20,000 BC

The past 2 weeks have been frantic as I scrambled around Singapore getting my clients to invest their Central Provident Fund (CPF) before the 20,000 BC rule kicks in on April 1st. Once the 20,000 Be Cashed-into-government-coffers rule starts, one may not invest the first $20,000 of both the Ordinary Account and the Special Account.

Now I should probably mention that this post concerns Singaporeans and Permanent Residents of our wonderful republic and you should probably give it a miss if you have never heard of CPF (alternatively you can stay around and be amazed at the intricacy of the CPF scheme).

I will not go into the specifics and details and other boring stuff that I usually steer clear of but you can access them here: http://mycpf.cpf.gov.sg/
Instead this post is about what and how you stand to lose out after this rule kicks in or better known as opportunity costs.

Now what are the implications of 20,000 BC? For a fresh graduate, it could take 3 years or more to amass $20,000 in a single account before the spillover can be invested (assuming an annual income of $30,000).
The key to note is that the interest rates paid out by the CPF Board hardly hedges against inflation. The current rules in place already restrict investors to investments that charge minimal management fees and are generally less risky. At American International Assurance (AIA), funds labeled 'Adventurous' are mostly not allowed under the CPF Investment Scheme (CPFIS).

Yes, there are risks in investing but as a young graduate with more than 30 years of investment time horizon (before I reach 55), I am definitely missing out the chance to maximize my returns once my funds are locked in. The annualized yield of the AIA investment funds of the past 5 years averages at about 20%.

Alas the 1st of April draws nigh. If you have not invested your CPF yet, its probably too late to do it anyway (if you have less than $20,000 in your Ordinary Account or Special Account). The lesson to learn from this is that we should always be on the lookout for changes to investment regulations and financial tools to help us minimize our opportunity costs and maximize our returns.


This post reflects the author's views and is in no way representative of AIA or the CPF Board.