SPDR STI ETF: expense ratio of 0.3% NAV (Net Asset Value)
          ii) Nikko STI ETF: expense ratio of 0.42% NAV
          iii) ABF Singapore Bond Index: expense ratio of 0.25% NAV


If you have any more questions regarding this policy, feel free to comment, ask us, or interact with us.
We would love to hear from you on how you think about this policy or other things that you would like more details on.

Recommended Post: Raising the Re-Employment Age to 67

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Reduce your Insurance Cost

Today's post is to give you a tip on how you can save up on your monthly/annual insurance premiums.

If you have made contributions to your CPF, you are most likely enrolled in the CPF's Dependents' Protection Scheme (DPS).
DPS is a life insurance scheme that provides your family with a lump sum of $46,000 when you:
1) become mentally or physically incapacitated from ever continuing in any form of employment
2) passed away

Its is term insurance and is meant to insure you until you reach the age of 60.
In simple words, it is a term life insurance that insures you up to $46,000 and is paid by your CPF money.

If you are currently signed onto 'Dependents' Protection Scheme', you are being protected of $46,000.
This insurance's premium is paid via your CPF Ordinary Account (OA).
If you are unsure if you have this, you may check this via your CPF account.
If you would like to know the insurance premium's cost, please click this HERE

However, I would like to share with you that, when you are buying external life insurance, you may wish to remove $46,000 from the sum that you think you wish to insure yourself from.

Example:
You need to buy a term life insurance for your family. You wish to be insured for $150,000. Instead of buying the whole $150,000; minus away $46,000 from that figure.
Get yourself insured of $104,000 will do. This is to prevent you from double insuring yourself and end up paying extra for insurance.

The amount you end up saving from not insuring that extra $46,000 could range from $75-$100 annually. While this may not seem like a large sum, extend it over 40 years and it would cost you between $3,000 - $4000 in total.
Why pay extra for the money you do not need when it could be better spent by treating your family to a good meal.

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How much is Dependents' Protection Scheme (DPS) Premium?

For an updated version, refer to the article HERE.

Today we will be answering this question: How much is my Dependents' Protection Scheme (DPS) premiums?

DPS is a term life insurance scheme that provides your family with a lump sum of $46,000 when you:
1) become mentally or physically incapacitated from ever continuing in any form of employment
2) passed away

Its is term insurance and is meant to insure you until you reach the age of 60.
In simple words, it is a term life insurance that insures you up to $46,000 and is paid by your CPF money.

The insurance premiums are paid annually and the rates are as per below.
If you would like to know how to save on your monthly insurance cost, link HERE

Age (as of last birthday)	Yearly Premiums
34 years & below	$36
35 - 39	$48
40 - 44	$84
45 - 49	$144
50 - 54	$228
55 - 59	$260

Assuming you started contributing to your CPF at the age of 16 (our first part-time job) and bought this insurance since then and continued it till you reach 60 years old, you would have paid out $4,504 in premiums for a $46,000 protection.

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What is the Historical CPF Minimum Sum?

This post will answer 2 questions:
1) what is the historical CPF Minimum Sum?
2) what is its growth rate like?

Below is a table of the historical minimum sum since 2003.
The actual minimum sum you need to have is in column 'MS adjusted for inflation'.

Date	MS in 2003 dollars	% change in MS in 2003 dollars (A)	MS adjusted for inflation	% change in MS adjusted for inflation (B)	B-A	Govt stated inflation
Jul-03	$80,000	-	$80,000	-	-	-
Jul-04	$84,000	5.00%	$84,500	6.63%	1.63%	0.40%
Jul-05	$88,000	4.76%	$90,000	6.51%	1.75%	1.72%
Jul-06	$92,000	4.55%	$94,600	5.11%	0.56%	0.52%
Jul-07	$96,000	4.35%	$99,600	5.29%	0.94%	0.91%
Jul-08	$100,000	4.17%	$106,000	6.43%	2.26%	2.18%
Jul-09	$104,000	4.00%	$117,000	10.38%	6.38%	6.52%
Jul-10	$108,000	3.85%	$123,000	5.13%	1.28%	0.59%
Jul-11	$112,000	3.70%	$131,000	6.50%	2.80%	2.81%
Jul-12	$113,000	0.89%	$139,000	6.11%	5.22%	5.35%
Jul-13	$115,000	1.77%	$148,000	6.47%	4.70%	4.54%
Jul-14	$117,500	2.17%	$155,000	4.73%	2.56%	2.38%
Jul-15	$120,000	2.13%	$161,000	3.87%	1.74%	1.01%
		3.17%		5.60%	2.43%	2.21%

The last row shows the annual compounding rate of the category.

Insights:

1) The Minimum Sum in 2003 dollars has been increasing at an annual compounding rate of 3.17%.

2) The Minimum Sum adjusted for inflation has been increasing at an annual compounding rate of 5.60%.

3) The difference between 'MS adjusted for inflation' and 'MS in 2003 dollars' is 2.43%; compounded annually. This is very close to the actual Singapore inflation rate published by Singstat.

