CPF Investment Crash Course

By Desiree Yang AsiaOne Business reported in April this year that Singaporeans need to have at least seven digits in savings if they wish to retire at the age of 62. If this sounds shocking, that’s probably because it is. It’s no wonder that a growing number of Singaporeans are working beyond 62, underscoring also the need to start planning for retirement early. And while retirement may be the last thing on the minds of fresh graduates entering the workforce, a conscious effort to set aside a few hundred dollars every month when you start working might just serve as a healthy supplement to the funds in your Retirement Account (RA). Singapore’s Labour Chief, Lim Swee Say, recently commented that Singaporeans need to use the money in their Central Provident Fund (CPF) accounts wisely in preparation for retirement. Besides that, Singaporeans can also choose to invest the funds in their Ordinary Account (OA) and Special Account (SA) to move them one step closer to the elusive seven-digit retirement sum. The entire investment process might seem daunting to some, especially since there are more than 10 investment options under the CPF Investment Scheme (CPFIS). Here’s a short crash course on the subject to help prepare you for retirement. Types of Investments The first step to investing lies in understanding the types of investments that are available. The first type of investments are low-risk investments, such as cash equivalent (e.g. fixed deposit) investments, which usually offer lower potential for long-term growth and investment returns. The second type are higher-risk investments, such as stock investments, which in turn offer greater potential for long-term growth and investment returns. How Much to Invest Begin by finding out how much CPF savings you can invest here. Next, assess your risk tolerance, which involves knowing what you’re comfortable with and the amount of risk that you can afford. Next, have a look at your financial situation and examine how much money you will need to sustain your lifestyle during retirement and evaluate your financial commitments and assets. In addition, put some thought into how long you wish to invest your funds for. Using Your CPF Funds for Investments Open a CPF Investment Account with an agent bank (DBS Bank Ltd, Overseas-Chinese Banking Corporation Ltd, or United Overseas Bank Ltd) and they will liaise with the CPF Board and the various product providers of the investments that you’re interested in. They will also settle the administrative details – purchasing, sales, tracking of investment and transactions – pertaining to your account. You can also refer to this page for the full list of investment options that are available for funds in the OA and SA. What Happens Next? You can keep track of your investments – whether you make a profit or loss – by checking the portfolio statement that will be sent to your agent bank or product provider. But even if you do make a profit, you will not be able to withdraw the profits as the purpose of investing is solely to increase your retirement nest egg. However, you can choose to use your profits for other CPF schemes where applicable. On the other hand, if you make a loss, you’ll be glad to know that you won’t have to make good on the loss from your own personal savings account, effectively protecting you against any financial shocks from potential losses. We’re all familiar with the saying, “don’t put all your eggs in one basket”. Similarly when it comes to investing, choosing to spread your assets across several investments in different asset classes (cash equivalents and stocks) or in different markets (e.g. foreign countries and currencies) can help you to maximise potential profits and minimise losses in your investment returns! What are your thoughts on the CPF Investment Scheme? Share with us in the comment box below! CareerBuilder Singapore is the owner of JobsCentral.com.sg, one of Singapore's largest job and learning portals. Get a free career personality test and more career- and education-related articles at JobsCentral and JobsCentral Community. Alternatively, Like us on JobsCentral Facebook Page or Follow JobsCentral on Twitter for more career-centric content!