Under the rules of the CPF Investment Scheme (CPFIS), we are allowed to invest only 35% of the investible amount in our Ordinary Account (OA) into stocks.
For example, if you have $100k in your OA balance (with no monies already withdrawn for investment or education), you can only buy stocks up to $35k.
Click here to see an example of the calculation.
Also, the first $20k in our OA cannot be invested into anything at all.
All these restrictions can be a hinderance for the more savvy investor.
Are there any ways that you can allocate more money from your OA into stocks?
The most obvious is to do it via unit trusts. Unit trusts allow you to invest the balance 65% of your OA (subject to the $20k min) into equities indirectly.
If you are not the type who likes unit trusts, another way is to buy the STI ETF. While the STI ETF is traded as a stock on SGX, it is treated more as a unit trust and does not fall under the 35% stock limit rule.
In the current bear market, there is another way that might not be apparent to many.
How the CPF Investment Agent Bank calculates the stock limit is to look at your investible amount, work out 35% of that, and then deduct the amount you have already utilised for stock investments.
Let’s say someone who had $100k in his OA had already utilised $35k for stocks. This leaves him with $0 in his stock limit. Due to the current bear market, his current stocks are only worth $15k. If he sells off all his stock holdings, his CPF Investment Account will be credited with $15k but his stock limit will be back up to $35k (upon recalculation by the CPF Investment Agent Bank).
This means if he still has cash balance in his OA, he can actually buy stocks up to $35k again (using $15k in his investment account balance and $20k from his OA).
This method works as long as the person reinvests into stocks before the money in his investment account goes back into his CPF OA (there is a 2-months window). Once CPF recomputes the stock limit, it will be slightly lower as the OA balance has decreased.
If you are a person who wants to buy more stocks in the current market, it might be a good time to review your CPF investments now.
Are there any big losers in your CPF stock portfolio that you can sell to increase your stock limit again?
If you do intend to explore this as an option, you should talk to your CPF Investment Agent Bank to work out and confirm the calculations for your stock limits before doing any trades. As the stock limits will need to factor in the cost of commissions and CPF bank fees, you certainly wouldn’t want to put yourself in a situation where you purchase more than your stock limits allow.