85% of the people who invest their CPF monies only to find the returns had underperformed offered by CPF. Are you part of this percentage?
In an article published by the Straits Times earlier this week, it was reported that 85% of Singaporeans who invested money from their CPF accounts would actually have been better off simply by leaving it in their CPF Ordinary Accounts (OA) and earning the guaranteed 2.5% per annum.
Surprised? Well, maybe we shouldn’t be. Here are some reasons why.
If CPF returns are so low, then why can’t more than 15% of the people beat the 2.5% return?
Here is an interesting question. Is CPF OA interest of 2.5% is considered low, then why do most people who invest either make losses or fail to beat the 2.5% returns?
1. Lack of financial knowledge
For the majority of retail investors, intending to “time” the stock market is usually a bad idea. That is because most of us neither have the time nor knowledge to be able to obtain desirable outcome consistently. Trying to catch the lows and highs of a particular stock or even the market itself is something not even professional fund managers are able to do.
2. Sales charges for unit trust
While a unit trust (mutual fund) may not necessarily guarantee you that it can outperform the market, or even the 2.5% offered by the CPF OA, there is one thing that is guaranteed – the sales charges for its management fee.
Think about it, if CPF is able to guarantee you at least 2.5% interest, and in some cases, even more, that means a fund manager will need to provide a return of at least 3.5%, every year, just to break even.
Otherwise, you are just wasting your time (and money) and the only people benefiting are the salespersons, the fund managers, and the companies they represent.
3. Investing illogically
While there are quite a fair bit of options available for CPF members who are keen to invest their money, these options need to be accompanied by the right knowledge and more even more importantly, common sense.
For example, a friend of ours, Ryan, who runs a really interesting blog commented to us that it absolutely makes no sense to be using CPF monies to invest into a bank fixed deposit that pays an interest rate lower than what CPF would have given you.
So if you are current doing that, you might like to reconsider your financial strategies, and also perhaps at the same time, the advisor who provided you that advice.
Do you invest your CPF money? Share your experience with us on our Facebook page.
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