This is an old post brought back to attention because @pkcrun asked similar question in the discussion. I post my response here because I don't know how to attach image in the reply.
I don't suggest T-bills at all for SA Shielding because you would definitely lose at least 6 months of SA interests if you hold it to maturity. The yield to maturity of the T-bills is very low (0.32pa for the latest BS21114F issue as seen in MAS website https://www.mas.gov.sg/bonds-and-bills/auctions...). And if you try to sell it in secondary market before maturity, it is highly illiquid as mentioned by @ElijahLee.
I would suggest just invest in one short term bond fund. I use FSM Fund Selector with 3 conditions: Asset Class = Short Duration Bond, Currency = SGD, Payment Method = Included under CPFIS SA. The outcome is 3 funds that meet the above conditions (see attached image).
I have highlighted the Nikko AM Shenton Short Term Bond Fund (Nikko Bond in short) as the preferred fund for SA Shielding due to 2 main reasons:
- It has the lowest risk rating of 1 among the 3 funds.
- It has the lowest TER of 0.39% among the 3 funds.
@RichardLau was looking at diversifying into more funds to lower the risk further, but I think it is not necessary because these 3 short term bond funds are highly correlated, and in fact you are adding more risk because the other 2 funds have higher risk rating of 2 and higher TER.
With regards to @YangTeng's comment on risking entire investment money for 8 months, it is not an issue because you won't hold the fund for such a long period (T-bills you have no choice but to hold till maturity, there is no such restrictions for fund). In fact, the way to mitigate volatility risk is to keep the holding period as short as possible.
My suggested timeline for SA Shielding:
- Set aside $40k in SA (CPFIS SA requirement) and use the remaining amount to buy Nikko Bond 3 business days before 55th birthday.
- Shielded amount is deducted from SA in 1 or 2 business days after placing the buy order.
- RA is formed with FRS made up of $40k from SA and the remaining amount from OA.
- Sell Nikko Bond the next day after RA is formed.
- The whole buy and sell duration is 5 business days.
What is the risk with 5 business days holding period? I did a study on Nikko Bond historical price data downloaded from Yahoo Finance:
https://sg.finance.yahoo.com/quote/0P00006G1T.S...
The largest 5-day loss was -0.98% and it happened from 18 to 25 Mar 2020 during the stock market crash last year. The average 5-day return was +0.04%.
I believe this is a reasonably low risk to take for the benefits of having more CPF money in the higher 4% interest accounts.
This is an old post brought back to attention because @pkcrun asked similar question in the discussion. I post my response here because I don't know how to attach image in the reply.
I don't suggest T-bills at all for SA Shielding because you would definitely lose at least 6 months of SA interests if you hold it to maturity. The yield to maturity of the T-bills is very low (0.32pa for the latest BS21114F issue as seen in MAS website https://www.mas.gov.sg/bonds-and-bills/auctions...). And if you try to sell it in secondary market before maturity, it is highly illiquid as mentioned by @ElijahLee.
I would suggest just invest in one short term bond fund. I use FSM Fund Selector with 3 conditions: Asset Class = Short Duration Bond, Currency = SGD, Payment Method = Included under CPFIS SA. The outcome is 3 funds that meet the above conditions (see attached image).
I have highlighted the Nikko AM Shenton Short Term Bond Fund (Nikko Bond in short) as the preferred fund for SA Shielding due to 2 main reasons:
@RichardLau was looking at diversifying into more funds to lower the risk further, but I think it is not necessary because these 3 short term bond funds are highly correlated, and in fact you are adding more risk because the other 2 funds have higher risk rating of 2 and higher TER.
With regards to @YangTeng's comment on risking entire investment money for 8 months, it is not an issue because you won't hold the fund for such a long period (T-bills you have no choice but to hold till maturity, there is no such restrictions for fund). In fact, the way to mitigate volatility risk is to keep the holding period as short as possible.
My suggested timeline for SA Shielding:
What is the risk with 5 business days holding period? I did a study on Nikko Bond historical price data downloaded from Yahoo Finance:
https://sg.finance.yahoo.com/quote/0P00006G1T.S...
The largest 5-day loss was -0.98% and it happened from 18 to 25 Mar 2020 during the stock market crash last year. The average 5-day return was +0.04%.
I believe this is a reasonably low risk to take for the benefits of having more CPF money in the higher 4% interest accounts.