21TODAY • TUESDAY • AUGUST 2, 2005

savvy investor/news

“CPF savings are only meant for basicretirement needs” and “CPF savingsalone may not be enough for retirement”. These phrases comedirectly from the Central ProvidentFund Board’s official website.

Despite knowing this, some CPFmembers are still content to relyalmost solely on their CPF savings forretirement, leaving their funds idle toearn guaranteed returns of 2.5 per centor 4 per cent per year.

In comparison to prevailing depositrates, these risk-free returns may seemvery attractive. However, there aremany ways to enhance the returns onyour CPF savings, provided you investthem wisely.

At the end of March this year, CPFmembers had invested nearly $29 billion of their Ordinary Account(OA) and Special Account (SA) savingsin various financial products. However,a sizeable $75 billion, which could beused for investments, remainedunutilised.

Many may have turned risk-averseafter reading reports of how CPF members had done poorly with theirinvestments over the last few years.Part of the reason for this lies in poorinvestment decisions.

While some CPF-linked productsmay have done poorly, there are otherswhich have been able to beat the guaranteed returns.

Take unit trusts for example. Six outof 10 CPF-linked unit trusts managed tobeat the OA’s guaranteed return of 2.5 per cent in the one-year period toMarch 31 this year.

The longer-term picture is even better. In late February this year, theInvestment Management Association ofSingapore cited figures which showedthat over the past seven to 10 years,nearly 75 per cent of all unit trusts hadoutperformed the CPF Board’s guaranteed returns. For this period, theaverage annualised return on equity andbond funds was said to be 6 per cent.

This goes back to the basics of

investing that we have talked about previously. When investing your CPF inunit trusts, be prepared to take amedium- to long-term horizon. Also,diversify your bets and be sure to investin line with your risk appetite.

You should also pick unit trusts carefully. If you bet on the wrong horse,you could lose money. It is importantto assess the soundness of the unittrust manager’s investment process andits track record in being able to consistently beat the guaranteedreturns offered by the CPF Board.

But for average investors this may bedifficult to do. One way out is to seekhelp from independent consultants likeMercer, which rates funds on its website (www.mercerfundwatch.com) and

offers its qualitative assessments.Remember that the difference

between investing your CPF wisely andotherwise can be quite significant.

Take the example of a 35-year-oldman with $50,000 in his idle OA savings. If he does nothing with this balance and earns 2.5 per cent perannum, it will grow to $81,930 in 20 years’ time. If he invests the fundsfor a compounded return of 6 per centper annum, it will grow to $160,357.The difference in this case is nearly$80,000!

In the final of our 13-part advertorial seriesnext week, we focus on a topic that’s closeto the hearts of many parents — planning

for their children’s higher education.

Need information on how to manage your wealth?Visit our website at http://www.ocbc.com/wealth

Real Solutions. Real Wealth Management.OCBC Bank

How to invest your CPF wisely

Valerie Lawvalerie@newstoday.com.sg

WHILE most Singaporeans save andmonitor their spending, 76 per cent areill equipped in their retirement planning.

According to a recent survey by theMonetary Authority of Singapore (MAS),only 24 per cent of 2,023 Singaporeanspolled have actually calculated how muchthey would need when they retire.

And out of those who have made calcu-lations, only 30 per cent are aware of theideal situation — that they need two-thirdsor more of what they have earned to havea comfortable retirement.

Only 28 per cent had an idea of howmuch CPF funds they would have whenthey reached 55 years of age, while 42 per cent held the misconception thattheir CPF savings at retirement will pro-vide them with a monthly income equiva-lent to their last drawn monthly salary.

This is clearly one area of improve-ment, said MAS of the survey results. It

conducted its first National Financial Lit-eracy Survey in March among Singapore-ans aged between 18 to 60 years old.

The survey showed that the majority ofSingaporeans save, monitor their spend-ing, and are generally responsible in theuse of credit. Most consider personal sav-ings and CPF savings to be their mostimportant source of retirement funds.

Why then did the retirement planningfindings fall short of expectations?

A key reason: Singaporeans are moreconcerned with current needs, said Mr Wee Tiong Howe, chairman of IPPFinancial Advisers.

“If your career gets disrupted between40 to 45, that affects your savings andretirement plan. You’ll be on survivalmode rather than be concerned aboutretirement planning,” he said.

Another reason why many Singapore-ans do not plan is because they may notbe aware of the intricacies and complexi-ties involved, which can be made simple

with the help of a good financial planner,said Mr Wee, who is also the foundingpresident of the Singapore Society ofFinancial Services Professionals. As aguide, people should try to save as muchas 30 to 40 per cent of their annualsalary for a comfortable retirement.

“If you have ten times of your annualincome saved, it can last you for 25 years,if rate-of-return equals to inflation,” heexplained.

“If you save only 20 to 30 per cent ofyour annual income, you must (target to)have 5 to 10-per-cent rate of return foryour money.”

Like all other forms of personalfinance, retirement planning should bedone at an early age.

“A person who is about 30 years oldmay think that retirement is still far away,but one needs to start early — to learnhow to manage one’s cash-flow, under-stand wealth management and the powerof compounding interest,” said Mr Wee.

But survey shows that majority have good money management habits

TTeemmaasseekk ssttiillll kkeeeenn oonnTTaaiiwwaann bbaannkk:: ssoouurrcceeTAIPEI — Temasek Holdings’s offer for a22-per-cent stake in Taiwan’s Chang HwaCommercial Bank stands if the sale of thestake to Taishin Financial Holdings fallsthrough, a source familiar with the transac-tion said yesterday,

“Temasek is seeking to reaffirm its bidfor Chang Hwa,” the source, who declinedto be named, said.

On July 22, Chang Hwa accepted TaishinFinancial’s offer of NT$26.12 ($1.35) pershare for the 1.4 billion shares being soldby Chang Hwa, Taiwan’s sixth-largest bankassets. Taishin’s bid was valued at NT$36.6billion.

However, Temasek, Singapore’s state-owned investment company, submittedanother proposal for the 22-per-cent stakebefore Chang Hwa’s board meeting last Fri-day, the source said.

In the proposal, Temasek offered to payNT$21.5 a share. The terms were the sameas an earlier offer. When contacted,Temasek spokeswoman Eva Ho declinedcomment.

However, the chances that Taishin's win-ning bid will be undone seem slim. The gov-ernment has also said it will seek to sell its17-per-cent stake to Taishin Financial andwill only sell the shares in the open marketif Taishin turns it down. — Dow Jones

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