The hunt for your nest egg, living to 100, and the hidden jewels of CPF
Endowus Insights

The hunt for your nest egg, living to 100, and the hidden jewels of CPF

Updated
August 8, 2022
published
April 3, 2021
.
The hunt for your nest egg, living to 100, and the hidden jewels of CPF

The original version of this article first appeared in The Business Times

My kids who are under the age of five have been dying to go on an Easter egg hunt. It seems innate in us humans to desire a good hunt - for food, for entertainment, or just for the sake of the hunt and being gratified.

Many of these hunts happen online - trying to validate a product or service, a good restaurant, or even a potential mate. We scour websites, online reviews, and images at insane thumb-scrolling pace, to come to a quick decision on what to do.

We humans have been conditioned to want immediate gratification for our successful hunts - same day shipping, instant payments, rapid validation.

But investing does not work this way, and never will, because life will be 100 years for many of us, and cannot be rushed. And not doing things today will affect your quality of life in the future.

No one likes thinking about a nest egg.

It's boring - it's something to deal with later.

OCBC's 2020 Financial Wellness survey stated that of 2,000 working adults, only 28 per cent have regular passive income, and only 37 per cent have a plan for retirement. People acknowledge that they are not prepared for the future, but don't feel the urgency to do anything about it.

This is worrisome for an educated, ageing population with one of the highest GDP per capita and longest life expectancies in the world.

I personally don't want to live out my last years with a lower quality of life.

Living to 100

If you reach the age of 65, the average life expectancy is an additional 21.3 years, or over 86 years in total. This average is up from 73 years in 1960, and 82 years in 2000. These are averages, and we are living longer. (Statistics Singapore 2019)

If you are 40 today, is it unreasonable to expect the average among us to live to 92? Which means many of us would live well beyond that?

I think our own assumptions for life expectancy and the quality of life we want to pursue must be assessed.

Read more: Retirement planning: chicken and eggs

Hidden benefits of CPF

I've always been confused when people say "I treat my CPF Ordinary Account ( OA) earning 2.5 per cent as a high interest cash account", or "The CPF is the cash portion of my investment portfolio". This logic does not hold because cash by definition is meant to be liquid - you need to be able to draw down your cash immediately, and have the flexibility to use it in the real world to buy goods and services.

CPF by design is illiquid. Even if you are past the withdrawal age, which is currently 55, you have to redeem all of your higher interest earning CPF Special Account (SA) before you can start redeem your CPF OA. Therefore it is probably in your best interest to spend your real cash first, then your CPF SA, then your CPF OA.

If you are efficient, you will use your CPF OA last. As your oldest money, you should be investing wisely to grow this money. Investing is a bumpy ride to wealth, but one that can pay off handsomely as long as you invest properly - stay diversified, patiently avoid trying to time the market, and manage your costs.

In financial jargon, given the longer time horizon of this money, you can afford to take on the volatility of the equity risk premium to target higher expected returns. In any given year, the returns of global markets could be as large as plus or minus 40 per cent. Losses are heart-wrenching to experience, but over the long term, investors are rewarded by being diversified in owning the stock of companies that produce the world's goods and services.

graph of MSCI world index from 1970 to 2020 Q1

Since 1970, despite all the craziness in the world, the index had major ups and downs but would have grown in value by +5,204 per cent versus +254 per cent if it were earning a stable 2.5 per cent per annum. That means S$200,000 would have grown into over S$10.5 million.

Fifty-one years sounds long, but if you are 40 today, you will likely see five more decades, and you will want your CPF to be there with you, all the way.

What to do today, for a better tomorrow

Turn your hunt online into long-term gratification. Take the time to do your research and hunt for a long-term passive investment strategy for your CPF. Invest wisely, in globally diversified portfolios at a low cost, at a risk tolerance suitable for you. Contribute automatically and monthly as and when you and your employer top up your CPF.

Endowus.com, as the first digital adviser for CPF, has exclusive access to low-cost index funds that track the MSCI World and S&P 500 managed by Vanguard. With a diversified, passive strategic asset allocation, Endowus' 2020 CPF portfolios returned +15.7 per cent for 100 per cent equities, and +6.7 per cent for 100 per cent fixed income, outperforming the average returns of CPFIS-included funds by 2.2 per cent and 0.4 per cent, respectively (Endowus Research, Refinitiv-Lipper report for CPF, March 16, 2021, Past performance is not indicative of of future performance).

The egg has been an ancient symbol of new life throughout human history, across many cultures and religions. It is time to hunt for a nest and start growing some well invested eggs for your future.

Get a head start on financial literacy & general investing by watching our Investing 101 with Endowus 4-part series here.

<divider><divider>
Investment involves risk. Past performance is not necessarily a guide to future performance or returns. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. Rates of exchange may cause the value of investments to go up or down. Individual stock performance does not represent the return of a fund.

Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this material are subject to market influences and contingent upon matters outside the control of Endow.us Pte. Ltd (“Endowus”) and therefore may not be realised in the future. Further, any opinion or estimate is made on a general basis and subject to change without notice. In presenting the information above, none of Endowus Pte. Ltd., its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider (i) whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances. You may also wish to seek financial advice through a financial advisor or the Endowus platform and independent legal, accounting, regulatory or tax advice, as appropriate.

Investment into collective investment schemes: Please refer to respective funds’ prospectuses for details of the funds, their related fees, charges and risk factors, The listing of units of the fund on a stock exchange does not guarantee a liquid market for the units. Before making an investment decision, you are reminded to refer to the relevant prospectus for specific risk considerations.

For Cash Smart Secure, Cash Smart Enhanced, Cash Smart Ultra: It is not a bank deposit and not capital guaranteed, and is subject to investment risks, including the possible loss of the principal amount invested. Investment products are not insured products under the provisions of the Deposit Insurance and Policy Owners Protection Schemes Act 2011 of Singapore and are not eligible for deposit insurance coverage under the Deposit Insurance Scheme. Interest rates are indicative and subject to change at any time.

Product Risk Rating: Please note that any product risk rating (the “PRR”) provided by us is an internal rating assigned based on our product risk assessment model, and is for your reference only. The PRR is subject to change from time to time. The PRR does not take into account your individual circumstances, objectives or needs and should not be regarded as advice or recommendation to purchase, hold or sell any fund or make any other investment decisions. Accordingly, you should not solely rely on the PRR in making your investment decision in the relevant Fund.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

More on this Tag
The hunt for your nest egg, living to 100, and the hidden jewels of CPF

Table of Contents