Investing for retirement

There is some debate in the Straits Times on how to achieve a good return over the long term.

Leaving the money in the special account in CPF to earn 4% per annum, with no risk, is an acceptable way.

It is equally acceptable to invest in an index fund of blue chip shares. The investment risk is reduced considerably by diversification, investing for the long term, and dollar cost averaging, i.e. investing and withdrawing in small amounts.

For consumers who understand the concept, investing in an index fund is better and can achieve a return that is better than 4% in the special account.

The CPF special account is allowed to be invested in the index fund (or the STI exchange traded fund).

There is no need to invest in a "life cycle" fund, where the proportion of shares is reduced nearer retirement. The consumer can keep invested in shares after retirement and take out each month what is needed for living expenses.

This concept is explained in the book, "Financial Planning for Young People", www.tklcould.com/pdfbook/33