This article was written in collaboration with FSMOne. All views expressed in this article are the independent opinion of DollarsAndSense.sg based on our research. DollarsAndSense.sg is not liable for any financial losses that may arise from any transactions and readers are encouraged to do their own due diligence. You can view our full editorial policy here.
In our previous article, we wrote about some of the pros and cons of investing our CPF monies for our retirement. The idea is that as CPF members, we have the option to take a more active role in growing our CPF savings, or simply leave it untouched and earn the risk-free interest rate of 2.5% (Ordinary Account) and 4.0% (Special Account) respectively.
If you wish to invest your CPF savings, one platform that you can consider is FSMOne.
FSMOne is not new to Singapore investors. Previously known as Fundsupermart, FSMOne is one of the pioneering Financial Technology (FinTech) companies in Singapore and has been operating since 2000, even before the term FinTech was widely understood.
Recently, FSMOne launched a CPF microsite – Set For CPF – which aims to make CPF investing easier and more accessible to CPF members through an extensive range of tools, products and insights.
Outperform The Risk-Free Rate, Not The Market
When you invest your CPF savings, the objective is to outperform the risk-free interest rate (of 2.5% and 4%) or to be merely content with some positive investment returns rather than outperform the market.
For example, when we compare the United Singapore Bond Fund, a fund that has been incepted since 2004 and invests mainly in bonds denominated in Singapore Dollars, we can see that it has outperformed the 2.5% risk-free returns that we would have earned from our CPF Ordinary Account (OA).
It’s worth pointing out that as a relatively safe fund that invests mainly in bonds, investors should not expect returns to be high. That said, a return of 3.7% p.a. is still higher than the 2.5% p.a. we get from our CPF OA. Over the long-term, this can add up to be a significant difference for our retirement nest egg.
The FSMOne performance chart also helps us compare the performance of selected funds to help us make investment decisions. Even though past results cannot be used to predict future returns, it’s useful in helping us understand the kind of volatility that we can expect when we invest our CPF savings in the financial markets.
As an example, if we look at the chart above, we can see that equity funds (invested in Singapore, Asian and Japan) tend to be more volatile than bond funds and the returns given by CPF OA. This is the risk that investors must be willing to bear when investing, since financial markets do not just go up in a straight line.
Using the Chart Centre, it’s easy for investors to identify how each CPF-approved funds have performed in the past.
Invest Your CPF Monies In A Wide Range Of Unit Trusts
As an investor, we have to know what our risk appetite is and choose our portfolio’s risk level appropriately.
Low-risk funds will expose us to lower volatility, but our returns are likely to be lower. On the other hand, higher-risk funds may potentially give us a much higher performance, but it might also decline in value during major recessions. As CPF members, we need to be mindful of the risk-return trade-offs that we face.
Our investment time horizon plays a part as well. If you are 50 and would like to liquidate some of your investments by age 55, it’s not ideal for you to invest in higher-risk funds since an unexpected recession (like what is happening in 2020) can easily wipe out your gains and even part of your capital. If you are only 30 and have an investment time horizon of at least 25 years, you could consider taking on a higher risk level to enjoy greater long-term returns.
FSMOne offers a wide range of unit trusts, also known as mutual funds, which are approved for CPF investments. These unit trusts are a basket of assets that invests in a combination of stocks, bonds and other assets. You can select which geographic region you wish to invest in, including the US, Europe, Asia (excluding Japan), Japan and Emerging Markets.
FSMOne offers you access to all these unit trusts at 0% sales charges or platform fees. The only fees you pay are CPF agent bank charges and fund-related expenses charged by the respective unit trusts.
How New Investors Can Get Started Investing Your CPF Monies
If you are unsure of how to get started on investing your CPF savings in unit trusts, there is a starter kit that can guide you on how to construct your unit trust portfolio.
FSMOne advocates building a GDP-weighted allocation.
For example, you could have 25% of your portfolio in US, 30% in Asia (excluding Japan), 12.5% in Japan, 20% in Europe and the remaining 12.5% of your portfolio in Emerging Market equity. FSMOne also highlights some of the unit trusts that you can invest in to gain the exposure to the regions you are looking for.
The idea here is that if any specific region doesn’t perform well, your entire portfolio will remain resilient as long as global market continues to grow over the long-term. This provides an important diversification for our investments.
Do note that these are only suggestions and does not constitute a recommendation or financial advice from FSMOne. Investors have the freedom (and responsibility) to choose their preferred portfolio allocation and unit trusts to invest in. You can even ignore the suggestions provided in the starter kit.
As a value-added service, FSMOne offers Investment Insights for investors to stay updated with important market news that may be important for your investment decisions. Even if you are not investing your CPF savings, it’s good to keep yourself abreast of what’s happening in the financial markets.
Investing Your CPF Or Leaving It Untouched Is Not A Mutually Exclusive Decision
If you wish to get started on investing your CPF, do note that you need to meet the following criteria first.
- Be at least 18 years old;
- Have more than $20,000 in your OA; and/or
- Have more than $40,000 in your SA.
- Have an agent bank account with DBS, OCBC or UOB if you are investing your CPF OA monies
- Not be an undischarged bankrupt
We need to stress that investing your CPF savings, or leaving it untouched, is not an all-or-nothing decision. Even if you were to choose to invest your CPF savings, it’s not necessary to invest every dollar you can.
Rather, investing just part of it allows you to earn higher returns if the market performs well, while still ensuring that part of your CPF savings are earning you a guaranteed compounded return of 2.5% p.a.
To learn more and start using FSMOne to invest your CPF, you can open an account today.