A stupidly simple way to reach a 6-figure investment portfolio over 5 years
Forced government retirement plans aren't that bad after all
Reaching a 6-figure sum over 5 years is no mean feat. It’s especially harder if you’ve got no control over the returns you’re getting.
While some may bash the CPF (or the equivalent in your country), this forced saving has its merits.
As an employee in Singapore, I have to contribute a sum every month to my Central Provident Fund (CPF) account.
The CPF is a compulsory comprehensive savings and pension plan for working Singaporeans and permanent residents primarily to fund their retirement, healthcare, education and housing needs in Singapore.
Think of it like the 401(k) in the U.S and superannuation in Australia.
What??? I have this in my CPF?
Recently, when I logged into my CPF account, I was surprised to find out that I have already hit a 6-figure sum across all my accounts.
After about 5 years of corporate life.
Now, you may think that I must be a high flyer in the corporate world.
Wrong.
Over the course of my career, I’ve never earned more than $60,000 per annum.
In fact, I even had a gap year, where I didn’t work for an entire year.
A lightbulb flicked in my head when I learned of this.
“Can I invest the same sum of money, to get similar returns?”
To figure this out, I had a closer look at how CPF contributions are being calculated.
How CPF contributions are calculated
For my age bracket of 55 and below, I am mandated to contribute 20% of my pay check every month.
My employer is required to contribute 17%, in addition to my monthly wage.
Getting CPF-like returns for your investments
If you’re an employee in Singapore, here’s what you can do.
Calculate the total CPF contributions (both employer — 20% and employee 17%).
Proportion your take-home pay accordingly by allocating 23% to an investment that returns 2.5% p.a, and the remaining 14% to one that returns 4% p.a.
The only variable is that it’s hard to find such high risk-free rate when interest rates are low.
In the current high interest rate environment, opportunities are abundant.