It's already December.
Beside being a festive season, December is also the last month in the year when you can do something to maximise your tax reliefs for the year.
In case you have not done anything to maximise your tax reliefs, this post can serve as a reminder to start looking at options. You probably do not want to have a rude shock come mid-2023 when the taxes come.
There's obviously many options to maximise tax reliefs. The two most common ways where you could do voluntary contributions are usually CPF contributions or SRS contributions.
I once ran a poll in my Telegram group to better understand which is usually a preferred option for most folks.
It turns out that it's quite evenly distributed among the options with quite a significant number of voters maxing out the limits for both annually.
As I have maxed out my contribution limit to CPF this year, it's natural that I look at SRS contribution to further maximise my tax reliefs.
For the uninitiated, the annual limit for SRS contribution is $15,300. Withdrawal of SRS funds can only be made at or after the statutory retirement age that was prevailing when you make your first SRS contribution. Hence, it's important for you to just made a very small contribution to SRS now so that you locked in your statutory retirement age as early as possible.
Once you contribute to your SRS funds, there are a few options on what you can do with these funds. You can use it to buy stocks, REITS, unit-trusts, bonds, T-Bills, or invest with robo-advisory firms. I ran this poll two months back too to know which is the most popular method for the use of SRS funds.
Here is a good article sharing what are the options you can take to invest your SRS funds. Generally, investing using your SRS funds is a good option as you get tax reliefs as a bonus. If you are in the 11.5% tax bracket and your fund is growing at a 10% per annum rate, investing using your SRS funds can give you a relative 20.5% gain (including tax savings)! Of course, the downside is that you cannot easily withdraw the funds out without penalty before the statutory retirement age which can be a few decades later.
Personally, I choose to invest my SRS funds into S&P 500 using Endowus.
You might be thinking why.
Well, there are a few reasons.
Firstly, I wanted to invest in S&P 500. I already have a portfolio consisting of a mix of ETFs and stocks across different themes and geographical locations, which I have been updating on this blog regularly. The objective of that portfolio has always been to beat the market (S&P 500) on a long term basis. Since I have already been contributing cash to that portfolio regularly, I thought it might be good for me to use my SRS funds on S&P 500 instead just to further diversify my holdings.
I am also a strong believer that the S&P 500 is a good default investment vehicle for any investors. Do you know that Warren Buffett once made a bet against hedge funds that the S&P 500 could outperform the hedge funds over a ten-year period? True enough, the S&P 500 outperformed these hedge funds over a 10-year period commencing 1st January 2009 and ending 31st December 2017. The S&P 500 has a total return of 125.8% while the hedge funds have an average return of 36.3% net of fees. The index clearly won by a landslide. My other portfolio is already my attempt to beat the market. For the SRS funds, it's probably to just stick to the market.
Secondly, if I want to invest my SRS funds in S&P 500, I have very few limited options. In fact, the only SRS-approved fund which we can invest in is Lion Global Infinity U.S 500 Stock Index Fund. There are a few ways you can invest in this funds. The options are Endowus, FSMOne, POEMS, and OCBC.
Out of these options, I decided to go with Endowus because of the lower fees incurred if I were to do dollar-cost averaging. The Endowus 0.4% fee is probably better than the other brokerage fees which I will incurred through the regular contributions.
So far, my experience with Endowus has been really pleasant.
Setting up an account is super smooth and takes less than 15 minutes (the verification process takes a few days though). It's easy for any new user to sign up with them and get started. The only complaint that I have is that it's not too easy for me to navigate to the options of just investing my SRS in the fund I wanted instead of their default portfolio options. If your intention of using Endowus is to invest in their proposed portfolio mixes, it's super straightforward. Otherwise, you might need to spend some time navigating around their site.
There are some nice features on their site too which shows how your fund might grow in the next few decades based on their 1000 stimulations. I once wrote posts about the use of Monte-Carlo simulations on funds projections. This looks similar to that, and I'm glad regular users who interact with their interface can have such data projection too.
So far, all has been good and I foresee I will be using Endowus to do my regular SRS funds investment into S&P 500 in the near future. Since they are the first CPF digital advisor and you can actually also invest your CPF funds with them, I will think that the firm should be a relatively safe one. It is also licensed and regulated by MAS.
Please take note that this is not a sponsored post, and the article is written to illustrate my own experiences.
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