I refer to an article by the Straits Times on 14 September 2016 which reported comments by Singapore’s Deputy Prime Minister Tharman Shanmugaratnam (“DPM Tharman“) that the Central Provident Fund Investment Scheme (“CPFIS”) is not “fit for purpose” and will be reviewed.  What struck me was the data that over the past 10 years, more than 80% of members who invested via the CPFIS would have been better off leaving their money in the Ordinary Account, which earns a guaranteed 2.5% each year.  This finding does not surprise me, and reminded me of a conversation I had many years ago with a fellow investment enthusiast about the performance of Joe Public with their investments in a similar news article back then.

Here are my 4 takeaways from reading the abovementioned Straits Times report:-

  • Successful investing requires dedication to learning to earn;
  • Does “investor education” really make a big difference?
  • Ignore the chatter and be passive; and
  • How bad is a 2.5% guaranteed annual return on your CPF savings?


If Aladdin’s genie offered you the opportunity to grow your hard-earned savings, 10 out of 10 people will bite the genie’s hand off in a heartbeat.  But if the genie told you that successful investing requires one to dedicate years and years to humbly analyze one’s own mistakes, to read widely and study the right methods (such as reading multiple times the following 725-page classic book on value investing), the recommended books will probably still be gathering dust and cobwebs by the time one retires.

It always seems easier to chase the latest hot stock (remember the Liongold-Asiason-Blumont-induced penny stock crash of 2013?) or speculate on the latest sell-your-house-and-buy-it tip from one’s seemingly well-informed professional friend in suit, tie and cuff-links — I liken this to taking the gift of a fish — than to painstakingly learn the art of ploughing through stacks of annual reports on one’s own — which I liken to learning how to fish with a rod.  Make no mistake: the stock market is not a forgiving place for the unskilled, undedicated and undisciplined.  There is really no get-rich-quick scheme that you can pay $5,000 for a 2-day seminar, following which you can consistently make 30% return every month from a beach in Maldives.

Indeed, more than a few of my former colleagues had actually asked me about the worthiness of attending such “financial mastery” or “trading genius” seminars because their friends had done so already.  Perhaps I’m lacking in the charm department because not all of them listened to my dissuasion.  Mind you, the god-of-stocks Warren Buffett made “only” 19.2% of compounded annual return between 1965 to 2015.


I always hear people say this in many forums related to investing, be it on fundamental analysis, valuation, corporate governance, REITS, or technical jargon of the mining sector, etc.  Providing more “investor education” seems like the light to guide Joe Public on deploying his or her hard-earned savings, or the panacea to the pain suffered by Joe Public at large.  This proposal appears sound at first glance, but is vague at best and rather uneducated at its worst.  Let us be practical: how does attending or watching a series of Youtube videos on seminars on the “JORC” (what?!) of the mining or energy sector equip you to fully understand the implications and risks of that purportedly independent appraisal report on that rare earth mine in Madagascar (I admit I had to look up the map to be sure it’s in Africa); or to independently and reliably predict the balance of supply and demand for this commodity in the future?  Or how does attending a 45-minute seminar on Chinese Accounting Standards make you an expert in comparing and adjusting the accounting information disclosed by PRC companies to align with International Financial Reporting Standards?  I am not against the idea of “investor education”; in fact I agree it’s of utmost importance.  But investor education is beyond mere seminars, brochures, infographics and Youtube videos.  Even full-time investment professionals in the fund industry talk about having to slowly grow their “circle of competence” (no doubt via much intense studying, trial and error) in order to ask the right questions on the correct issues and risk factors in many business segments.  If you’re not an expert, then the chances are you’ll be part of that abovementioned “84%” gobbled up by the experts.

So what should I do if I don’t have the time nor the passion to really learn to earn?


I have good news for those who doesn’t find it fun to read annual reports on a quiet evening.  You actually don’t need this skill or interest.  The answer is actually quite simple and is found in page 20 of Warren Buffett’s 2013 letter to shareholders of Berkshire Hathaway, where the Oracle of Omaha wrote: “My advice…couldn’t be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund…I believe the trust’s long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers.”  Such low-cost market index funds essentially allow the investor to buy into a cross-section of businesses that in aggregate will track the fortune of the economy, which over the long run will tend to innovate and grow as demonstrated by the history of mankind.

But why not invest with those reputable fund management institutions with big names starting with ‘A’, ‘B’ and ‘F’ etc, and who claim to outperform the market, I hear you ask?  As explained by DPM Tharman, CPF members investing in such investment funds via the CPFIS have to pay fees to the investment managers, which then erode their returns.  These fees are not cheap, and include front- or back-load fee (anywhere from 3% to 8% of your investment), annual management fee (typically 1% to 2% of the net asset value), performance fee, switching fee (if you fall to their persuasion to switch from one fund to another from time to time), redemption fee and the bid-ask spread when you liquidate.  Click on this for a 101 on the gamut of fees (or “frictional costs” as Buffett calls it) that pays for your financial planner’s or fund manager’s Savile row suit, tie and cuff-links…and much more.  By investing in index funds, you definitely won’t beat the market, but you’re more than likely to beat that 84% of your peers mentioned by DPM Tharman.


Haters gonna hate, and haters will point to 2.5% being insufficient to fight inflation and rise of COEs etc.  But this argument is daft and fallacious for two reasons:-

(i)  Comparison with similar instruments with similar risks

The right benchmark for comparison is the interest rate on other similar or comparable instruments, in this case fixed deposit and Singapore government bonds where the yields can be found here on the website of the Monetary Authority of Singapore.  You will have to buy a 20-year bond maturing on 1 August 2036 to get even a yield of 2.23% in this current economic environment.  One should also broaden one’s horizon to compare with government bonds in other developed countries, such as the US, UK, Australia, Japan, Germany and Switzerland — particular the latter 3 which are experiencing negative interest rates.  According to Bloomberg (as at 15 September 2016), here are the yields on 10-year government bonds in their domestic currency, i.e. before any foreign exchange risk vis-à-vis the Singapore Dollar that you will surely bear.

It becomes even more interesting to note what the P.I.G.S pay, considering that these 4 countries are supposed to have higher default risk and so should be offering higher yields on their 10-year government debt:-

In comparison, CPF members earn a relatively risk-free rate of 2.5% and 4% for money in their CPF Ordinary Account (CPFOA) and CPF Special Account (CPFSA) respectively.  This is automatically compounded and members do not have to worry about any downside risks.

(ii)  Forgetting the risk premium

One thing that retail investors often forget is the definition of “risk premium”.  “Risk premium” is the additional return an investor should expect or demand to obtain because of the additional risk that the investor is taking by investing in riskier instruments like corporate bonds and equities, as compared to leaving it idle and risk-free in CPF.  Thus, it may not be gloat-worthy if one is taking on excessive risk that one does not know how to quantify while attempting to make a seemingly higher nominal return.  In other words, it’s about risk-adjusted return or your Sharpe ratio, which is a technical discussion beyond the scope of this article.

In conclusion, it is best not to attempt to invest the money yourself unless you are prepared to commit the time, effort, discipline and the inevitable “tuition fees” to learn to earn, or unless your eager-to-share coffee buddy is Singapore’s answer to Peter Lynch.  While many funds or unit trusts are “approved” for CPFIS, or many stocks are designated as “trustee” stocks allowable for CPF investment, these terms have very little correlation to their ability to bring joy and security to your retirement.  Please share this post with your family or friends if you think it can help them protect their precious nest egg.