MENU

Why You Should Manage Your Own CPF Money

The Central Provident Fund Investment Scheme (CPFIS) was set up to allow investors to grow their money at higher rates than the CPF’s guaranteed return of 2.5% to 4.0%, depending on the account. And to do that, investors are given up to 298 funds (as of Dec 2012) that are involved with different asset classes to choose from.

For those who have invested money in investment instruments under the CPFIS, raise your hands if you know how well your investments are doing. If you don’t, head over to FundSingapore.com for quarterly updates, courtesy of Lipper, on the performance of CPFIS-included Unit Trusts and Investment-Linked Insurance Products (ILPs).

Let’s take a look at actively managed equity-based unit trusts and ILPs (equity can be used interchangeably with shares here). According to Lipper’s performance-summary of the funds for the fourth quarter of 2012, the average equity-based portfolio under the CPFIS returned a total of 12.3% over the past year, beating the equity bench mark, MSCI World Index’s 9.8% gain.

But, investing is not a race that’s completed in a year. Instead, it is a marathon lasting many years and longer-term performance is what we should focus on. Unfortunately, the equity portfolios lost to the global stock market over the past three years with growth of 2.8% and 8.2% respectively.

As a steward of your capital, you would expect professionally-managed equity funds to deliver benchmark-beating results in return for the performance and management fees they charge. But, it just isn’t so.

This is just the tip of the ice-berg. Research done by Standard & Poors shows that 61.6% of actively managed equity funds in the USA with a global focus failed to beat their bench mark over a five year period. And just last year, 79% of fund managers in the USA failed to beat the S&P 500 Index (a widely followed US stock market index).

Investors who put their money in actively managed equity funds are essentially paying management fees to achieve better returns than the market. Why pay big fees to professionals who have poor odds of beating the market when an investor can turn to index trackers like the SPDR Straits Times Index ETF (SGX: ES3) or the Nikko AM Singapore STI ETF (SGX: G3B) to mimic the returns of the Straits Times Index (SGX: ^STI)?

Your CPF can make a big difference to your retirement nest-egg – don’t let others squander it away with poor investing.

Take charge of your own finances! Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.  

The Motley Fool’s purpose is to help the world invest, better. Like us on Facebook  to keep up-to-date with our latest news and articles.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.