Know how lower fees affect your CPF investment returns in the long term
One of the more popular options for investing our CPF Ordinary Account (CPF OA) is to top up our CPF Special Account (CPF SA) to get a higher return of 4% (as of the time of writing, in 2020). Note that the CPF SA rate is going up to 4.01%, as announced on 29 May 2023 — learn more about CPF interest rates here.
Investors in Singapore may also decide to invest in the STI exchange-traded funds (ETFs) through the CPF Investment Scheme (CPFIS) for diversification in their portfolios.
As someone who previously worked in a Temasek-linked company, with a significant portion of my salary in variable bonus, I didn't want any more exposure to the Singapore market. I searched for options to invest my CPF OA funds where I could have global stock market exposure and was disappointed with the options that were available to an individual investor like myself.
How does Endowus compete on CPFIS-related fees?
The costs involved in unit-trust investments under CPFIS are complicated. The more I read, the more confused I got. Upfront sales charges and/or trade costs, platform fees, wrap fees... I began thinking that it would just better to put it into my CPF SA and get it over and done with.
The way Endowus prices its fees is much simpler. All we need to know is that we are paying a 0.4% wrap fee to Endowus — this is an all-in fee that Endowus charges. At the fund level, which is the fees charged by the fund managers, it is net 0.58% for a balanced 60:40 equity bond portfolio. Trailer fees, which are fees usually paid to distributors by the fund managers, are fully rebated back to Endowus' clients.
With Endowus, people who want to globally diversify their portfolios have a simple, transparent and cost-effective option. You can see the chart below on how Endowus has reduced the costs of investing in unit trusts for CPFIS for an advised portfolio.
Even so, are those all the charges that we have to bear? We still have to pay Agent Bank charges for the investment and management of the funds. Read more about the agent bank charges for CPF investments here.
Why do you pay lower CPFIS fees on Endowus?
Endowus is working with an approved CPF Investment Administrator, UOB Kay Hian, for greater cost efficiency and consequently lower agent bank charges. For the same $10,000 investment made into the 7 funds curated by Endowus, you will be saving $63.50. For me, that is almost 3 months' worth of weekly Filet-o-fish Extra Value Meals!
Note: Dollar values are excluding GST. Different Agent Banks have different charges, from $2 per 1,000 units to a maximum of $20 per transaction, to $2.5 per 1,000 units to a maximum of $25. The example above considers $2.50 per 1,000 units to a maximum of $25 per transaction. Information is correct as of 28 Nov 2019.
For example, if we were to switch our risk profile which leads to a purchase in equity funds and a sale in bond funds, there will be no Agent Bank charges through the Endowus setup.
Maximising your CPF investment returns, at the lowest fees possible
At Endowus, we pride ourselves for structuring investment solutions right so that our customers do not spend unnecessarily and get the best possible returns. The total cost of investing in diversified funds for our retirement should be similar to what we can do with our cash account.
To be fully transparent, in my CPF investment strategy, I have invested half of my CPF investable sum with Endowus and am looking to invest the rest by the end of March 2020 to maximise my investment horizon as a young working adult. Spreading my investments out help me manage my emotions better and gain confidence in my investing decisions.
Investment involves risk. 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. Past performance is not an indicator nor a guarantee of future performance. 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 Endowus Singapore 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, 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.