CPFIS - My Personal Investing Experience

Recently, DPM Tharman had said that a review will be done on the CPF Investment Scheme (CPFIS). Bascially, what he said is that most investors made losses and earned less than 2.5% investing under the scheme, thus calling the CPFIS “not fit for purpose”. He said that the government will work to “tighten up on it [while moving] towards introducing a simple, aggregated, low-cost investment option".

I must admit that it is difficult to invest successfully under CPFIS in its current form. But it doesn't mean that you cannot be successful under CPFIS. You just need to put in an extra effort to make it happen. I have been investing under CPFIS for more than 10 years and therefore I know its difficulties and pitfalls. Below are some of the tips that I could share for one to be successful under CPFIS:

1. You need to have both stock/ETF and unit trust investing skills. Most people are either stock or unit trust investors. Therefore, their skillset is not enough to be successful under CPFIS. If one only invest in stocks, they could only use 35% of CPF-OA and none in CPF-SA. If they only know unit trust, they will never participate in the benefits of stock investment, especially in the small cap space where the returns could be quite substantial if you pick the right stocks, buy and hold for long term.

2. Think long term, diversify. Most people either fall into the "penny wise, pound foolish" or "trade frequently and incur costs" category. For the former case, they tried to save on CPF agent bank quarterly charges by keeping as little number of stocks as possible in their CPF Investment Account, without diversifying their portfolio. For the latter case, they incur a lot of brokerage charges and CPF agent bank fees by trading often. CPFIS works best by holding onto a list of your unit trusts, ETFs and stocks for long term, while collecting dividends to offset those CPF agent bank quarterly charges. You can never beat the market by trading regularly. Also, it is not a all-or-none portfolio by holding only one stock. Yes, you might strike jackpot but you may also make huge losses. CPF is your retirement fund. You must not take huge bets.

3. Invest regularly. Many investors just do a big one-time lump sum investment once a while (maybe even once a year or once every few years) on their CPF funds and forget about it. This is a big mistake as they might accidentally did a market timing on their investment. When one is working, they should channel their funds regularly into the CPFIS since they have contribution every month into their CPF accounts. Never accumulate a big lump sum and then invest in one go.

4. Select the right stocks and funds and stick with them. This is a difficult one and it comes with experience. I have my fair share of poor choices but the good ones managed to offset the bad ones and therefore the result is overall is still quite ok. Basically, one needs a few years of experience in both unit trust and stock investing in order to build up a decent portfolio for your CPFIS. What I suggest is to invest outside the CPFIS first. After you gained some experience, then you can create a sub-set of your stock portfolio and invest them under CPFIS. For unit trusts, you have to look at various factors like expense ratios, track record etc. Make sure that you stay put once you select those funds. It is difficult to switch around for unit trusts as the top performing fund for this year might be one of the worst next year.

Hope that the above helps in detailing some of the points to be successful under CPFIS. With more changes to come, I guess CPFIS will become a different animal soon and the choices will be much simpler. However, if you did not do well under CPFIS, it is still not too late to reverse the situation. You just need to have a plan, follow through it and don't make big investment mistakes.