Sep 21 2024, 02:25 PM
QUOTE(TOS @ Sep 21 2024, 02:10 PM)
People like to login to their accounts and see all the numbers are nicely rounded up, and remain constant over days and months. Then once a year, on dividend date, the number goes up by some 5-6%, and then stays constant throughout the year again before going up by another 5-6% the next year. Rinse and repeat, so easy right?
That's not how the financial markets work unfortunately. Back in EPF office the managers and accountants are dealing with changing market values day and night. EPF hold bonds and stocks which are not constant in value and suddenly jump up by precisely 5,6,7 or 8 % on a single day in one year and then stay put throughout the day just to rise by precisely 5,6,7 or 8% 365/366 days later.
When EPF (and ASNB, for that matter) forces your account value at a constant value through the entire year, save for dividend date, they are bearing the market risk on behalf of you. That does not mean that the underlying risk of your money in EPF is 0. It just means that someone else is bearing the risk for you, not unlike an insurance... you are buying a market risk insurance from EPF/ASNB, and you need to pay a premium... That premium is the difference between what you would have gotten if you put your money directly in the stock/bond markets vs EPF/ASNB.
EPF won't collapse in theory because:
(i) Government can never default on its own debt; BNM just need to stand ready to buy all outstanding T-bills, T-notes and T-bonds issued in MYR by printing MYR out of nowhere and deposit them into your EPF account.
(ii) Not everyone dies at the same time or reach 55-60 years old at the same time. There is no imminent pressure to withdraw huge funds out from EPF, in one go.
EPF can gives you any return you want in reality. Parliament pass a bill for issuance of Special MGS (SMGS) guaranteed by the Malaysian government, and EPF buys all of them. SMGS yield will then be the return you want EPF to give you, determined via a private agreement between EPF and the government... Singapore did that with SSGS, CPF buys all of them and the proceeds go to GIC together with government budget surplus. The yield of SSGS is always below GIC's returns though, so that's still financially sustainable for them.
CPF is not a good comparison for EPF... That's not how the financial markets work unfortunately. Back in EPF office the managers and accountants are dealing with changing market values day and night. EPF hold bonds and stocks which are not constant in value and suddenly jump up by precisely 5,6,7 or 8 % on a single day in one year and then stay put throughout the day just to rise by precisely 5,6,7 or 8% 365/366 days later.
When EPF (and ASNB, for that matter) forces your account value at a constant value through the entire year, save for dividend date, they are bearing the market risk on behalf of you. That does not mean that the underlying risk of your money in EPF is 0. It just means that someone else is bearing the risk for you, not unlike an insurance... you are buying a market risk insurance from EPF/ASNB, and you need to pay a premium... That premium is the difference between what you would have gotten if you put your money directly in the stock/bond markets vs EPF/ASNB.
EPF won't collapse in theory because:
(i) Government can never default on its own debt; BNM just need to stand ready to buy all outstanding T-bills, T-notes and T-bonds issued in MYR by printing MYR out of nowhere and deposit them into your EPF account.
(ii) Not everyone dies at the same time or reach 55-60 years old at the same time. There is no imminent pressure to withdraw huge funds out from EPF, in one go.
EPF can gives you any return you want in reality. Parliament pass a bill for issuance of Special MGS (SMGS) guaranteed by the Malaysian government, and EPF buys all of them. SMGS yield will then be the return you want EPF to give you, determined via a private agreement between EPF and the government... Singapore did that with SSGS, CPF buys all of them and the proceeds go to GIC together with government budget surplus. The yield of SSGS is always below GIC's returns though, so that's still financially sustainable for them.
EPF technically is a fund which allocates to various asset classes and hence behave almost like a fund (of course got caveats like managed div rate etc).
CPF basically just collect money from contributors (forcefully too) and passed the funds to SG gov... and SG gov graciously decided how much return that citizens/contributors deserve to get for lending said funds to gov.
imagine if EPF follows this... scary.
of course all above are simplistically described for layman discussion.
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