Focus on 'long-termism' of investing

It is sobering to read that close to half of investors lost money on their Central Provident Fund (CPF) investments and that more than 80 per cent of members who invested via the CPF Investment Scheme (CPFIS) would have been better off leaving their money in the Ordinary Account ("CPF Investment Scheme to be reviewed"; yesterday).

The opportunity cost of forgoing the 2.5 per cent annual returns offered on the Ordinary Account, due to CPFIS investments that remained stagnant or lost value, can indeed be substantial.

The psychology of investing reveals that we overestimate our ability to time the markets, all the time.

Consequently, we tend to make the mistake of investing instead of selling when markets peak, and selling instead of investing when markets fall.

Overestimating our ability to time the markets distracts us from "long-termism" and veers us towards excessive short-term trading: Investing and selling too frequently.

This is to our detriment because it attracts a range of fees such as sales commissions, and the resultant performance drag further reduces portfolio returns, extinguishing any chances of earning above normal returns.

This is an oft-repeated vicious circle among investors, so it is timely that the Government will be reviewing and recalibrating the CPF Investment Scheme.

I hope it will emphasise disciplined, low-cost, passive investing.

This will hopefully help Singaporeans be more cognisant of the CPF as retirement savings and not as casino chips for wagering in volatile markets.

Woon Wee Min

A version of this article appeared in the print edition of The Straits Times on September 15, 2016, with the headline 'Focus on 'long-termism' of investing'. Print Edition | Subscribe