Investing your CPF with Unit Trusts

Is investing your CPF with unit trusts a good thing? In my opinion, it's not a good idea especially if you have no time to monitor it. When I first started investing 20 years ago, the first instrument that I got hold of was unit trusts. At that time, I thought that buying a unit trust would be a form of diversifying your portfolio. I thought that it would be the job of the fund manager to decide how to allocate the number of stocks, bonds and index funds for each portfolio and we won't have to worry a thing. So naturally I had thought that unit trusts are for beginners if you have no idea how to invest in stocks. Boy, was I wrong. 

Most unit trust funds did not perform so well and the CPF board started removing a lot of approved funds as time went by. I had made losses too. Even those that require cash. I'm not saying that all unit trust funds will cause you to have losses. You need lots of time to know how to rebalance it. I did not spend any time rebalancing it for many many years and that was a dangerous thing to do. Seriously.

I had bought some funds through an online platform and some through an insurance agent. After selling me the funds, the agent was reluctant to provide me advice on which funds I should switch to. I was on my own and I thought it was a bad decision to even buy it from the insurance agent. After all, she had already earned her commission and didn't want to have anything more to do with me. She said I could just go online to switch the funds on my own and her advice was to just 'leave it there'.  Leaving it there without any action is a very dangerous thing to do. I found that the money would be better off earning the 2.5% interest in the ordinary account. Also, if you have no idea what you're doing, trusting the fund manager to balancing the fund is really a bad idea.

So I decided to read some books on unit trusts investing as well as visiting several websites. I learnt about rebalancing and decided to take some action. First I liquidated most of my units in cash and those that I bought from the online platforms. I felt that I would rather invest them elsewhere. The only ones I kept are the insurance based unit trusts. I switched my units to 2 basic type of funds: Global Bonds and Global Equities. That's because I have no time or knowledge to keep up which country, continent or theme is doing well for each timeframe. The Global portfolio would cover everything world wide. Then at every time frame, I made sure that I would maintain the same amount of distribution between Bonds and Equities. 

By doing that, I started seeing results. I notice that the results would be even more obvious whenever the markets does a flip. For example in March 2020 when the markets crashed by 30% worldwide, the value of the bonds was higher than the value of the equities. I had to sell the bonds to buy more equities. But in the following months, equities started recovering and I had to sell off the stocks to buy the bonds again.  The overall value of the portfolio started to go up. It became higher that what it was before the crash.

As at end of last year, when I compared the opportunity cost of putting money in unit trusts versus leaving it with CPF, I found that I was able to catch up with 2.5% interest rate of what CPF board pays. Perhaps I should have quickly liquidated the funds back then but I was having so much fun.

Then in the past few months, Russia invaded Ukraine and inflation went up. Even bank interests were affected. The equities versus bonds thingy started getting shaky again. So I guess I should ride through another storm again.  

So yeah.....I'd say if you're a beginner and have no idea how to invest, do not use your CPF to invest in unit trusts. It took me years and experience to figure how to get it done and I won't say I have a foolproof method of maintaining it. I'm still learning each day. I'm still monitoring it regularly to rebalance it. So far it has been ok for me. I shudder to think what would happen if I had taken the insurance agent's advice to 'just leave it' there.  Never do that. You'll have to keep checking and monitoring it regularly. Rebalancing it is a must. You cannot let it sit there and do nothing. 

Till the next post.....

Do we have enough for our retirement?

This is the question that I keep asking myself. Each time I look at my parents mistake, I keep wondering if we will go down the same path as them. My only consolation is that, with CPF Life, you get your payouts month by month, so that you can spend each month base on each payout. The older folks who retired many years back didn't have an annuity. When they withdrew their CPF by the lump sum, they suddenly found themselves extra richer and started spending more without thinking of the future. Medical costs are inevitable. I've not heard of an old person without any health problems. We'll need money for medical costs and daily expenses. Plus there will be inflation. Keeping the lump sum in a bank account will cause the value to depreciate due to inflation. These are just my own thoughts. So many things to think about in the future and everyone needs money and it's worse if a person is retired and has no more income. Sigh....something more to reflect upon as each day goes by.