CPF investment limit - a drag or a blessing in disguise?

[GPD]

Recently, I have been thinking of switching one counter (in my CPF portfolio) which has a good dividend history to another which may allow me to earn more dividend if I can reinvest all of the monies.

However, the investment limit of 35% means whatever I sold, I can only buy using a much lower amount (in a way CPF is forcing me to lock in the 65% gain). After some calculation, the dividend that I am likely to receive is going to be lesser. In the long run the new counter may give better overall return if i include capital gains but as always, nothing is certain.

I feel this 35% limit is a drag but may also be a blessing in disguise.

What do other VBs feel about this limit?

[HitandRun]

GPD san

Welcome to the club (of CPF members who make money on their investments, we are in the minority you know...)!

Other pitfalls that I would like to highlight are:

1. Do be aware that CPF (despite having all the cheap computers) can only compute amount available for stocks ("Limit") only once a month. This means that the Limit will only be computed on the 11th of every month, based on the balance available at the end of the previous month. If one so happen to sell some stocks on the 1st day of a month with some profit, the fresh Limit (taking into consideration the profit realised) will only be computed on the 11th of the following month. Note that this does not affect the original capital that was invested.

2. In case one makes money in stocks using CPF funds, one will realise that there are other rules that will make cause one to tear his hair out. Let me offer an example:

A member was rather successful in his stocks investments. Upon selling all his investments, he realised that he made a profit of $200,000 and now he has $500,000 in his Ordinary Account (O/A).

When he logged into the CPF website on the 11th of the following month (M2), his statement of account was as follows:

OA balance: $500,000
Net amount withdrawn for investment: $-200,000
Amount available for stocks: $175,000

Great! He thought to himself. He invested $130,000 immediately in 7 lots of DBS Bank taking advantage of a short term weakness. As he was busy with his work, he did not make further trades during that month. About a month later (M3), another investment idea struck him. He wanted to invest $45,000 ($175,000 - $130,000) into Ascendas REIT. Before he executed the trade, he thought that perhaps he should re-check his CPF balance. Upon checking his CPF account, he realised that the amount available for stocks investments is now $0.....

(Although the above scenario is fictitious, it could happen to any member due to the way CPF board computes the amount available for stocks investment.)

[GPD]

GPD san

Welcome to the club (of CPF members who make money on their investments, we are in the minority you know...)!

Other pitfalls that I would like to highlight are:

1. Do be aware that CPF (despite having all the cheap computers) can only compute amount available for stocks ("Limit") only once a month. This means that the Limit will only be computed on the 11th of every month, based on the balance available at the end of the previous month. If one so happen to sell some stocks on the 1st day of a month with some profit, the fresh Limit (taking into consideration the profit realised) will only be computed on the 11th of the following month. Note that this does not affect the original capital that was invested.

2. In case one makes money in stocks using CPF funds, one will realise that there are other rules that will make cause one to tear his hair out. Let me offer an example:

A member was rather successful in his stocks investments. Upon selling all his investments, he realised that he made a profit of $200,000 and now he has $500,000 in his Ordinary Account (O/A).

When he logged into the CPF website on the 11th of the following month (M2), his statement of account was as follows:

OA balance: $500,000
Net amount withdrawn for investment: $-200,000
Amount available for stocks: $175,000

Great! He thought to himself. He invested $130,000 immediately in 7 lots of DBS Bank taking advantage of a short term weakness. As he was busy with his work, he did not make further trades during that month. About a month later (M3), another investment idea struck him. He wanted to invest $45,000 ($175,000 - $130,000) into Ascendas REIT. Before he executed the trade, he thought that perhaps he should re-check his CPF balance. Upon checking his CPF account, he realised that the amount available for stocks investments is now $0.....

(Although the above scenario is fictitious, it could happen to any member due to the way CPF board computes the amount available for stocks investment.)

I heard that lots of people lost money when GOVT first open up CPF for equity investment/trading. But after so many years, I thought many people would have been making good money especially those that bought after the GFC.

Regarding point 1, I understand you can request CPF to update the investible amount. Need 3 days I think.

On point 2, I think I understand how CPF calculate investible amount so is quite careful not to invest more than what is allowed because if it is over, the house cannot receive the due from CPF it will need you to pay up by cash.

I think the investible % should be age-based. It can simply be 100% minus age capped at 35%. So if you are 35, you can invest up to 65% and if you are 55, it reduces to 45%. Same principle as investment, younger investors can take higher % of equity and older investors a higher % of fixed income.

