CPF has announced a new investment scheme to be launched in 2028.
It is an extension of the CPF Investment Scheme, or CPFIS.
CPF will work with commercial fund providers to offer simplified, low-cost, and diversified life-cycle investment products.
To determine whether this scheme is suitable for you, let’s take a look at these of these features.
1. Diversified life-cycle investment products
These are products that follow a glide-path asset allocation.
In other words, they invest more in riskier assets (equities) when you are young, and invest more into safer assets (bonds, cash) as you approach retirement.
They are also automatically rebalanced as time goes by. This removes the need for manual intervention and overwatch by CPF members.
If following best investment practices, they will be globally diversified and passively managed (no active stock-picking).
2. Simplified
There will be only 2 to 3 product providers with curated offerings.
This makes it easier for people to choose and stick with their choice of investment product.
This avoids the paradox of choice – when we have more options, we are less satisfied with what we end up choosing.
3. Low-cost
CPF will cap all-in fees for investors.
The less fees there are, the more returns investors get. In fact, fees are the best predictor of future returns.
Is this a good investment scheme?
All signs point to “yes”.
It will be low-cost, diversified, and passively managed. It follows a glidepath approach that maximises adherence, removes the need for intervention, and reduces the urge to tinker.
All-in-all, I would be comfortable recommending it to the vast majority of Singaporeans.
Who should use this investment scheme?
CPF lists down two characteristics of a suitable user.
- They should be able and willing to take on some investment risk.
- They may have less financial expertise or be unwilling to manage their investment portfolio.
If you fit these criteria, you would be in CPF’s target audience.
Who shouldn’t use this investment scheme?
If you don’t match either of the characteristics, then this scheme might not be for you.
If you are older e.g. 50+ or risk-averse, you might not want to participate in the scheme.
Or, if you have a high amount of knowledge, confidence, and ability, you would be willing to self-manage your investment portfolio to achieve higher returns overall.
Personally, I would describe myself as the latter. But it is worth noting that overconfidence in financial knowledge and ability is widespread, so we should be cautious not to overestimate our financial know-how.
Overall, this is a fantastic enhancement to our retirement scheme. I have to give a big kudos to CPF for coming up with this enhancement which will likely greatly benefit many in the years to come.
Leave a Reply