Tan Kin Lian's Blog: Impact of new CPF rule on dollar cost averaging

Thursday, March 20, 2008

Impact of new CPF rule on dollar cost averaging

Dear Mr. Tan,
From April 1, 2008, CPF requires a member to keep a minimum of $20,000 in the ordinary account. I am surprised to find out that this applies also to existing policies with regular recurring premiums using CPFOA.

Now we have 2 choices:
1. Keep the minimum in OA and use the excess to fund our investments
2. Terminate plans to avoid agent bank charges

I invested my CPF savings by recurring regular premium on dollar cost averging. With the market down, I am now forced to terminate my plan. I have to stop investing even if I am making losses now.

Is this a fair practice to investors? Who regulates CPF Board? Can MAS look into this matter?
What is your opinion?

REPLY

I believe that this is decided at the highest level of Government. There are good reasons for the Government to implement this requirement to keep a minimum of $20,000 in OA.

I agree that the timing is unfortunate, as it deprive you of the chance to average down on your investment. I hope that you can have some other savings to do this averaging down (and not depend on the CPF savings). Wish you all the best.

7 comments:

Anonymous said...: I support CPF's scheme to lock $60K
away from the hands of insurance agents and the CPFLife annuity. At last, some of members' money are protected. CPF should have done this long time a go. Liberalisation in 2001 was a big mistake. It enriched the salespeople and in return the members got nothing except losses.
I believe more changes will happen and i hope the pension scheme
will be implemented sooner before CPF members money will be 'stolen'
by insurance salesmen who are incompetent in finances.; March 21, 2008 1:20 AM
Anonymous said...: There are agents from ntuc trying to get people to invest their OA and SA into the Growth policy which at the best gives 4%. The agents don't disclose the downsides of the product like long lock in, non gauranteed, loss due to premature withdrawal, risk of less return below 4%.
I find them breaching the FAA disclosure requirement and also mis-selling and misrepresentation.
MAS should censure the company for the behaviour of its salespeople before CPF members got hurt financially and have their retirement burned.; March 21, 2008 10:32 AM
Anonymous said...: I terminated my Growth policy.. after reading the comments in your blog. I am reinvesting in well diversified funds. Thanks for your advice. Without your blog we would have blindly followed the insurance agent.
I found my agent not qualified. she is a sales woman. She didn't know
about investment. She explained to me growth as like fixed deposit and not an investment. I too didn't understand but now after visiting your blog and did some reading on my own I realised my agent wasn't qualified at all.
I don't understand why MAS allows such people to give advice on investment. It is dangerous. These insurance salespeople can mess up our life.; March 21, 2008 1:59 PM
Anonymous said...: Is there a need to terminate the plan that is already invested?; March 21, 2008 5:55 PM
Anonymous said...: Why not? why languish in a lousy , low return, risky product like Growth? If the investment just started a few years ago, instead of dragging and missing out the opportunities why not shift to something that offers better return with lesser risk and higher return.
Catching up or recouping the loss of the past few years should not be a problem with a well diversified portfolio. This should be the correct thing to do .; March 22, 2008 1:00 AM
Anonymous said...: Growth Policy has a guaranteed 2% yield for the 10 years and non guaranteed yield projected to achieve total about 4% over 10 years.

Is there a guarantee for investment over 10 years, though Mr Tan has advised generally it should be good if one has a long time horizon.

Assuming again, if in 10 years when the Growth Policy is to mature, the market has a crisis, and fund price drop, how will the principle invested drop to? Nobody knows.

And that is the time fund is needed, will you sell the investment?

Yes, granted, some one will say hold for 3 or 4 years it should turn around.

Whether it is Fixed Deposit, insurance savings plan or investment, is there one good plan that will meet that point in time to be what it should be?

Have a spread to balance the needs.; March 25, 2008 1:03 PM
Anonymous said...: Will your Growth give 4% return? Let me tell you ,it will not simply becuase it is too reliant on the interest rate. 70% of your premium is used to provide a guarantee, leaving 30% to drive your non guarantee. Today the 20 year bond returns only 3.3%. What is the chance that you get 4%? you will be disappointed.
How to get better return investing in funds? you need to get a qualified adviser to help you .You think you can't get because you use an insurance salesman who is screw up salesman. What does he know about investment?
For your information if you have invested in NTUC funds(funds not disclosed) 7 years ago you would have enjoyed between 8%-10% compounded. In a few cases the investment would have doubled.
What about Growth now ? It is still languishing at below 2%
My advice to you. Don't use the screwup insurance salesmen from ntuc. Not only that they behave like stock brokers.; March 25, 2008 9:56 PM