4) Our CPF Minimum Sum is increasing at a rate faster than inflation.
I put the 3 category into a maths formula below:
'MS adjusted for inflation' - 'Sg inflation' = 'MS in 2003 dollars'
(5.60%) - (2.21%) = (3.39%)
[the numbers are not exact due to statistic reasons, but it shows a rough idea behind the formula]

I would like to call the annual compounding 3.39% in 'MS in 2003 dollars' as 'Lifestyle Inflation'.

Inflation is the increase in cost of living - transport, food, clothes etc getting more expensive.

Lifestyle Inflation is the change in preference for more expensive products. Instead of opting for a $2.50 chicken rice in a hawker centre, we choose to opt for $3.50 chicken rice in a air-conditioned food court.

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CPF Interest Versus Fixed Deposits

For an updated version, refer to the article HERE.

This post will contain a tip on how to increase your CPF returns, namely in the form of interest.

One way to earn more interest from CPF is to transfer your extra money, into your CPF Special Account.

Your Ordinary Account currently earns 2.5%, Special Account and Medisave Account earns 4% interest while your normal bank Fixed Deposit earns less than 2% annually.

Real Life Example:
My mum is 46 this year. She wanted to buy a 10 year Fixed Deposit which earns less than 3% per year. I suggested that she put her money into her CPF to earn the CPF interest.

Based on her current age, her contribution will be split into the 3 accounts in the following allocation:
OA: 51.36%
SA: 21.62%
MA: 27.02%


Assuming she puts in $1,000, the allocation will be as follow:
$513.60 into OA
$216.20 into SA
$270.2 into MA

Based on the above, my mum will get an average 3.23% interest on her $1,000 per annum.
She will also get to withdraw the money out when she reaches age 55.
Of course, if my mum fails to meet her minimum sum, the money that goes into her CPF will not be returned to her at the "end of the maturity" - instead she will get it as future monthly payouts.
But there will be other factors to be considered and there will be ways to withdraw the money out, which will be explained in future posts.

All in all, if you wish to have a higher interest rates than Fixed Deposit and risk-free, you can consider putting your money into your CPF, especially if you are near 55 years old - where the risk-return profile is more skewed in your favour.

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Key take-aways from The Edge ETF Forum 2015

My apologies for the long 1-month hiatus from this blog as I was handling some personal issues while juggling NS at the same time. Just an update, I was managing my family's insurance coverage and find out more on the Direct Purchase Insurance (DPI) Initiative launched by MAS recently. Hence, I was busy shuffling between investment advisors, insurance agents and insurance forums to check out different information. I would be crafting out a detailed guide on the new initiative and suggestions on how this could potentially reduce your premiums while maintaining your coverage. However, it will only be released to the readers who had subscribed on the mailing list as I had promised to as written on the previous post.

Back to this blog post, I had just attended The Edge ETF Forum with the basis of finding out more on how I can harness the use of ETFs in my portfolio. Since the program outline was not provided, I was basically sceptical on the coverage of this event. This was especially after seeing that Saxo Capital, one of the sponsors of the event, was to start the day. To sponsor an event, the sponsors have to make a return in exchange for the costs shed, and one was to entice more customers to increase sales. Despite the initial negative 'judgement', I felt that the talk given by Mr Adam Reynolds was exceptionally informative in terms of his views on macro trends. He gave a few macro trends that could affect the world but 3 that is, in my view, particularly important are: The global disinflation due to crashing oil prices, the difference between EU and US, and rise of India.

Many parts of the world have been experiencing disinflation due to the rapid drop of oil prices, partly due to the shale boom back in the US, which led to rising supply. Being a substitute for conventional crude oil, the US is slowly changing from a major exporter to an importer. With the US having a better economic performance and achieving a moderate inflation rate, people are looking to the September meeting where the Fed might start to hike interest rates. Meanwhile, the European Central Bank has just done a Quantitative Easing, essentially depressing the Euro to almost a 12-year-low. This has, in turn, raised the competitiveness of the Euro producers against those in the US, which could potentially allow higher upsides in the euro markets. It was also said that one should be vested in the Euro ETFs excluding the financials as these should benefit from the rising discrepancies.


Source: https://www.tradingeconomics.com/euro-area/currency

The rise of India is a phenomenon that no investor should miss. Notably, it is estimated that India will outperform China's performance. With so much hidden potential, institutions are also following the trend. As such, one should also be vested in the India ETF so capture this upside. Even more so is that the India BSE Sensex Index has retraced from its previous peak.

Personally, I feel that ETFs should be used as a passive investment tool or a tactical tool to capture hidden upsides from existing macro trends. However, you do not wish to take on additional unnecessary risks from picking specific stocks. As such, you can benefit from the general market movements and diversify industry-specific risks. To add on, it has a low-cost advantage compared to other existing solutions in the market.

All in all, ETFs are good portfolio complements and if used correctly, they can buff up the portfolio returns while reducing downside risks. If you have any questions or comments, do leave them below for discussion.

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