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Breaking Down The CPF Investment Scheme: Part IV

Think making more than 2.5% per annum on your investments is a no-brainer? Well, think again.

Last year, more than 22% of Singaporeans who made use of the CPF Investment Scheme failed to earn more than the 2.5% interest guaranteed which they could have, if they had simply left their CPF untouched. This means they were better off doing nothing rather than trying to manage their CPF money actively.

That is not a warning to stay away from using the CPF Investment Scheme to boost returns. It simply means that Singaporeans should educate themselves on all the investment options before making a rash decision that could eat into their retirement funds.

This is the fourth and final part of the series of articles that breaks down the options available in the CPF Investment Scheme. In the first three articles which can be found here, here and here, I took a look at endowment policies, ETFs, annuities, government bonds, unit trusts and investment-linked insurance.

CPFIS-approved shares

The CPF Investment Scheme affords investors the opportunity to use some of the CPF money to invest in individual shares. There are over 450 CPFIS-approved shares available for selection.

These shares must meet the list of criteria outlined by the CPF Board. The criteria do not make the stocks risk free. It is just a measure to ensure Singaporeans invest and support companies that trade and have originated in Singapore.

Investing in individual stocks give investors the chance to earn greater returns than other assets such as bonds and annuities. However, they are also more risky investments whose price can fluctuate wildly. Investors who are looking into this option should assess each stock carefully before making a decision.

Property funds

Real estate is one of the only two asset classes that have outperformed inflation over time. The other being stocks. It is no wonder that many Singaporeans choose to invest in properties.

Thankfully, property funds are one option that is available through the CPF Investment Scheme. A property fund is a professionally managed portfolio of diversified real estate holdings. They can invest either directly into a property or indirectly through real estate investment trusts.

Investors, who are looking for exposure to property, can make use of this investment option. One advantage that a property fund has over REITs is that they are free to make use of profits to grow their portfolio and their asset base. REITs, on the other hand, are limited due to the need to distribute profits through dividends.

The Foolish bottom line

Investing your hard-earned CPF money should not be a decision that is taken lightly. It is important that each of us do sufficient due diligence to choose the investment option that suits our financial goals and risk appetite. Hopefully, this series of articles helps us better understand each investment option in the CPF Investment Scheme so we can make better financial decisions in the future.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.