What will you do with your CPF at 55?

Some of you will have plans.

Some of you will check your CPF balance, and get depressed.

Some of you may be too young to think about it; 55 is too far away to worry about.

Some of you will have a flat or some property to pay off even then.

But if you didn't have debts, and the money is available, what would you do with it?

While you think about that, here's what many people have done with their money: move it into a bank account paying less than 1% interest.

The average Singaporean consumer appears to be willing to forego an estimated 4 per cent interest rate by choosing to leave their withdrawn balances in a low-interest bearing savings account rather than in their Retirement Account. 

Silly people, you may be thinking.

You would INVEST the money. Some people do that. Did they make more money than the CPF interest?

Here's what an SMU finance professor found:

...47 per cent of CPF members who had withdrawn their Ordinary Account (OA) savings to invest in the CPFIS had incurred losses on their investments between 2004 and 2013, while 35 per cent realised net profits equal to or less than the default 2.5 per cent per annum OA interest rate that prevailed during that period. Only 18 per cent generated net profits in excess of the OA interest rate.

Note that the above were not funds used by those who withdrew their CPF at 55. These were invested before the members were 55 as part of the CPF investment scheme (CPFIS). The funds amounted to about 12% of the total CPF balance. So about 12% of CPF members (probably less, this is assuming all CPF members have equal balance in the CPF) think that they can do better than 2.5% interest.

About half of them (47%) found that investment is not as easy as they thought.

A third of them (35%) managed to make about the same if they had left the money in CPF. All that effort for about the same effect.

Less than one-fifth (18%) actually made more than 2.5%. Which is a rather low base. You wanna know how to do better than 2,5% interest? Guaranteed! Read this.

What this means is that IF every CPF member took out their money, and invested, you can be sure even more would lose money. The results - half made less, one third made the same, and only one fifth did better - were for people who were CONFIDENT that they could do better.

Four-fifths of them were mistaken.

It is therefore no surprise that most people took their money out of CPF and put it straight into a bank account. About 90% of these did not invest under CPFIS because they had no CONFIDENCE in investing. If they had tried to invest that money, they might have lost some. Of course, by putting it in the bank, they immediately lost more than 2% interest.

They should have just left it in the CPF.

Because the simple truth is, no person alone can bear and deal with risks more than the Government.

I wish the govt would just give people their CPF money back. A few, a very few will be lucky and make more than what the CPF would have paid them in interest. They will want to believe that they are good investors, not just lucky. Sure. Delusions are hard to disabuse.

The rest will not make as much as if they had left the money with the CPF, or will even lose money. The simple truth is, if investing were easy, we would all be rich.

The problem is that if 100 "average" people invest, 95 + will lose money, and a few will make, and those few that make money will inspire another 100 people to "invest" and try to get-rich-quick. And the cycle continues.

The other question "investors" have to ask themselves is, are they investing, or are they speculating. If I have a company and it's doing well, and I think I have an opportunity to grow, but I need capital. So I ask you to invest in my company - that is, lend me money to grow my company. You could give me a loan, and I would promise to pay you interest regularly, and finally repay you the capital. That is how bonds work. Alternatively, I could sell you shares in my company and over time when I make profits, I would declare dividends to my shareholders. That's how shares work. That's investing. That's how Warren Buffet makes money investing.

But most people buy shares without understanding the company whose shares or bonds they buy, or the long term prospects, or the potential earnings, or the direction the company is going. They buy shares because they "hear" it is cheap and that the share prices are likely to go up soon. That's speculating. It's gambling but a bit more atas.

And there are those who thinks that they should take their money out because leaving it with the CPF is just letting the government earn BIG interest while paying them a paltry 4%. So in their conspiracy theory, the Govt FORCES you to put money in the CPF, and then they use the CPF money to invest and make 20% interest (or something. I may be exaggerating, but hey, it's a conspiracy theory!). And then, they give the CPF members 4%. Peanuts.

Here's the reality.

Say you are GIC and have $400b to invest. You have a team of analysts scouring the world's economies and businesses to find the best investments. (Meanwhile other Sovereign Wealth Funds are doing the same. Some with a bigger budget than you.) So you team finds a $50b investment with a projected return of 16%. Pretty good. You get it. Another analysts finds a $70b investment with 14%. You get it too. And so on until you spend the last $50b on an investment with a projected return of 9%. Great. That's $400b invested. Good job!

But wait! The government just dumped $250b on your lap from the CPF and tells you - Invest this! You already got all the great deals from 16% to 9%. Any new investments is going to have lower returns.

Alternatively, you (GIC) have $650b investment (including CPF money) invested in a variety of investments with varying returns from 6% to 16%. Averaging 11%. Roy "Surname sounds like he's squeezing out a brick" manages by some miracle to convince the govt to shut down the CPF scheme and to return all the money.

GIC immediately liquidates $250b of their investments and reshuffle their investment portfolio. One year later, their trimmer portfolio of just $400b is getting returns from 9% to 16%, or averaging 13%. Meanwhile ex-CPF members are getting less than 1% interest in Fixed Deposits.

"BUT," you say, "I CAN Invest! At a Business Course Investment simulation Games, I consistently made money! I'm ready for the real thing!"

Sure you are.

Your 14 year old nephew has been playing driving simulation games on his Xbox and he's pretty good. Why don't you let him drive your car?

There is a difference between simulation and real life investment. In an investment simulation, you can ALWAYS buy or sell. In real life, when you want to buy, EVERYBODY  also wants to buy. And the price goes up - if there is even any left for you to buy. (Have you ever tried to get an IPO? Back when IPOs were like winning the lottery?) And when you want to sell, EVERYBODY wants to sell, and NOBODY is buying.

It's like property. The prices have fallen! It is a buyer's market. Get in there and buy! But... Nobody's selling! Or the flat you want in the area you want, no one's selling.

That's reality.

In a simulation, there is a nice computer who will let you do what you want, when you want to. Sort of like a prostitute.

True love (and real life) is... a little more complicated.


Then there are a few "old fools" who will give their money away... usually to a sweet young thing.

Or they may get a bride from Vietnam. Or Cambodia, Or someplace.

Between the old fools and the "get-rich-quick" fools, at least the old fools got to enjoy the... "company" of a sweet young thing. Or maybe the get-rich-quick fools got to flirt with the cute investment consultant. Same same.


Whatever you do with your money, and yes, it is YOUR money, do what makes you happy.

For some people, it makes them happy to know that they have money in their savings account. It is fine. It is a form of security. If that is what you intend to do, if that is what will give you peace of mind, ignore what anyone else might say. They... or we, are unimportant.

For some, they will finally get to be the investor they always dream about - "Buy! Buy! Buy! Sell! Sell! Sell!" they get to shout down the phone. Some people like the adrenaline rush. Might even make some money.

For some, they get to spend on their loved ones - buy their favourite grandchild the coveted tablet or laptop. Go on a well-deserved holiday. Some want to make their Hajj before they are too old. Or return to the Ancestral Village in China.

Or live the life of easy comfort for a few years... or months... or weeks... or however long your savings last.

Life is uncertain. Eat dessert first.