Starter Guide to Financial Planning
Investing Your CPF Monies
You can invest your Central Provident Fund (CPF) monies. Yes if you just found this out, you just open another opportunity for you to invest.
But where can you invest your CPF monies? To help you out in this matter, this article is to discuss where you can invest your CPF monies.
Basic rules of investing your CPF monies
You can only invest your CPF Ordinary (CPFOA) and Special Account (CPFSA), unfortunately not your MediSave Account (CPFMA). You need to have a minimum of $20,000 in your CPFOA and $40,000 in your CPFSA prior to investing your CPF money.
You must also be at least 18 years old. Plus you must be an un-discharged bankrupt.
READ ALSO: Here Is What You Need To Do Before You Start Investing
Instruments that you can invest in
Investment-Linked Policies (ILP)
Yes, they are indeed insurance policies. And in fact, they are one of the last insurance policies that you are able to pay via your CPF monies. You are able to purchase an Investment Linked Policy from an insurance company.
It is always better for you to find out the benefits and limitations of the policy prior to purchasing them. Seeking professional advice is another way for you to know if the instrument is suitable for you.
An ILP is no normal insurance policy. It works differently.
Nonetheless, they do have death benefit as most life insurance policies have.
Since it is used for both protection and investing purposes, you have to be aware that the premiums are allocated accordingly. Not everything will be allocated to your investments.
Therefore, if you want to do both, you cannot expect the best of both worlds.
READ ALSO: Let’s Discuss The Good and Bad Of Investment-Linked Policy
Unit Trusts
You perhaps have heard of Mutual Funds. They are the same thing as a Unit Trust.
It is where investors place their money into a pool. A Fund Manager will manage that pool of money.
The Fund Manager will then place the money into different companies. Unit Trust helps in diversifying the pool of money and reduce certain risk.
Exchange Traded Funds
The main difference between an Exchange Traded Fund (ETF) compared to a Unit Trust is that an ETF is traded on the market but Unit Trust is not.
ETF is constructed to behave the same way as a specified index or a collection of different securities. If you want your investment to have a similar return as a certain index, therefore an ETF might be an instrument that will suit you.
Fixed Deposits
Like from the name itself, you are to put aside a fixed amount into the Fixed Deposit in order for you to start opening an account. The returns are not that high and it comes with the low risk that it undertakes.
If you want something certain and you are not a risk-averse person, thus Fixed Deposit might be an instrument that will suit your risk profile. Allowable CPF funded Fixed Deposits are sold by certain banks only.
Bonds, Treasury Bills, Shares & Property Funds
The instruments above are not similar but they do have one thing in common; they are all available in the SGX market.
The returns of your investment
The main reason for investing is for you to gain positive returns on the investment.
The returns of your invested CPF monies will be placed in your CPF account.
Do not be surprised if you do not get the investment returns credited to your personal bank account.
If the money came from your CPF account, it will go back to your CPF again.
You can only ‘enjoy’ that return once you reached 55 or 65, and it all depends on your balance.
The reason for you to invest your CPF monies is to get better returns compared to leaving your money in your CPF account.
READ ALSO: Breaking Down CPF LIFE And How It Can Be Included In Your Retirement Plan
Understanding the risk
If you want to get a profit of $100, you do have to be willing to lose $100 as well. That is investing; it can go up or down.
You cannot have the best of both worlds. In order for you to gain profit, you do have to take some amount of risk as well.
Say, for example, if you want to win an F1 race, you do need to drive and compete against other F1 drivers as well. Given the speed and danger that it involves, you can say that that is the risk. And when you win the race that will be your return.
Nonetheless, there is a potential of you crashing or even dying when trying to win that championship.
You cannot win an F1 race if you do not want to drive in that track. As a result, you do have to take some risk in order to get the returns that you want.
Be diligent and look at the finishing line
Do check the performance returns from time to time. If your investment is not performing well you might want to do some alterations to your investment portfolio.
Be consistent with your goal and know your risk profile.
If you lack the time and knowledge to invest your CPF monies, you can leave it to a professional to assist in overlooking your portfolio. They have both the time and knowledge. And to add on, they do it full time.
At the end of the day, what you want is to be able to get a huge lump sum of withdrawal at 55. Or you want a higher monthly payout when you reach your retirement age.
Hope that this article was useful. Do share it with your family and friends. Till next time.
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Disclaimer:
I am a financial adviser but I am not your financial adviser. Therefore, what is posted on this website, are my opinions and NOT to be taken as financial advice. Information provided might be relevant at this period of time but may be irrelevant due to alterations to rules, regulations or policies. The information provided is true to the best of my knowledge, but there maybe omissions, errors or mistakes.
