CPF: A good deal?

[sundaymorningstaple]

I think everybody here knows about my links. I've only been on this board for 10 years and in Singapore for 31.

[earthfriendly]

Please name one investment in the world generating this rate of return (post tax) and at this minimal risk level. I will not even consider inflation when comparing investments as it is something everyone has to live with, regardless of weather you are investing in real estate, stock, bonds, forex, annuity.... well maybe a specialized product like TIPS. I am referring to a more general product and easily understood by the average Joe. Something broader.

When it comes to investment, the simpler it is, the better. Nothing exotic please. Few people are inclined to spend too much time studying the subject, unless it is their line of work.

[JR8]

When it comes to investment, the simpler it is, the better. Nothing exotic please. Few people are inclined to spend too much time studying the subject, unless it is their line of work.

You sound like an ideal candidate for CPF. You can do better, but it (no surprise) takes some personal interest and effort.

[earthfriendly]

CPF, like the Social Security in USA, is meant to help fund the retirement of the general population. Do you think the general population is savvy enough to navigate thru the myriads of investment options, financial advisors, newsletters......... out there on the market. There are many people who are very good at their jobs and earn very good living from it. But when it comes to investing their hard earned money, they are clueless and are at the mercy of commissioned financial advisors, brokers, financial newsletters .....

Many of Madoff victims are well known celebrities and highly successful people.

[earthfriendly]

I understand what you mean. It takes research. However for many, there are so much information out there and some of them contradict each other. It is information overload, not to mention that nobody can predict the market.

[Beeroclock]

Just to clarify a few things :
1. You can invest your OA (the majority of cpf contributions are in OA) into shares and property. Cpf is not just fixed interest.
2. If you only want low risk fixed interest returns, you should transfer funds from OA to SA/RA and earn 4% instead of 2.5. You cannot get anywhere near this in any other developed country with a stable exch rate except maybe oz.

[Girl_Next_Door]

Let's not forget that the wage ceiling is $5,000. If you are earning more than $5,000, I do hope you have enough sense to save or at least invest the excess income, if you want to maintain the lifestyle after retirement.

[Primrose Hill]

In the UK, I was not lucky enough to be one of those great schemes - final salary/define salary schemes.
So, I have had various versions of defined contributions through my working careers. In my early years, because my average stay at each bank had been 24months or 2years, all pension invested into whatever pension schemes that the various investment banks have tied in with, were all returned to me, after tax, at first it was 25% after tax deduction and as the 40% income tax kicks....
I have amalgamated all of these into SIPPS. I do think that I can take a punt in the stock market better than the average financial advisor. And my SIPP have done and is doing alright. But I cannot withdrawn. And there's tax upon withdrawal.
Do I agree with the defined contributions? Not particularly as company pension aren't particularly fantastic choices, its usually tied to company A and funds 1,2/3 or company B, funds 4/5/6. Then there's still the admin charges of 3% pa.
Banks interest rates- UK or SG is paying peanuts. TBH, I rather the 2.5%-4% interest rates in my CPF. The pension schemes in the UK private sectior is only 3% non contributory.

[Barnsley]

Other than returns not matching what the returns Temasek/GIC claim to be achieving, I thougt the big bine of contention was that folks cant "cash out" at the age that they originally set out to allow folks to have their money back.

[sundaymorningstaple]

Depends on which day of the week it is and the current garbage on TOC, TRE, etc., etc. and the garbage Roy's spouting.

[JR8]

@ PH

But you’re an expat no less, why would you wish to retire like a member of the ‘general population’? [I’m just trying to provoke some thought ].

Madoff was a charlatan, and a criminal, preying on ignorance and greed. The pinnacle of what I’m suggesting should be avoided.

When I started out my career in the UK, we all paid ‘National Insurance’. That historically funded one’s state retirement pension. That scheme has been so debauched over the past few decades that it is something only a few might wish to rely upon these days. The maximum state pension is £133/pw, say S$250, so it’s more breadline than world-cruises.
Of course you have to have paid into that religiously for at least 25, preferably 47 solid years in order to get anything at all. If you spent years posted abroad and so on, and perhaps retired early you can forget about it. Come my theoretical retirement age I wonder if the scheme will still exist at all in any recognisable form. I also had an occupational non-contributory scheme. That was a good scheme, and even with just say 10 years there it would have provided something worthwhile. But, oh dear, the company got wiped out. So, lets assume, unless you have a long career, and generous pension scheme, and the company holds out as long as you do, that you are on your own.

One simple and quite efficient way of saving is simply via not spending. For example over-paying any mortgage is a tax-enhanced savings scheme (i.e. you don’t pay income tax on money you’re not spending). It doesn’t take much of a consistent month-by-month overpayment to half the duration of a mortgage (of course you need to check the specific T+c’s to ensure it works optimally).

Yes I do think the general population are savvy enough to make their own pension investment decisions. There are a lot of resources available to help, if you care to look. It is not about prediction as in speculation. For example it’s a given that a reputable company (say FTSE-100) with year-in/year-out improving revenues and dividends, are going to do everything possible to maintain that laurel-crown. On the flipside if a company holds or cuts a dividend, well, that’s your first warning call, but it can also often precede them cutting again, and perhaps again. [An aside and parallel: I used to be a long distance runner, long ago, and there was an adage ‘Never stop: Because if you do, you have no reason not to stop again]’.

