Read NEWS with EYES wide open, brain functioning-3

Today, I read an interesting article (quoting a research paper), titled "CPF returns attractive versus risk: Institute of Policy Studies", which you can read at this URL...

The part which is believe is "interesting" BUT doesn't quite make sense in the paper cited by the news article is pertaining the claimed return of CPF, where it says:

"The CPF has similar returns, over 20 years, when compared to a typical balanced portfolio of 60 per cent equities and 40 per cent bonds, the paper said. But these returns of 5.7 per cent a year come with a standard deviation of just 1.4 per cent due to various guarantees in the system. By contrast, the standard deviation for the 60:40 portfolio is 12.3 per cent, with expected returns a tad higher at 5.9 per cent."

I don't know how the authors obtain 5.7% a year return for our CPF money locked in CPF, because as we know, CPF money has been paid 2.5% per annum (p.a.) for very long time, and the first $60,000 will get 4% p.a.  The CPF has a minimum sum of $161,000 for retirement fund and another about $50,000 for Medisave account, making a total of $211,000 locked inside CPF for every Singaporean.  If only $60k receives interest of 4% p.a. and the other $151k receives interest of 2.5% only, how the hell the authors of the paper arrive at 5.7% p.a. return?  May be the 5.7% p.a. is the AVERAGE return (total return over 20 years divided by 20 years) and NOT ANNUALIZED return?  But hey, ANNUALIZED return is usually used in the financial sector and presenting the return as 5.7% AVERAGE return and then comparing to say about 5.7% ANNUALIZED return from stocks and bonds are like comparing APPLE to ORANGE!


For people who are not sure about the difference between AVERAGE return and ANNUALIZED return, let me explain it in a simple way:
1) Say you have AVERAGE return of 5.7% over 20 years, then your total return over 20 years = (5.7%)x20 = 114%.

2) Say you have ANNUALIZED return of 5.7% over 20 years, then your total return over 20 years = (1.057) to the power of 20 = 303.04%.

Hey, the difference between (2) and (1) above over 20 years = 189% !!!

I leave it to all of you to figure out the details or call for more clarifications from the authors of that paper.