Tuesday, February 08, 2011

Growth fund vs STI ETF

Dear Mr Tan KL,
I would like to ask your advise on a good investment strategy for my CPF special account, since the money is for the long term. Is there a safer product that gives a better return than the 4-5%) offered by CPF? Would you consider NTUC Income's Gowth Fund as a good investment?

REPLY
The Growth Fund has an annual fee of about 1% p.a. and an upfront cost of about 3%. The STI ETF has an upfront fee of 0.3% and an annual fee of 0.3%. The risks of both funds are similar. Over a 20 year period, the STI ETF should be able to get a yield that is about 15% higher than the Growth Fund, based on similar risk profiles. It is better to choose the STI ETF than the growth fund.

If you do not wish to take the risk and uncertainty, it is better to leave your money in the special account as the interest rate is quite attractive.
Posted by at

4 comments:

AC said...

I would strongly recommend that you keep the money in CPF. A return of 4-5% from CPF is actually very good and very safe Not worth taking the risk. But if you have spare change, you can go for STI ETF or other blue chip stocks.

February 08, 2011 9:42 AM
Spur said...

At this point in time, you should just leave your money in CPF-SA to earn the 4% interest (yes, I know CPF interest will be lowered by 1 Jan 2012). This is the most prudent approach, as nothing currently matches the guaranteed relatively high interest rates -- not forgetting the extra 1% interest for the first $60K as well.

Also, you cannot invest your SA in STI ETF or in the Growth Fund. For NTUC products, SA-approved funds are the 2 Asian balanced funds, the Singapore balanced fund, and the Global Balanced and Global Conservative funds. They all have expense ratios around 1%pa and sales charge of 3% everytime you buy or top-up.

At this point in the economic cycle, stock market prices have largely recovered from the troughs. We may see another 30% upside over the next 2-3 years, but this is not guaranteed. What is guaranteed will be another major recession with accompanying big stock market decline. It can be fast & furious like in 2008, or tortuously slow like in 2000-2003. But only after market declines of 30%-40% will it become prudent to consider investing your SA into those funds. As you will then have big margin of safety and the coiled spring being pulled down by extreme pessimism, with strong potential of the spring bouncing back up as the economy normalises and reverts to recovery and median growth.

February 08, 2011 12:03 PM
AB said...

STI ETF annual fee 3%? It should be 0.3% not 3%.

February 08, 2011 9:48 PM
Tan Kin Lian said...

AB
Thanks for pointing out. I have corrected it.

February 08, 2011 10:21 PM

Post a Comment

Subscribe to: Post Comments (Atom)

Blog Archive