CPF still very behind time. What are those policy people in CPF doing really???? Sitting around updating old models and only do something when public raises their voices?

I wrote to CPF about reviewing the limit and got a straight no. The fact is they don't bother themselves with public opinion unless it is made "public" enough (ie enough people making a big hoo-haa about it).

[HitandRun]

I think the investible % should be age-based. It can simply be 100% minus age capped at 35%. So if you are 35, you can invest up to 65% and if you are 55, it reduces to 45%. Same principle as investment, younger investors can take higher % of equity and older investors a higher % of fixed income.

GPD san

Why do you look down on older folk? Anyway, if one is 55, one can just take out all the excess CPF without being constrained by CPF rules....

Currently, the value of my CPF stocks is ~ 50% of my total OA. I can only sell, but cannot buy.....

[GPD]

I think the investible % should be age-based. It can simply be 100% minus age capped at 35%. So if you are 35, you can invest up to 65% and if you are 55, it reduces to 45%. Same principle as investment, younger investors can take higher % of equity and older investors a higher % of fixed income.

GPD san

Why do you look down on older folk? Anyway, if one is 55, one can just take out all the excess CPF without being constrained by CPF rules....

Currently, the value of my CPF stocks is ~ 50% of my total OA. I can only sell, but cannot buy.....

Just following industrial practice. Bring in near to the the safety zone of those people if not they don't even want to think about it.

Looks like you made good return (>+85%) on your CPF investment. Congrat!

[HitandRun]

Looks like you made good return (>+85%) on your CPF investment. Congrat!

Ha Ha. Thanks.

So now my problem is this, if my investments gives me a blended yield of 6%, the total yield on my CPF O/A is ~ 4.3%. However, if I were to sell all my stocks, I would need a hurdle of close to 8% to achieve the same total yield.

My current solution is try to collect scrip dividends as far as possible...

[GPD]

Ha Ha. Thanks.

So now my problem is this, if my investments gives me a blended yield of 6%, the total yield on my CPF O/A is ~ 4.3%. However, if I were to sell all my stocks, I would need a hurdle of close to 8% to achieve the same total yield.

My current solution is try to collect scrip dividends as far as possible...

I wonder if we can do an equity swap. Change to another counter but overall cost plus expenses must be less than the cashed out value. CPF should consider allowing this.

[opmi]

On the other hand, CPF stock limit allows to invest more if you lose on the stock. By realizing losses, your stock limit is refreshed to the historical cost.
Provided you still have at least >$20k in your OA.

Another way to reinvest the realized profit in OA is to buy UTs. Not perfect. At least, get some market exposure, rather than 2.5%.

[HitandRun]

On the other hand, CPF stock limit allows to invest more if you lose on the stock. By realizing losses, your stock limit is refreshed to the historical cost.
Provided you still have at least >$20k in your OA.

Precisely! CPF rewards bad investors by giving them more $$$ and punishes good investors by reducing the amount available. So is it at all surprising that more people lose money? I suspect all the ministers / top civil servants either (i) lose money on their CPF investments or (ii) put all their CPF in property lah.

Another way to reinvest the realized profit in OA is to buy UTs. Not perfect. At least, get some market exposure, rather than 2.5%.

But my experience with unit trusts are rather iffy => if I am graded, I will probably get a D- for my investments in unit trusts...unless there is a huge market correction.

[opmi]

On the other hand, CPF stock limit allows to invest more if you lose on the stock. By realizing losses, your stock limit is refreshed to the historical cost.
Provided you still have at least >$20k in your OA.

Precisely! CPF rewards bad investors by giving them more $$$ and punishes good investors by reducing the amount available. So is it at all surprising that more people lose money? I suspect all the ministers / top civil servants either (i) lose money on their CPF investments or (ii) put all their CPF in property lah.

Another way to reinvest the realized profit in OA is to buy UTs. Not perfect. At least, get some market exposure, rather than 2.5%.

But my experience with unit trusts are rather iffy => if I am graded, I will probably get a D- for my investments in unit trusts...unless there is a huge market correction.

Same there too. Lousy in UT investments. I think it is due to mistrust of fund mgrs managing my money. And it is too slow.

Recently, I used 60% of my OA to buy Fidelity China Focus A. Betting on a bubble in PRC.