SIPPS are a good shelter for a UK tax-payer. I suppose the thing is knowing how to choose what to put into it. I currently have my investments in a bare-bones brokerage account, but with the prospect of a return to UK tax-residency looming ahead, I am going to have to look carefully at the tax issues.

I’ve discussed before how I decided upon my own strategy here http://forum.singaporeexpats.com/ftopic ... sc-15.html I don’t want to go on about it lest I be suspected of having some form of vested interest in it, which I certainly don’t. It’s just a large group of people like you and me who realise it comes down to DIYing a pension oneself, and who don’t wish to pay other’s fees, any fees. I’m sure there are other such websites in existence if you looked, but this one has done me well over the years (20?) so I’ve never had reason to look.

I do not believe in ‘punting’ on any market, unless you’re fully prepared to lose 100% of your stakes. Most people who punt lose heavily (though as is human nature, that side of things is rarely admitted and even less discussed). That’s no way to build a DIY pension. Slow, reliable, and long-term, almost glacially boring, is the way to go. Of course no one scalping you for fees will promote such an approach, as it doesn’t fund their new Porsche or offspring’s Eton school fees. Most fund managers are simply salesman, selling you what earns them maximum commission in any given month. That includes within the bluest of blue-chip banks.

<i>TBH, I rather the 2.5%-4% interest rates in my CPF. The pension schemes in the UK private sectior is only 3% non contributory.</i>

Just by way of comparison my net portfolio dividend income is 5.2%. I pay no fees to hold what I’ve got (just insignificant trade fees, as and when). The capital side? I don’t know, as I don’t track it, but looking at the FTSE-100 year-on-year growth might give an idea.

My own ‘aged parents’ are happy plodding along on say 3-4% a year. But they’re of an age and era where financial-DIY means picking and rolling-over a few new fixed-interest investment bonds a year. I’ve tried gently floating my own strategy as an alternative, but ... I think the concept of financial-DIY in that form is just too much for them. I’d suggest though that for internet-savvy younger generations there is really little reason to be held hostage in such a way...

[Beeroclock]

[quote="JR8] I’ve discussed before how I decided upon my own strategy here http://forum.singaporeexpats.com/ftopic ... sc-15.html I don’t want to go on about it lest I be suspected of having some form of vested interest in it, which I certainly don’t. It’s just a large group of people like you and me who realise it comes down to DIYing a pension oneself, and who don’t wish to pay other’s fees, any fees. I’m sure there are other such websites in existence if you looked, but this one has done me well over the years (20?) so I’ve never had reason to look.[/quote] Thanks JR8 for the reminder to this link, I will seriously look into this. I'm very much anti-fee and agree completely this 1-2% management fee which is easily ignored by many, will make a huge difference over the long term.

[JR8]

Thanks JR8 for the reminder to this link, I will seriously look into this. I'm very much anti-fee and agree completely this 1-2% management fee which is easily ignored by many, will make a huge difference over the long term.

That's right, if you were set up with say a 10-20-25 year investment strategy and plan that has fees, and looked at the compounded value that the fees take away over that time it's jaw-dropping.

In the case of 'trailing commissions' on products sold by a Financial Advisor, it can be downright evil. They earn maybe 3% commission (from you) for selling you a managed product, and then earn another 'trailing' commission of 0.5%-1% for every year, 3, 10, 20+ that you hold that position into the future.

The private client broker's dream is getting say $1mm/pa in guaranteed 'Trailers' (i.e. for doing nothing). Oh, and it happens more often than you might think.

I used to work in Private Client banking, and during one period on the side that policed precisely how egregious the gouging was - well, within 'acceptable parameters' ... lol. It is an incredibly dirty game, like seeking a redeemable crack-whore!

The likes of the Motley Fool, are my post-20yr-induction-into-moral-hell kneejerk-back-to-some-monk-like honesty-and-simplicity ... lol

[earthfriendly]

And not to mention there is just not enough high yielding (and high quality) investments to go around for every citizen! With total CPF fund of $259 billion, please suggest a good investment option for this pot of money.

"With a market capitalisation of $314 billion, Berkshire Hathaway is now America’s fifth-most-valuable public company............ But the bigger it gets, the harder it becomes to find enough of the sort of attractive investment opportunities that earned Mr Buffett his reputation........ And in becoming an increasingly diverse and complex conglomerate it is starting to test the limits of his famously light-touch management style."


http://tinyurl.com/k7vlxyz

http://mycpf.cpf.gov.sg/CPF/About-Us/CP ... /CPF_Stats

[JR8]

And not to mention there is just not enough high yielding (and high quality) investments to go around for every citizen! With total CPF fund of $259 billion, please suggest a good investment option for this pot of money.

S$260Bn would just about cover buying out HSBC, on a yield of 5.0%.

Buying a S$260Bn (US$200Bn) stake of US$315Bn BRK would give them about 2/3rds ownership. You'd be hard pressed to find a better run and more successful (and diversified) fund than that one. But... one feels national pride might be dented investing the nations wealth via foreigners... 'much better to at least try errr, attempting a DIY effort back on home soil'.