Saturday, August 10, 2013

Investing retirement funds

8 August 2013

Forum Page
Straits Times

I wish to respond to Geoffrey Kung’s letter “retirement fund should be risk-free”
(ST 8 August 2013)

Risk-free assets, such as short term government bonds currently provide a yield
that is lower than inflation rate. Over the long term, there is a risk that the
retirement savings will be eroded by inflation.

For long term investors, it is more appropriate to invest in good quality shares
which have historically provided a yield that is higher than inflation. This is likely to 
continue in the future.

Mr. Kung seemed to worry about the chance of a loss in shares, if a person were to retire 
at the time when the market is down.

There is no need for the retiree to liquidate the investments at the time of retirement. If so, 
where does he or she invest the money that has been taken out?

It is better to remain invested in the good quality shares and to draw down from the savings 
a monthly sum that is needed for the living expenses.  This draw-down can come partly from 
the dividends paid on the shares and, if necessary, by the sales of small quantity of shares at
regular intervals.

If the market is bad, this will affect only the small amount that has to be liquidated and not 
the remainder of the shares that are invested for the long term.  The concept of dollar cost averaging 
works after retirement as well, and it applies to the monthly sums that have to be withdrawn.

It is more important for the investor to diversify the investments, so that they are not badly affected 
by the shares of a few companies that performed badly. A good way to achieve diversification 
is to invest in an index fund, such as the exchange traded fund that is created to track 
the Straits Times Index of 30 shares. The index fund has a low management expense.

A long term investor, who is invested in a diversified fund, should not worry about 
the short term volatility of the stock market. They should look forward to the dividends 
paid out regularly on the invested shares, and the long term growth of the shares.

Tan Kin Lian
Financial Services Consumer Association


SGBoy94 said...

Hi Mr Tan

Thanks for the constant financial knowledge spread to the society! Appreciated

zhummmeng said...

I understand where is Jeoffrey kung coming from? If he doesn't stress that CPFSA account is giving good return the insurance agents will try to CONvince and con the public into buying worse than CPFSA return insurance products from them.
Look at the performance report by LIA. It is horrible and yet LIA dares to boast the performance. Do you see the production is at the expense of protection need of the public?
The public has been sold useless wholerlife and endowment products. How to retire? If the public is sold single premium using the CPFOA money it is better and without risk for the public to transfer the money from OA to SA, right? Yet the insurance agents and the companies are deceiving the public into buying single premium endwoments which performs lower than SA earns.
CPF or MAS should ban the insurance companies from robbing the public.
So you see, SA may not earn as much as direct investing into higher return products the public must know that CPF pays more than the insurance companies . And the bunch of insurance agents are NOT qualified to advise on investment or retirement planning.
If the insurance agents are not banned from advising on retirment planning or investment the public will not be able to retire comfortably but the insurance agents can, from the huge commission earned from peddling these useless endwoment products.
MAS and CPF should require a separate qualification if insurance agents want to advise on investment and retirement planning.
The current insurance certs they have are useless and cat and dogs can also pass. Does this mean cats and dogs can be licensed to advise on investment and retirement?

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