Your CPF is like a Schizophrenic Prostitute.

The inspiration for this article started when I suggested to another financial blogger to write a CPF article and pepper it with sexual references to push readership figures. He then said that his brain is too tired, so I challenged myself to write the most pornographic CPF article ever written in the financial blogosphere. If you get triggered too easily, you can always tune out of this blog and go watch a Hallmark Christmas movie instead.

a) Investing in CPF can be like visiting a special kind of prostitute.

If investors were Johns, I expect buying stocks is like visiting prostitutes who are good looking and generally give good Girl-friend Effect (GFE). The problem with equities as prostitutes is that in a particularly bad year like 2018, instead of giving the John a good time, the prostitute climbs on top of him and shits all over face. I have even learnt the hard way that stocks like APTV will even bite off your nipples off in the process.

Enter the CPF.

The CPF is the kind of prostitute that gives a consistent guaranteed performance. 2.5% guaranteed is not bad, but it is the kind of transactional relationship with little GFE. She barely gets the job done. Even the 1% benefit only applies to the first $60,000 of your assets adding only an extra $600 every year.

Thus, the popularity of the CPF program is this consistent performance.

Sadly fixating on 2.5% allows financial institutions to sell riskier programs with returns of 3+% and then tout this investment as a better alternative to fixed deposit. A fixed deposit is not even visiting a prostitute, it is risk-less and guaranteed by SDIC - this is more like an innocent date with platonic lady friend.

Worse, financial institutions selling low return offerings also condition investors to expect bad service in Geylang.

b) The CPF-OA account is schizophrenic prostitute 

The second point to note is that your CPF-OA account has multiple purposes. This is the biggest flaw and biggest strength of the program. Imagine hiring a prostitute not just to give you a good time, she will also do your housework as well.

This is the biggest watch-out of the CPF program.

If you use your CPF to buy a larger home, expect to less retirement adequacy. A prostitute cannot give you a good time and then go wash all your dirty dishes at your sink at the same time. You will not get good service.

Buy a 4 room flat and you may be able to replace 75% of your income when CPF Life kicks in for you. Buy a 5 room flat and your income replacement may dip below 50%.

c) To resolve this prostitute's schizophrenia, transfer CPF-OA to CPF-SA instead.

A quick way of resolving this schizophrenia is to transfer your CPF-OA to your CPF-SA. This is telling the prostitute that she is not expecting to do any housework so long as she services you well. In return, you end up with the best possible risk-less service possible in the Singapore economy at 4%.

The best time to perform the transfer is when you are young. You have more years to enjoy the 4% compounding. After all, the best times of life to get any serious bonking done is when you are much younger.

I maxed out my CPF-SA in my twenties. From the day I reached minimum sum, subsequent increases in the minimum sum has always been adequately met with the 4% returns. Even now, as my CPF-OA is almost totally exhausted maying off my home mortgage, I received over $10,000 in 2018 from interest alone. At my current age of 44, it does not take very long before I can reap the rewards of moving my CPF-OA to CPF-SA when I was in my 20s.

So there you have it, the most pornographic and obscene article you will ever read about the CPF program.

Just don't invite me to give a talk like this in public.