My Guide to the CPF Investment Scheme [CPFIS]

Updated: Oct 11

KK asked for investment strategies. Here they are.


This popped up on my feed recently – and I was pretty excited at seeing the headline.

My Guide to the CPF Investment Scheme (CPFIS)


CPF is such a hotly discussed topic – love it, hate it, everybody talks about it and as a result even people who live under a rock have a pretty decent idea what its all about.


This isn’t true for it’s counterpart, CPFIS.


Up to 2016, CPFIS had a pretty awful reputation due to several news reports, especially when Tharman came out and said ‘more than 80 percent who invested through the scheme would have been better leaving it in the account’.


Your local Financial Bloggers were not immune to this – either writing about it at the time of said reports or writing AFTER the reports were obsolete, which is worse. (Note - this was not written by Seedly. I'm very critical of influential figures in this space - this is not going to be one of those times).


Of course, this was very, very swiftly adjusted, especially once people realized that there were severe flaws in this analysis. CPFIS turned out to have significant value for both outperformance and risk adjusted performance.


So with a new wave of general positivity towards CPFIS, I figured that it would be a good article for reviewing. After all, I’m always interested in the competition.


MoneyOwl has had some exciting things come up, and you can now invest your SRS money through Stashaway – I figured there was something I missed.


While it was a very detailed article which was generally well written for beginners, I got pretty annoyed at this part:


It's one thing to duck unit trusts, its another thing to recommend the STI ETF.

Further research into funds has been showing more and more evidence for favorable ratios, which is what investors claim to be looking (e.g. alpha) and as depicted in some detail in my previous post on aggressive investing. Of course, a consultation with me would have me giving formal advice, which is when you can see how I justify all the things that I can't name off without violating FAA (Financial Advisors Act) - such as plan names, structures, fund names, investment methodologies, etc.


So since the original article has already covered most of the basic details - such as what it is, how you can start, what limits there are, etc - and I can go through those details during a formal consultation anyway - my guide and investment strategy is simple.


Invest in performing funds instead of the STI ETF.


You get diversification and outperformance along with a whole host of benefits for a much lower price than you'd think.


It wouldn’t be a Money Maverick article without some serious justification – otherwise I’d just be a keyboard warrior who’s blindly trying to protect his rice bowl without considering you – the reader.


The person who’s going to decide what to do with your money based on what someone says online. Whew.


So - two things on the agenda.


1) To address the typical objections towards investing in high fee options in a factual, evidence-based manner


2) Some other considerations for using CPFIS that I felt were important to add on


Come on. You must be a little curious at least.


Unit Trusts/Investment Linked Unit Trusts (CPFIS)


Aside from the links that KK used referring to his past articles – which are typical Finance Blogger generic advice such as avoiding fees, etc – the primary piece of evidence used was a compilation of the 3 year returns of Investment-Linked Policy Funds.


Two issues here:


a) No reasonable professional analysis uses a 3-year return in order to illustrate this point.


b) There really isn't good value evidence for recommending the STI ETF in place, which is one of the few ETFs in which you can invest all the excess monies (excess of $20,000 OA, $40,000SA) without a 35% limit.


Using the same link that was provided, you get the following results with just the slightest analysis:


1) Of all the funds listed, all of them were net of expense ratio.


For example, the first fund on the list: AIA Acorns Fund – performed at 6.13% annualized AFTER the expense ratio was deducted, not before. This is important because investors are always looking at ‘net’ returns.


2) Out of 124 funds listed, 81 of them outperformed CPF OA after fees were deducted, or a solid 65% of them.


3) If we eliminate the following categories – ‘Low Risk’ ‘Medium to High Risk Broadly Diversified’, 65 out of 84 funds outperformed CPF OA, which goes all the way up to 77.4%.


This is in order to compete in the same risk profile ‘Medium to High Risk OR High Risk – Narrowly Focused (Geography)’ as the Straits Times Index ETF, and the same risk category that you should be invested in anyway.


4) Using the 5-year, quarter end return as a benchmark (3.36%), half of the ILP funds (62/124) outperformed the STI ETF (net of fees) for lower risks taken.


The recent month end result is even worse, at 2.20% with all dividends reinvested..

5) It's pretty unfair to compare a 3 year return to a 5 year return - they are obviously not the same thing, but aside from being willing to bet that the CPFIS result will be considerably different - it wasn't fair to rely on 3 year returns in the first place.


But since we're at it, let's look at the 3 year returns as well - and I'm going to toss out other expensive options using brokers such as iFast - which clearly add far more value.

