Here it is again, October, my portfolio top up time. If I proceed as planned, I will allocate my fresh fund into equity to bring the equity/fixed income ratio back to 75/25. According to my asset allocation plan, the asset classes to be topped up are Europe, Japan and REIT.
However, recent changes in CPF rule, as given in this Ministerial Statement on CPF and summarized in chantc’s post, prompted me to re-look my portfolio. Three changes, in particular, caused me to change my portfolio top up plan:
- The first $20,000 in both the OA and SA will no longer be allowed for use in the CPF Investment Scheme, starting April 1, 2008.
- An extra interest rate of 1% per annum will be paid on the first $60,000, including up to $20,000 on the OA, in the combined accounts of each CPF member, starting January 1, 2008.
- SMRA interest rate will be pegged to the yield of the 10-year Singapore Government Security (10YSGS) plus 1%, starting January 1, 2008.
Currently I use my CPF-SA money as the fixed income portion of my portfolio. When the new rules kick in, all of my SA money will not be allowed for investment as I have less than $20,000 in SA. Although the SA money will enjoy extra 1% interest rate over and above the yield of the 10-year Singapore Government Security (10YSGS) plus 1%, there is no guarantee that it will stay the same as the formula will be reviewed after 5 years… and policy changes. In view of this and the 20-30 years of investment time frame that I have, I think it is better for me to take on equity risk by investing my SA money. I have also posted my thoughts in this post in sgfunds forum.
My plan to invest the SA money is to do a dollar cost average into UOB GrowPath 2040 over six months, from October to March next year, just before the new rule start to take effect. Taking into account my top up into the portfolio this October and next April, I figure that I can do it in one of two ways:
- Allocate October fresh fund into equity portion of portfolio to rebalance to 75/25.
- Then DCA SA money over six months and portfolio will become 85/15.
- Allocate April 2008 fresh fund into fixed income portion of portfolio to rebalance to 75/25.
- Allocate October fresh fund into fixed income portion of portfolio; portfolio will become 65/35.
- Then DCA SA money over six months and portfolio will become 75/25.
- Allocate April 2008 fresh fund into equity portion of portfolio to rebalance to 75/25.
Both plans are OK for me as I am not too concerned with the short term fluctuation of equity/fixed income ratio. I think I will go for Plan B because:
- I can delay the top up to the Europe ETF till April 2008 and hopefully there will be an Europe ETF listed in SGX by that time.
- I can delay the top up to Lyxor Japan ETF till April 2008 because it was listed only recently and I can observe the ETF more before deciding whether to use this ETF or not.
To Do (Till March 2008)
- Divide current SA money into six equal parts and DCA them into UOB GrowPath 2040 from October to March next year. On the last DCA, also include any new money in the SA.
- For October fresh fund, use Legg Mason Global Bond Trust for global bond part; start to construct a SGS 5-year bond ladder for Singapore bond part. Because the next SGS 5-year bond will be issued in early 2008, I will keep the allocated fund for Singapore bond in a money market fund till the issuance date.
Well, that’s it. With Plan B in place, there is now an easy and disciplined way to allocate the fresh fund into my portfolio. 🙂