Our Government is notoriously bad at coming up with names.
For example, there's that infamous story of how the CAAS spent $28,000 to launch a contest to name our airport's budget terminal, and chose the winning name of… The Budget Terminal.
So you can't blame the G when they tried to be super ultra specific when they came up with the Central Provident Fund Lifetime Retirement Investment Scheme. (Try saying that 5 times fast!)
Okay, the name might be a mouthful and sound boring as hell (seriously, the word "retirement" is about as exciting as an episode of Mata-Mata), but when you take a closer look at what it actually IS, it's pretty cool. It might even help to make you rich.
Wait, I Don't Even Know What This CPF Investment Thingamajig Is
I don't blame you. To us millennials, talking about CPF is like talking about how the Sun might one day explode and annihilate the entire human race. We gotta deal with it one day, but who cares?
If you're like 99% of Singapore millennials, you're probably doing one of two things when it comes to your CPF:
- Doing nothing because "I can't even touch the money so don't care lor"
- Figuring out how to invest it using the CPFIS, while watching your soul die a slow, painful death
Neither of this is ideal, which is why the G came up with this awkwardly-named CPF Lifetime Retirement Investment Scheme (let's call it the LRIS for short, because we could totally use another acronym in our lives).
CNA already talked about what we know about the LRIS, but it summary:
- It will let people invest their CPF funds in a small number of low-cost, passively-managed funds
- It will have some sort of commitment mechanism to help people invest for the long term
Who will benefit from it?
People Who Are Like "I Wanna Invest But Where The Eff Do I Start"
Investing is like ballet – the younger you start, the better you'll get. Young people are the oneswho would benefit the most when it comes to investing.
Yet, let's face it – the vast majority of young people hate learning about investing (except for weirdos like you and I). Most of us don't want to deal with the complexity of ETFs, brokerages, CDP accounts, fees… ugh.
The current CPFIS (CPF Investment Scheme) sucks because it's so. frickin. complicated. They give you access to over two hundred funds, each with their own complexities. And figuring outhow to actually invest in them is a whole other can of worms (Who would've thought it would be so hard to give people money?)
The LRIS aims to cut through the crap and make things simple: Limit the choice to a few (say, 4-5) funds and make it as EASY as possible for young people to start.
Would they be the most optimised set of funds for everyone? Probably not. But this is the 80% Solution: You're better off starting early with a "good enough" solution, instead of waiting around for years looking for the perfect investment (there's no such thing).
People Who Are Like "Investing Is Scarier Than Sun Ho"
Investing can be scary – Almost as scary as Sun Ho's make-up during the Hungry Ghost Festival. We always say that we're long-term investors, but when we actually put our OWN money to work, that's another story.
In 2008, my college roommate rushed in and said, "Hey – something crazy's happening. Lehman Brothers just went bankrupt." I checked my portfolio and boom, I'd lost several thousand dollars overnight. At that time, it was more money than I'd ever saved in my lifetime. Even though I was in the US, I panicked and called my dad asking him what to do.
Events like these might be scary, but if we have the discipline to hold on for the long-term, we're more likely to come out profitable. (Think about how the market went on double just 2 years later).
That's why the LRIS will have a commitment mechanism to stop people from doing stupid things with their money. Whether this comes as a predefined lock-in period or a penalty for early withdrawals (it's not been decided yet), it's intended to stop people from panicking during events like Lehman Brothers collapsing.
Pessimists will say "Aiyah, it's just the gahmen's way of locking up more of our money." But I disagree. Sometimes, we investors need to be saved from ourselves. I LOVE this idea – even though I've been investing for several years now, I still put systems and strategies in place to stop me from doing something stupid.
People Who Are Like "I'm Da Boss When It Comes To My Investments"
When I go travelling, I hate asking for directions. My wife gives me so much crap for it. I think it's a male ego thing – there are some things in life that we feel we should manage ourselves.
However, we suck when it comes to managing our own investments. 85% of members who invested CPF funds underperformed the guaranteed 2.5% return. Giving your money to a Unit Trust doesn't work much better – there's loads of research showing how actively-managed funds routinely fail to beat the market.
That's why the LRIS aims to help you put your money in passively-managed investments – something I've been advocating on this blog for years (I wish I could say, "Yay, foresight!" But people have been writing about this stuff way longer than I have).
Taking the big picture, I think it's fantastic that the government is showing its support for passively-managed index investing. It validates what I've been trumpeting all this while: That index investing is the best strategy for 90% of investors.
Nothing I say here will convince the stubborn overconfident guys who want to take a stab at managing their investments themselves.
Think you can do better? No problem – go right ahead. Just do yourself a favour and investsome of your CPF funds in passive investments. You'll benefit from diversifying your strategies so that even if you do fail, you'll have something to fall back on.
Here's The Bad News – And What You Can Do About It
All this sounds fantastic. So where do we sign up?
As we all know, the Government takes a loooooong time to implement things. (Hey, if they didn't, they wouldn't be the Government). As CNA reports:
When asked if the new recommendations would take up to a few years to be implemented, Professor Tan said, "That's the indicative sense, of the timing. But to be fair to the CPF board, we should let them have a look at it some more, and see what kind of time frame would be feasible".
Translation: We don't wanna commit to a time frame, but don't hold your breath.
In the meantime, don't fret. If you're a young person, focus on educating yourself on index investing so that when the LRIS comes, you can confidently take advantage of it. If you have a couple of hundred dollars to spare every month, you can start to invest in the STI yourself too.
Coming up with a brand new scheme always takes lots of time. And since it's for the long-term, we'll want to make sure the G takes the time to come up with something that truly benefits Singaporeans.
At the very least, hopefully they come up with a better name.
(But hey, what do I know about names – I named my blog "cheerfulegg").
Lionel Yeo is a ramen-slurper, bathroom dancer and financial hacker behind cheerfulegg.com, a personal finance blog for young executives. His material has been featured on the Sunday Times, Yahoo!, KISS 92 and more. He also secretly dances in his room.