Saturday, January 7, 2023

Should I (Really) Invest My CPF? (Part 1)

This is a two-parter. Part 1 (this post) deals with the general information and other considerations of investing one’s CPF. Part 2 deals with my personal circumstances and decisions while investing my CPF.

Frankly, when this question was asked, I could not give a definitive answer as each one of our financial situations and goals with regards to CPF is different. Furthermore, it is an oxymoron to ask the question to an outsider, knowing that deep inside oneself the answer is there.


So, should you really invest your CPF? Read on to see if you can find the answer.


What Is My Risk Profile?


This answer is unique to everyone as all of us have different risk appetites and tolerances. While there are numerous questionnaires available on gauging one’s risk profile, I would boil down to just two main questions to ask oneself.


The first question would be: how much (by percentage) that you are prepared to lose. 5%? 10%? 20%? More than 30%? Given that the CPF interest rate is almost risk free (with at least 2.5%) and the principal amount will stay intact, remaining it as status quo is the best. Still, for some others, they wanted it higher, knowing that eventually, the smoothed-out returns would beat the 2.5% rate. This means going for higher risk options and seeing the invested principal swinging up and down.


The second question would be: how long you are investing for. 1 year? 5 years? 10 years? Beyond that? In the context of CPF, the typical end time would be 55 years old, the point of time where the Retirement Account is formed by setting aside the appropriate retirement sum (basic, full or enhanced), and you could possibly withdraw the balance out from the Ordinary Account (OA) and Special Account (SA). But this benchmark could be pushed further, maybe to 63 (to coincide with the official retirement age), 65 (the earliest point where CPF-Life payouts kicked in, if opted), 68 (the current re-employment age) or whatever age deemed fit.



Decided on whether to invest your CPF? If yes, then read on; else, you may wish to stop here (but read on for general knowledge if you want).


Do I have Enough To Invest?


Unlike a pool of readily available monies, there are limitations in how much to invest in your CPF. The first S$20,000 in the CPF-OA and the first S$40,000 in the CPF-SA are not investible. There are amount limits in place on what asset classes and financial instruments to invest in, such as a 10% limit on gold and not all ETFs can be used with CPF (more on this later).


Furthermore, you need to know what the commitments are, potential and current, that would/could be drawn from your CPF-OA. The biggest item for most people is property mortgage loan payments, whether you are planning to have your first (or second, or so on…) and/or are currently servicing one using CPF-OA. It is also important to provide a buffer of (my ballpark) at least six months’ worth of mortgage payments should you and/or your co-payer(s) face a loss of job(s) and/or retrenchment.


Another major item, for those with children, is education fees. CPF has a provision to withdraw OA funds for your children’s tertiary school fees, called the Education Loan Scheme. Although the loan would eventually be paid back, you would need to manage the OA so that it does not compromise the amount used between education and investing.


The Amount That Can Be Invested


If you look at your own CPF investment dashboard online, you can see the limits of how much you can invest for OA and SA (see Fig. 1):


Fig.1: Investment dashboard view, CPF website.


As I had mentioned in my eBook1, we will only look at investing the OA, since SA is quite restrictive in the choice of securities to invest and the 4% rate is attractive to me.


And here are how the limits are derived:


35% Stock Limit = [35% x (Prevailing CPF-OA Balance + Net Amount Withdrawn for Investment (if any) + Net Amount Withdrawn for Education (if any))] - Cost of Stock Investment (if any).


10% Gold Limit = [10% x (Prevailing CPF-OA Balance + Net Amount Withdrawn for Investment (if any) + Net Amount Withdrawn for Education (if any))] - Cost of Gold Investment (if any).


Professionally Managed Products = Prevailing CPF-OA balance – S$20,000 non-investible amount.


What Can Be Invested


You can find the list of investable financial instruments here from the CPF website.


Stay tuned for Part 2!


1 – The Bedokian Portfolio (2nd Edition), p160


  1. I use my CPF to buy STI ETF whenever its below $3. Collecting 3% dividend every year for 10+ years, it easily beats the CPF 2.5% rate and the low buying price provides a margin of safety.

    1. Hello World,

      Thanks for sharing your strategy, and very glad to know it pays (literally) for you!