In this part, I will describe on how to go
about implementing your Bedokian Portfolio using your CPF Ordinary Account
(OA). Take note that I am posting this from the perspective of an investor who
is below 55 years old.

__Ideal Amount to Start__

It is recommended to start off the CPF
Bedokian Portfolio in one shot, much like the one bought using your disposable
income with the same reasonings.

^{1}The ideal quantum to start, after setting aside a buffer for your home mortgage payments and/or kids’ education fees, would be $36,500 ($36,500 – [35% x $36,500] – [10% x $36,500] = $20,075). The 35% and 10% are the stocks and gold limits, respectively. The remaining $20,075 is to fulfill the “no-investment” rule for the first $20K of your CPF OA.__Planning The Portfolio__

The asset classes that make up The Bedokian
Portfolio are available for investing using CPF OA, but we would have to tweak
the allocation to suit the limitations imposed (i.e. 35% stocks and 10% gold).
According to CPF, the 35% stock limit encompasses equities (including REITs)
and corporate bonds, but not Singapore Government or its related bonds.

^{2}
We cannot use the balanced Bedokian
Portfolio (35% equities and REITs, 20% bonds, and 5% commodities and cash) for
the CPF OA based on this limitation, but we could make full use of the
risk-free interest rates offered by CPF OA (currently 2.5%/3.5%) to our
advantage. Cash is traditionally seen as the lowest yield bearing asset class
in The Bedokian Portfolio, but with the relatively higher CPF OA interest, we
can allocate a much higher portion to it in the CPF version.

__The 35% Stocks Limit__

The stocks part would preferably be filled
up with equities and REITs that yield more than the 2.5% CPF OA interest rate. You
may want to use ETFs, and for individual securities you could use the selection
guidelines given in

*The Bedokian Portfolio*^{3 }or any other fundamental analysis methods to look for such equities/REITs.
Drilling down, I would allocate half of the
35%, i.e. 17.5% to equities and the other half to REITs, as I value the
importance of diversification to manage risk. However, it is up to your
preference on how this mix will be.

__The 10% Gold Limit__

For the gold component, there are only a
few choices, with the SPDR Gold ETF listed on the Singapore Exchange (SGX)
being one of them. For other gold products such as physical gold and gold
savings account, so far only United Overseas Bank (UOB) offer such products,
therefore your CPF Investment Account must be opened with UOB if you wish to
invest in them using CPF OA.

__Yield of the Portfolio__

To recap from my previous blog post, the
main aim of using CPF OA to invest is to achieve higher returns than the 2.5%
interest rate offered, so that this amount could be used for other investments
and/or payment for your kids’ education fees. Since the 2.5% interest rate (and
the 3.5% interest rate for the first $20K) are considered risk-free, and gold
does not give any yield, the equities and REITs yield would have to be higher
than the CPF OA interest rate and to compensate for the no-yield of gold.

Using the average annual yield between 2006
and 2013 as highlighted in

*The Bedokian Portfolio*^{4}, equities is at 3.23% while REITs is at 6.39%. Putting them at 50-50, the average would be (3.23% + 6.39%)/2 = 4.81%. However, since this number has to compensate for the loss of yield from the gold component, we would have to discount it away by around 28.6% (10%/35%), hence the whole yield generated from the invested amount is at (100%-28.6%) x 4.81% = 3.43%, which is higher than the CPF OA’s 2.5%.
If you are not comfortable with this yield,
rather than using the full 10% gold limit, you could just lower it to 5%
instead, with the remaining 5% earning the 2.5% CPF OA rate. In this way the
compensate for the yield bearing investments would be lower at 5%/35% = 14.3%,
and the discounted yield is at (100%-14.3%) x 4.81% = 4.12%.

If along the way there are capital gains,
then it would be a bonus as this would add on to the total overall returns of
the investments.

__Rebalancing__

As CPF contributions are mandatory, there
will always be inflows to the cash portion of the portfolio, and likewise the
stocks and gold limits would rise along with it. Periodic rebalancing can be
done, much like a typical passive Bedokian Portfolio, with the addition of
positions to the two limits.

*1 – The Bedokian Portfolio p73*

*2 – Central Provident Fund Board. Instruments that can be invested under CPFIS. Dec 2016 https://www.cpf.gov.sg/Assets/members/Documents/INV_InstrumentsunderCPFIS.pdf (accessed 19 Aug 2017)*

*3 – The Bedokian Portfolio p93-101*

*4 – ibid p70*

*Further references*

*Investment Products Included Under CPF Investment Scheme. https://www.cpf.gov.sg/Assets/members/Documents/CPFISInvestmentProducts.pdf (accessed 8 Sep 2017)*

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