As of March 2019. All Funds outperform the STI ETF vastly, as well as their historical benchmarks long term.

I used 3 different fund houses to help me with this one, where after I accounted for lower beta [0.88 as of June], lower standard deviation and higher performance than the STI, you get the following result – all of which are net of expense ratio.


If you can tell by now, I'd love to share these options in person. I am not lacking for options: aside from ILP funds, I can help access almost 50 funds through your Ordinary Account in most sectors or geography.


People who invested their Ordinary Account but were too afraid to explore a wider range of options, expensive or otherwise - are a classic case of being afraid to lose small instead of aiming to win big.


Someone who’s genuinely looking for value would have looked at favorable ratios, and it takes guts to pay a premium for those ratios.


And that’s sad. Imagine if you took the 5 year standard at face value, like how the 3 year standard was taken.


[Note: Please do not do this in practice. No serious investor will do this.]


Look what happens if you’re a 35 year old, investing $500 a month into your CPFIS with one of these funds instead of the STI ETF with a lump sum of $100,000.

OA Return (20 years, 2.5%) =

STI ETF Return (20 years, 3.36%) = $193,664

Ex Japan Fund (20 years, 11.0%) = $806,231


I’ll leave you to figure out how much excess cash you’re going to have at 55.


And remember, we’ve already accounted for volatility. The funds I’ve provided have less historical volatility than the STI ETF. By standard measure, they are less risky.


Is the 5 year return a fair assessment? Of course not. But its certainly more fair than a 3 year assessment.


Besides, my objective wasn’t to suggest that you can make abnormally high returns (you need risk management, ideally with a professional), nor was it to suggest that you must invest your OA into these funds only.

I only had to illustrate that investing in these funds was a viable and beneficial option for you, using data and facts.


In a nutshell


By investing in CPFIS approved unit trusts for your Ordinary Account, you get access to the following benefits in return for your fees:


1) Easy access to high yielding funds that outperform most individual stocks/bonds/STI ETF

2) Long term outperformance of CPF OA (at the very least)

3) Increased Diversification across sectors

4) Increased Diversification across geography

5) Lower risks, with access to even safer blue chip stocks than Singapore ones overseas, such as Nestle, Samsung, Microsoft, Coca Cola

6) Returns which are already net of expense ratios anyway

7) Ability to invest all available funds after cap limits ($20,000 OA, $40,000 SA) and not be subject to the 35% investment limit. (stocks, etc).


Compare that to if you invested in the height of 2007 in the STI ETF, you wouldn't have recovered 12 years later. It's so bad that you could even make a better case for investing in Japan, which has been in a similar situation since 1990.

Too good not to put in two posts.

It always amazes me how some people have the audacity to suggest the STI ETF as safe and diversified. (Not Amended)


It’s one thing for a layperson to look at it and think its safe, diversified or strong - since it has blue chip stocks in Singapore whose services you likely utilize every week - but anyone with an ounce of financial savviness wouldn't.


Why on earth would you advocate something that yields so little, has such high volatility and barely any diversification (56% Financials)?


In contrast - even its highest weight is in defensive stocks, and almost a third of the STI ETFs Financials Risk. Fund performed 11% annualized in last 5 years.

But if you don't believe me, ask 1M65, the biggest CPF face in the country. He had the guts to say it's a terrible investment choice.


He might not agree with me on the funds thing, but eh.



Money Maverick

As one of the Top Financial Bloggers in Singapore (Feedspot, Withcontent.co), I would be happy to answer any emails and questions you may have, as I have been doing for my readers over the past few years - especially about Insurance and Investing, as it is my forte of personal and professional knowledge.


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Money Maverick is a Licensed Financial Consultant with MAS, who specializes in Investments and Critical Illness Insurance.


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Here are some of my resources on:


1) Investing: Why you should invest aggressively NOW (and how you still can have peace of mind)


2) Insurance: The Newest, Rising Critical Illnesses in Singapore (2019)


3) Retirement and Leverage: Leveraging a Private Annuity, Pros and Cons (ft. Jamus Lim)


4) Spending and Saving: The Biggest Spending Mistakes You DIDNT Even Know you were Making (and how to avoid them)


5) Job Assessment: A Case Study on How a $6k/mth GIrl makes MUCH more money than a $10k/mth Guy


6) Financial Optimisation: How I Avoid the Largest 'Fees' of All


*Investments above are available using CPF (Ordinary Account), SRS (Supplementary Retirement Scheme) and Cash.


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