The Central Provident Fund (CPF) is (from the CPF website) “…a comprehensive social security system that enables working Singapore Citizens and Permanent Residents to set aside funds for retirement. It also addresses healthcare, home ownership, family protection and asset enhancement.”1 Basically it is an account to save up for your retirement, but the savings inside could also be used to pay for your housing, medical bills and investments.
I shall not go into the details on the workings of the CPF (you could find the relevant information from the CPF website at www.cpf.gov.sg), but rather on whether we could implement The Bedokian Portfolio using the CPF. Also, the account that we are focusing on is the CPF Ordinary Account (OA), although there is the CPF Special Account (SA) which provided a higher interest rate. I considered the CPF OA from the viewpoint of growing it more so that it could be deployed further in other investments (e.g. property) and/or payment of your kids’ education fees.
The first S$20,000 of the CPF OA must be set aside before it could be used for investment. Next, up to 35% and 10% of the investable savings can be used to invest in stocks and gold, respectively. You could view all these information when you log into your CPF account online.
Considerations Before Investing
The CPF OA interest rate, as well as all other CPF accounts interest rates, could be viewed as almost risk-free, which is currently at 2.5%. Although the CPF OA interest rate (and others) is subjected to a quarterly review, it has been this rate for almost the past 20 years.2 Furthermore, if you are below 55 years old, it is prudent to leave the first $20,000 of your CPF OA untouched as it earns an extra 1% interest, but this point is moot considering that you cannot touch this amount as stated in my previous section. Therefore it is important that your investments would at least beat this 2.5% amount, else it would be better off for you not to deploy the monies.
Another big consideration would be whether your CPF OA is being partially or fully tied-up in other commitments, such as home mortgage payments or your kids’ education fees. It is good that a buffer is set aside in your CPF OA for these. Personally I have had at least one year’s worth of home mortgage payments inside the CPF OA, just in case of unforetold events such as unemployment. Such things would usually come in an economic downturn and if you are fully invested, you would have to sell off your investments at depressed prices just to make ends meet.
Things To Do Before Investing
You would need to open a CPF Investment Account with either one of the three local banks (DBS, UOB and OCBC). Please note that you could only have one CPF Investment Account (no multiple CPF Investment Accounts is allowed). If you wish to change banks, you would have to liquidate your investments before initiating the closure. The banks would be able to assist you on the opening/closing procedures. Lastly, do take notice of the accompanying transaction and service charges on the use of the CPF Investment Account, which is available from the banks’ websites.
Another thing to do would be to link your brokerage account with your CPF. In this way, you could pay your securities purchases using your CPF funds instead of cash. You could find out more on this linkage from your brokerage firm.
Once these are up, you are good to go.
In the next part, I would go about on how to implement The Bedokian Portfolio with your CPF OA.
1 – Central Provident Fund Board. CPF Overview. 3 Aug 2017. https://www.cpf.gov.sg/Members/AboutUs/about-us-info/cpf-overview (accessed 15 Aug 2017)
2 – Central Provident Fund Board. CPF Interest Rates. https://www.cpf.gov.sg/Assets/common/Documents/InterestRate.pdf (accessed 27 Aug 2017)