PFF Panel 1
Seedly PFF 2019
Asked on 02 Mar 2019
CPF is a fund that makes use of other financial instruments to invest as well. What will happen when the CPF management make losses during financial crisis? In a sense, we are still depending on them for growing our wealth?
It doesn't matter whether the government makes money or loses money. What matters is the guaranteed rate you get from CPF. As long as the government is able to consistently guarantee a reasonable rate, it will be a good instrument to put money into. But as with all investments, never put all your eggs into one basket. You will still require liquidity in case of emergencies which CPF does not provide.
This is the risk free part. The government essentially removes the investment risk from everyone and takes on that risk. In some other pension funds, the person would take on the investment risk, and these caused issues because if one retires during a prolonged bear market, their retirement pension funds underperforms.
Technically, CPF will not lose monies on its investment. The management does not make investment decisions, other than just CPF monies are invested in a special singapore government securities. These securities are fully backed by the Singapore government. The performance of our sovereign wealth funds have no impact on the returns of CPF.
Financial crisis will decrease assets prices, but it will recover at some point. Unless we go back to some dark ages, nuclear war or another war something. Our sovereign did lost billions during the last financial crisis, but it recovered and grew new highs since. You would likely have lost money too if u have invested elsewhere during the crisis.
Nicholes Wong, Diploma in Business Management at Nanyang Polytechnic
Answered on 02 Mar 2019
It is one of the most reliable instrument in the world.