Monday, January 15, 2007

Should I invest my CPF special account now?

Hi Mr Tan

1. Should I keep my money in the CPF Special Account, as it now gives me 4%, risk free. I have read Askdrmoney.com. He has done extensive research to show that the best investment is to invest in STI ETF, followed by CPF SA, and thirdly CPF OA.

He explained that it is simply not worth taking the high risk of selecting which funds or which ILP to invest in, and then the returns might not be worth the risk.......since CPF SA is giving us a risk free guaranteed ROR of 4%.

CPF SA can only be invested in Balanced fund, and the projected return is around 5 to 6%.

I have a living policy with NTUC since 1994 when I came out of university. I recently decided to buy another term policy of 500k.

I also invested $13,000 in the Growth Fund since Jan 06. I am considering to switch into the money market funds for the time being till the markets correct.

HY

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Dear HY

As the stockmarket is rather high now, it is better to wait for another time, before you invest in the STI ETF or in the Combined Fund (Growth) from NTUC Income.

Two years ago, I invested in the STI ETF and made a big gain of 60%. I sold off my investment in the STI ETF recently and invested the proceeds in the money market fund.

The Growth Fund has 70% invested in equities. The balanced fund has 50% in equities. The difference is quite small. So, it may not be worth the trouble to make a switch. In my case, I kept my investments in the Growth Fund.

I agree with your approach to buy a term policy for $500,000. You get a large protection at a very modest cost. But, you must make additional savings for your retirement.

If you are investing a monthly sum, it is all right to put the investments in the Growth fund or the Balanced fund. You will be averaging out your investment over many years, so it does not matter what is the level of the stockmarket at any point of time.

Best wishes for 2007.

Tan Kin Lian

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