Regular Shares Savings Plans (RSS)
Asked on 23 Jul 2019
Topping up CPF has less flexibility when it comes to future usage but it's able to start compounding the interest early on. In comparison, should I put the money into an RSP with lesser interests but greater liquidity of funds instead? Just in case I need the funds in future emergencies.
What would most of you pick? Of course, there aren't any "right" or "wrong" answers in this case.
The power of compounding is such that $176000 in CPF SA will grow to $1.5 million in 55 years time. This assumes you put such an amount in your child's CPF from day one.
But as we know, such a six figure sum being locked away can be daunting. I would rather make sure with absolute certainity that I can take care of myself first till the end and not place any financial burden on my child, and only then will I decide if topping up CPF is worth it. I would rather ensure my children learn the value of money and make their own decisions rather than have a windfall handed over on a platter when they hit 55.
23 Jul 2019
This was what I did... The order shows my priority:
Do OA to SA and RSTU to hit FRS for myself.
Top up child's MA every year 2k.
Pay off HDB loan with OA, partial capital repayment. Monthly loan pay in cash.
After loan is cleared, channel cash used for monthly loan to return to CPF OA capital uses for pty and accrued interest.
I also have my own stocks which I ownself manage, which runs in parallel. Allocation wise, I plan for CPF : stocks and cash = 1:3, then slowly increase the stocks and cash.
For me, I will plan not to deprive them of tax savings and other useful tools for their own planning.
As a planner, we aim to have lots of backup plans for circumstances that may be out of our reach too.
I will strategise by being prudent and maximise our own and parents CPF first. These are immediate gains, compared to future gains, which have political risk.
Hence, I would lean more towards cash RSP etc etc. The opportunity cost and reinvestment risk are smaller given we have so much wider range of financial product compared to yesteryears.
I think you have already answered your own question.
It depends on the purpose of these funds- are there for the long term, or the mid-term?
CPF in a sense is a commitment, and a long one at that. The power of compounding interest is really amazing if put for so many years, as long as it's not money that you need in the midterm - like for education etc.
The best would probably be a mixture of both, but as always, it depends on your individual situation - whether you have enough on the midterm to think about the long term
23 Jul 2019