The Central Provident Fund (CPF) is a compulsory savings scheme for Singaporeans and Permanent Residents.
People who are in full-time jobs enjoy monthly contributions to their CPF account.
Yet, most have little idea on the best way to manage their CPF monies.
Many of us simply let our CPF accrue interest of just 2.5% in the Ordinary Account and 4% in the Special Account.
With inflation rising in recent times, there is a need to make our money work harder for us.
There are actually many investment options out there that you can make use of to enable your money to work harder for yourself.
For instance, the CPF Investment Scheme (CPFIS) allows investors to invest a part of their CPF in approved investment products.
These range from government bonds and Singapore Savings Bonds to riskier assets such as unit trusts and individual stocks.
Here’s why I think savvy investors should invest their CPF account in stocks.
Stocks can potentially offer an investor a much better return over the long-term than the current rates offered by the CPF.
REITs such as Mapletree Logistics Trust (SGX: M44U) offer a 4.9% annualised distribution yield while boasting a strong sponsor in Mapletree Investments Pte Ltd.
Healthcare REIT Parkway Life REIT (SGX: C2PU) has seen its distributions grow at an annual rate of 6% since 2008 till 2020.
Of course, the important thing to note is that you should buy businesses with strong franchises that are resilient to economic cycles.
By holding on to these stocks, you can enjoy healthy long-term capital appreciation along with attractive dividends to boot.
Long-term savings plan
One of the complaints that Singaporeans have about the CPF scheme is that they are unable to withdraw the money until they reach their retirement age.
However, this is actually a good thing for investors who are looking to invest for the long-term.
The fact that you cannot use the money until retirement means that investments can accrue and compound over time.
You can treat the CPF as a long-term savings plan for you to park money for regular investments.
With patience, you can see your pot of money grow into a sizable amount that you can use for your retirement.
Get Smart: Buy strong, stable businesses
Investors who are looking for better ways to make their CPF money work harder for them can consider investing in stocks.
The key is to remember to park your money only in strong businesses that can withstand economic stress.
By deploying your capital in steady, dependable businesses, you can enjoy higher overall returns to boost your retirement funds.
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Disclaimer: Royston Yang does not own any of the companies mentioned.