“The price of anything is the amount of life you exchange for it.” – Henry David Thoreau
I am once again reminded the inexorability of life cycle after attending Qingming (清明节) this year. Due to Malaysian MCO, the last time I came to my father’s tomb was 2 years ago. It is still very disheartening to be reminded that he passed away at a young age of 28.
In conversation with my mother, listening to her stories about my father always made me wondered how grotesque life she had gone through during the peak times of her life.
As a medical doctor, I am confronted with death, suffering and the work relating to patients’ care every day. I enjoy my work very much but also understand the finite time I have in this life.
I invest hoping to retire early not because I want to make a lot of money but rather a lot of time. No organic matter in this world lasts forever. I keep reminding myself the sad fact of this life.
I want to retire as early as possible therefore I find every opportunity to boost my retirement fund.
EPF/CPF in combination with ETFs
I strongly believe EPF offers a good investment vehicle for Malaysians to maximize investment return. As a regular reader of this blog, as you might aware, I encourage Malaysians to distribute their investment into 2 portfolios– half to be invested in USD-denominated ETFs and another half into EPF(The Employees Provident Fund).
The Employees Provident Fund (EPF) declared a 6.10% dividend for conventional savings and 5.65% dividend for shariah savings for 2021 — beating the 5.45% (conventional) and 5% (shariah) declared in pre-pandemic 2019. That’s a respectable return!
You will never beat big institutional investor like EPF in Malaysian market, therefore I am happy to leave my MYR in hands of the experts to invest. If you are a Malaysian, I discourage you to invest money in Malaysian market ( KLCI) other than your EPF money. However, either your are employed or self -employed, maximise your EPF contribution monthly. As a self-employed professional, I maximize my EPF yearly contribution of MYR 60,000 per year.
As for Singaporeans, you should try to top up the Special Account and do voluntary contribution as much as possible. You can read the story how other Singaporeans managed to accumulate SGD1 million before 65 HERE.
Benefits of EPF money in your retirement
There are many benefits contributing money to your EPF account each month. You can get tax-deductible up to MYR4000 each year. And the money is guaranteed by the government. Under Section 27 of the EPF Act 1991, the guaranteed minimum dividend rate is 2.5% per year on members’ savings. As such, members are guaranteed to receive the minimum dividend rate in any situation.
And the best part is the dividend received is tax free! And the fund in your EPF is creditors’ proof! No one can take away your money except yourself!
Combining ETFs investment with EPF might be a good investment for all Malaysians. As for Singaporeans, maximize your CPF contributions too to get a balanced investment portfolio.
Your concerns? Are they real?
I still think EPF/CPF money should be kept for retirement. Unfortunately a lot of people think they should have access to the money anytime they want. For Malaysians, there are mechanisms in place for you to withdraw your Account 2 money for home purchase, medical emergencies, education etc. And you should try to avoid taking out your EPF/CPF money unless you have no other option.
According to NST, some 6.1 million Employees Provident Fund (EPF) contributors are now left with savings of less than RM10,000. Of this figure, some 3.6 million have less than RM1,000 in their savings.
Malaysians generally do not trust our government, people will tell you our government will steal our EPF money, ignore it. Professionals invest our EPF money. I must say EPF money might be safer than your money in the bank.
Yes, EPF money is your money but these are your future money, try everything you can to save them until your retirement if possible.
Banks only guaranteed up to MYR250k per account but the whole amount of your EPF money is guaranteed by the government. Remember, the EPF or CPF are designed to help their members to achieve a basic level of retirement funding adequacy. And certainly they are not PONZI schemes!
My advice to all Malaysians, don’t try to take out your EPF money to invest in unit trusts, that’s the stupidest thing you can do to destroy the beauty of compounding interest. Keep the money in EPF no matter what your unit trust agent tells you.
Conclusion
Yes, EPF and CPF money are safe with good yearly return. Maximize your EPF/CPF contribution monthly so that you can enjoy your retirement in future. I understand the predicament experienced by a lot of Malaysians at this moment but I strongly advise against withdrawing your EPF money now for any emergencies.
Put half your retirement fund in EPF/CPF and another half in broad market USD-denominated ETFs, you can hedge against our weak currency and enjoy potential capital and currency appreciation in future.
How do you invest in USD-denominated ETFs? In our local Bursa?
Dear Big boss Dr Wong,
Boss, thank you for reading my post. I hope you are fine in Sabah. I invest in USD-denominated ETFs domiciled in Ireland but listed in London. I use Interactive Brokers to make my purchase. My asset allocation is VUSD 42.5%, VWRD, 42.5% and IGLO 15%. You can find the posts on ways to fund your IBKR and reasons behind why I opt for VWRD and VUSD ( distributing ETFs) in my blog. I have no interest in ETFs listed in Bursa Malaysia.
What is your rationale behind for discouraging Malaysian to invest in Malaysian market (KLCI)? Isn’t it safer as your money is here and at the same time you save on conversion rate?
Dear Kane,
Sorry for the late reply. I have been very busy for the last few months. For Malaysians, since our EPF/KWSP money is mainly invested in Malaysian market ( KLCI),I do not see any point of investing further using our extra money in Malaysian market. Investing over more than 20 years in Malaysian market, I don’t make money but rather losing more money than I put in. Malaysian market is only about 0.2% of the total global equities market ( if we look at FTSE world index composition), therefore don’t put too much money in just one country especially your home country.
I am happy to put money in USD, SGD equities because in long run, I am quite confident in these currencies. The point I am trying to say, always diversify and don’t put all your eggs in one basket.
Cheers
Dr Goh