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Why It Makes No Sense to Invest

Okay, the title of this posting might be a bit misleading.

It actually reads: "Why it makes no sense to invest your CPF-SA money"

As most of us know, the Special Account in our CPF or CPF-SA earns an interest of 4% per annum. Till the end of 2010, the first $60,000 in our CPF accounts also earn an additional 1% interest. For most of us, that means our money in the CPF-SA account is earning like 5% interest per year.

This is guaranteed and is entirely risk free!

As such, it makes little sense to invest your CPF-SA money unless you are able to find an investment which gives you returns at greater than 5%. Considering that one cannot invest their CPF-SA into high risk funds, it is difficult (in a certain sense) to be able to achieve returns of greater than 5%

As such, it makes a lot of sense to just keep your money in your CPF-SA for the time being unless you are able to find an investment that gives you greater than 5% per year.

Food for thought.

6 comments:

  1. Hi FF,

    Just to add on to what you've said about CPF-SA, there are also restrictions on what one can invest in for SA, compared to OA, so this severely limits your choices.

    Since it's so hard to beat 5% on a consistent basis with this limited array of investment choices, one should just let the balance sit there.

    Regards,
    Musicwhiz

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  2. We don't need to invest every cents that we have. It is wise not to touch CPF-SA

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  3. Before investing a totally risk free return of 2.5% and 4% respectively in CPF OA and SA, you must ensure that your investment can return at least 3-4 times than the return of CPF OA and SA.

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  4. CPF OA perhaps still got chance to beat.

    CPF-SA the returns stands at 5% till year end. that is risk free.

    Very difficult to find 5% returns in today's market.

    What's more with fund investing, there is usually a sales charge which eats into your investment right away. So you will need a much higher rate of return than 5% to justify investing your CPF SA

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  5. I haven't touch my CPF SA but I try to invest every cents in CPF OA when it becomes available.

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  6. Yep. That makes sense since the interest for the CPF-OA account is lower at 2.5%. In addition, till end 2010, there is an additional 1% interest on the first $60,000 in your CPF accounts and up to the first $20,000 in your CPF-OA.

    You however cannot touch your first $20,000 in your CPF-OA. So that is "wasted" in a sense since it is literally stuck in a 3.5% interest account up till 2010 and then 2.5% for the rest of your life. The 2.5% however is a minimum cap based on CPF act and it could be possible that future interest rates will go up.

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