Where are CPF cash invested: Don't tell you.

The above FAQ came from GIC website.

How do the government pass off that 2.5% currently the yield on our OA is reasonable? It is because we are getting it not from risky investing but in the safest form possible in SGD: Special Singapore Government Bonds that cannot be spent but must be invested.

Fair right? Not at all.

What happened is after the government pay with their IOUs for cash at CPF, they add risk to the cash in order to obtain higher returns by investing elsewhere. They cannot keep cash or they will be seriously out of pocket over time paying us the interest.

Then where and what is the cash invested in?

If it were only a few million dollars, it can go anywhere including funding some loan sharks. But if we are talking hundreds of millions every month, then just like you don't go into an HDB apartment to look for elephants, you do the same looking for where the elephant size funds went. The cash can't go anywhere else except the giant funds at the GIC, MAS and Temasek Holdings right? Anywhere else would be very suspicious and where would these three entities get their funds to invest over the years anyway.

And we know GIC and Temasek are returning far in excess of 2.5% and I am not sure if those gains is nett of funds inflow.

So what is the compact? The CPF funds are guaranteed by the government rated at triple As. The cash is put at risk with triple As backing which can be lost if they were badly invested, which means the triple As is not as good as Uncle Sam double As. Nobody bat an eyelid when the USA lost its triple As status. Size does matter here and Uncle Sam is a super power.

Like Switzerland, our triple As is a vulnerable rating and will not absorb the impact of loss like the US had suffered. LKY was completely right if we vote in a bad government and it lost money investing. Of course a good government can also make big mistakes.

It is up to each of us how we want to view this: you might say the cash is carefully invested but you could also see it as putting huge sums at risk but told to us that is is very safe. Well in a sense it can be really safe. If something goes badly wrong the government could print SGD but you will soon discover it is no longer a hard currency.

Indeed it our CPF is guaranteed but the purchasing power of the SGD isn't.

I feel sorry for most people out there. They don't get it. Even Bertha Henson don't get it because she also couldn't wear the finance cap. We are lost sheep in such an important matter. We are indeed very vulnerable. Our money in the CPF is not insecure but it is less secure than most people assume. Remember they do not guarantee purchasing power and at 2.5% we are suffering. The difference in returns from GIC etc., and 2.5% is their margin of safety. But if we allow CPF members to invest their own savings, I bet most would receive less than 2.5%. In fact they are likely to suffer negative returns and also pay high fees to financial planners.

Lost sheep.