Decide which part of your allocation to hold in your cash, SRS and CPF accounts.
Once you have more than one place for long-term money, you need a way to decide what goes where. In Singapore that usually means three accounts. The first is an ordinary brokerage account, which this course calls your cash account. The other two are a Supplementary Retirement Scheme (SRS) account and CPF. Each has its own rules on tax, access and what you can buy. Without a plan, it's easy to end up with a spread of funds you can't rebalance sensibly.
Farhan has all three: a cash account, an SRS account he has just opened, and CPF. His first instinct is to build a mini-portfolio in each account with the same 65/35 split (an example figure). That gives him three sets of funds, three rebalancing jobs and three times the commission. It also misses the reason for having different accounts.
A better approach is one portfolio, one allocation. You use a single target split for all your money and spread it across the accounts according to what each one does well. The target split you drafted in lesson 1.4, "Draft your target allocation", covers all your long-term money, whichever account holds it. A world fund counts as shares whether it sits in SRS or in your cash account, and a bond fund counts as bonds in either. An account changes how the money is taxed and when you can get at it. It doesn't change what the money is invested in.
So the useful question about SRS is which parts of your one allocation should sit there. Each account gets a job, and only the total portfolio needs rebalancing.
Lesson 7.1, "How SRS works for an ETF investor", explained that if you withdraw SRS money before the statutory retirement age, the withdrawal is fully taxable and incurs a penalty. Check the Ministry of Finance (MOF) website for the current penalty rate. So SRS money is best left in place until that age. For most readers that's a long horizon, and lesson 1.3 showed that a long horizon is what shares need. That makes SRS a natural home for the share part of your allocation.
There's a second reason. Rebalancing means moving money between shares and bonds. Suppose your shares are in SRS and your bonds are in your cash account. You can then rebalance by changing where new money goes in each account. You don't have to move money between accounts, which you can't do freely anyway. The flexible account does the steering.
SRS has one practical limit. Your SRS account sits with one of the three SRS operators (DBS/POSB, OCBC or UOB), and the exact fund you chose in module 3 may not be available to buy with SRS money. Check with your operator which products you can buy. If your fund isn't available, use the closest available fund that tracks the same index, and record the difference on your comparison sheet.
Lesson 7.2, "CPFIS: what you can buy and what it costs you", set a high bar for investing CPF money. Check your housing plans before you apply that bar. Your OA's job is housing if either of these is true: there's a realistic chance you'll buy a flat in the next several years, or the OA already pays a home loan. In that case, leave it for housing.
If you have no housing plans and you passed the lesson 7.2 test, CPFIS can hold part of your long-term allocation. The CPFIS product list is narrow, so it usually covers only a piece of the plan. For example, it might hold part of your shares through an eligible fund.
Whether to count uninvested CPF balances in your allocation is a separate choice. You can count them as part of the safe side of your portfolio, since they don't fall in value. Or you can leave them out and treat CPF as a separate base for housing and retirement. Either is reasonable. Pick one, write it down and stick to it. If you switch, your allocation will look different from year to year when nothing has changed.
Your cash account is the only one where you can buy almost any fund, sell freely and withdraw at any time without penalty. That suits the parts of the plan that need flexibility. Bonds are the obvious holding here. After a crash you sell bonds to buy shares, and after a boom you add to them. Keeping them in the cash account means you can rebalance whenever you need to. Bonds in the cash account also keep money within reach if a real emergency ever costs more than your emergency fund.
Once Farhan thinks of his money as one portfolio, his plan comes together quickly. His SRS contributions go into a world equity fund he can buy with SRS money. His Singapore government bond fund stays in his cash account, along with the rest of his world fund. He may buy a flat within ten years, so he leaves his CPF uninvested and keeps it out of his allocation.
Grace has no SRS account, and her OA pays her mortgage. All her long-term money stays in her cash account.
Some holdings won't end up in their first-choice account, because of a product list or a lock-up. This is normal. Write each mismatch down now, so you can plan around it in lesson 7.4, "Draw your account map". A mismatch you ignore will surprise you at your first rebalance.
Put each holding in your plan into your cash, SRS or CPF account, and note any that break that account's rules.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).