facebookHDB is going to wipe out most of my OA when I buy BTO. Do you think I should let it wipe out my OA(excluding first 20k) or do you think I should start accumulating STI ETF using money in OA? - Seedly

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Anonymous

16 Sep 2020

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HDB is going to wipe out most of my OA when I buy BTO. Do you think I should let it wipe out my OA(excluding first 20k) or do you think I should start accumulating STI ETF using money in OA?

Do you think STI ETF ROI in the long term will outperform 2.6%p.a(excluding friction cost of the transaction) at current price?

Discussion (2)

What are your thoughts?

Joel Koh

Joel Koh

16 Sep 2020

Writer at Seedly

Hello Anon,

Yes, I would like to reiterate what Yang Teng has said: "If the period is over 10 or 20 years, likely yes. Solely from just dividend, the yield is around 3-4+% (https://www.dividends.sg/view/es3). However, in the short run, it is likely to stagnate with little significant price movements."

But on balance, you will have to know that past performance does not past performance is not an indicator of future outcomes. Dividends are not a sure thing so this is a risk you need to be aware of. For example, you have unforeseen stuff like MAS' scrip dividend policy which is affecting the amount of dividends the big 3 banks are paying out.

Also, another thing I would like to point out is that the money taken out from the OA needs to be repaid back with accrued interest of another 2.5% p.a. In future, if you were to sell your flat, you need to put back the full sum you used from CPF + interest. Which means that the 'profit' from the sale of flat will mainly go back to your CPF and trapped there till retirement.

This will not be an issue if you are planning to hold the flat until retirement or you plan to buy another house with your OA.

As such, by investing with your OA you are 'shielding this amount' which means that you will not need to 'payback' the accrued interest from the CPF OA funds you will be taking out.

Another thing I would ask is you have enough cash on hand to pay the instalments for your HDB loan for a few months in the event your income gets affected. You don't want to get stuck in the situation where you are forced to withdraw your investments at a loss because of a sticky financial situation.

Also here is a link to the costs of investing your CPF OA:

https://www.cpf.gov.sg/Assets/Members/Documents...

Hope you'll find this helpful!​​​

If the period is over 10 or 20 years, likely yes. Solely from just dividend, the yield is around 3-4+% (https://www.dividends.sg/view/es3). However, in the short run, it is likely to stagnate with little significant price movements.

If you prefer higher returns (and higher risk), you can also consider investing in overseas funds. This can be in the form of UT or roboadvisor (Endowus only).
Depending on when you are getting a BTO, it may or may not be suitable to invest your OA. If you need the fund soon, e.g. 5 years or less, then it would be risky investing in volatile instruments since you can end up with lesser than what you started off and then needed to top up more cash.

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