WHY DO SOME SUFFER LOSSES ALTHOUGH CPF INVESTMENT SCHEME IS SUPPOSEDLY PROFITABLE?

I refer to the article “Most members in CPF Investment Scheme made a profit in 2016” (Straits Times, Sep 28).

It states that “The board has changed the methodology it uses to measure performance to get a more rounded idea of how members’ investments made through Ordinary Account savings are performing.

Besides excluding members with no investments in CPFIS, the new formula assesses not only the realised profits and losses of investments that were sold, but also the unrealised profits and losses that members held during the reporting period.

To reflect longer-term performance, the board is providing the cumulative profits or losses over time.

Previously, the annual report on the performance of the CPFIS-Ordinary Account captured only realised profits or losses and included all members with a CPF investment account, even if they had no investments.

Over the two financial years from Oct 1, 2014, to Sept 30 last year, about 293,000 members made cumulative total profits in excess of the CPF-Ordinary Account interest rate of 2.5 per cent per annum.

About 128,000 members made cumulative total profits equal to or less than the CPF-Ordinary Account interest rate. The remaining 172,000 members made cumulative total losses.”

Since the return from 30 September 2014 to 30 September 2016 for the MSCI ACWI Index(All Countries World Index) (equities) and the Citi World Government Bond Index (WGBI) (bonds) was about 1.5 and 4.7 per cent, respectively – a typical globally diversified portfolio of 60% equities and 40% bonds may have returned about 2.8 per cent or about 1.4 per cent per annum in the two years.

So, why is it that 29 per cent or 172,000 members who invested their CPF had losses?

Similarly, since the return from 30 September 2015 to 30 September 2016 for the MSCI ACWI Index and the Citi WGBI was about 9.6 and 12.6 per cent, respectively – a typical globally diversified portfolio of 60% equities and 40% bonds may have returned about 10.8 per cent (per annum) in the one year.

So, why is it that 12 per cent or 66,000 members who invested their CPF had losses, and 10% or 20,000 had profits less than or equal to the CPF benchmark interest (Ordinary Account) of 2.5 per cent?

Leong Sze Hian

Editor's Note: 

Do you have a story to share? Please use our submission form or email us at editorial@allsingaporestuff.com. If not, why not give us a 'Like'?

Filed Under: 

Tags: 

Advertisement

Your Views