So! you want to start your own DIY investing but don’t know where to start?

If you have read our articles, you will know that it is key to build a diversified portfolio when it comes to investing.

But like many beginners, you’re probably stumped upon facing numerous investment tools our there! If you are curious how to invest in ETF in Singapore, fret not!

In this beginner guide, we will break down how you can invest in ETF in Singapore!

What Is an Exchange-Traded Fund (ETF)?

An Exchange Traded Fund (ETF) is a type of investment fund that tracks a particular index or group of assets, such as stocks, commodities, or bonds, and is sold on a stock exchange. Exchange-traded funds, as the name suggests, are like stocks. You could buy or sell through a stock exchange or a brokerage account at any time of the day. This means you could buy an ETF through brokers such as Moo Moo, or tiger trade.

ETFs are funds. Funds provide diversification and invest in a basket of stocks. Most ETFs track an index of stocks and bonds.

One popular ETF is the SPDR S&P 500 Index ETF (ticker symbol SPY), which tracks the S&P 500 Index fund, a broad index of large-cap U.S. stocks. Investors can use SPDR S&P 500 (SPY) to gain exposure to the overall U.S. stock market without having to buy and sell individual stocks.

Understanding the types of ETFs

There are a variety of ETFs available, and it is important to understand the difference between them in order to make the best investment decisions.

Stock ETF

The most common type of ETFs are Stock ETFs that track a particular stock market index. These ETFs are generally considered to be a safe investment, as they tend to be more stable than individual stocks. The SPDR S&P 500 (SPY) ETF is an ETF that tracks the 500 large cap companies in the USA

Bond ETF

Bond ETF is another common type of ETF that invests in a variety of bonds in order to provide income and stability. This can include government bonds (such as the Singapore savings bond issued by the Singapore government), corporate bonds. Bond ETFs generally does not have a maturity date, however bond ETFs pay dividends monthly or yearly. The income received is highly dependent on the performance of the underlying bond, and will typically give you 1% to 6% yearly income.

Commodity ETF

There are commodity ETFs, which track commodities such as gold or oil. These can be very volatile, but can also provide high returns if the prices of the commodities increase. Typically, Commodity ETFs can be used to hedge against market recessions and when the stock ETF goes down.

Other ETFs

Other common ETFs include Sector ETF, which invests in a specific industry, Real Estate ETF, which invests in real estate companies, and Currency ETFs, which track the performance of a currency pair.

ETFs offer an easy way to diversify your money in different asset classes, and sectors.

Pros and Cons of ETFs

ETFs have become a popular investment vehicle in recent years. There are pros and cons to investing in ETFs, it is important to understand them to see if ETFs are the right investment tool for you.

Pros of ETFs

  1. By investing in a bundle of stocks, ETFs help diversify your portfolio. In the event that a single company performs poorly, the other stocks in an ETF will give some form of stability.
  2. ETFs (passive ETFs only) have lower fees compared to traditional mutual funds as they are not managed by professionals.
  3. ETFs can be traded throughout the day either through a stock exchange or a broker, giving you full control of your investment.
  4. ETFs provide exposure to specific sectors or industries without needing to have extensive knowledge about the field.

Cons of ETFs

  1. Not for beginners: ETFs are complex; if you do not know how to analyse the underlying stocks, or the investment strategy, do speak to your financial advisor and consider a managed fund instead.
  2. ETFs are subject to market risk: As ETF is heavily invested into a specific country or market, a downturn in the sector could lead to a loss
  3. ETFs require time to manage: While ETFs are passive funds, they are related to global macroeconomic trend, and still require constant monitoring and implementing various strategies such as dollar cost averaging to ensure consistent performance.
  4. ETFs have mid to long investment horizon (6 to 10 years): ETFs invests in multiple assets, and follow macro economic trend. As the markets are volatile, time is needed for a fund to make good returns. For instance, it takes about 6 to 10 years for the S&P500 to give guaranteed positive returns.
  5. False sense of liquidity. Typically, ETFs are touted as being highly liquid as investors can buy and sell anytime. However, over 60% of retail investors lose money as they falsely believe they can time the market. Additionally, during a downturn or recession, you should not sell off the shares you own as this would result in a loss. Hence, ETFs are still highly dependent on market conditions and illiquid.

In summary, ETF is a good investment tool if you have financial knowledge and the right strategy for the particular ETF you invest in. However, if do not have time to do your research, and monitor the investment, it is recommended that you speak to a financial advisor and get a managed fund instead. Your financial advisor could structure an approach to investing based based on your risk tolerance, as well as give professional advice.

Speak to a financial advisor and get up to 50% cashback from your investment! Click here to sign up and start investing today!

Why invest in an exchange-traded funds (ETFs)?

You should invest in an ETF only if you know what you are doing, and you want to utilise the feature of diversification and low cost. ETFs are a good investment tool for experienced traders who want to buy shares in multiple companies and are looking for alternatives that are cheaper than mutual funds.

If you are new to investing, we highly recommend against ETF investing. Low cost does not always yield the best performance.

ETFs vs. Unit Trust vs. ILP vs. Stocks

ETFs vs Unit Trust vs ILP vs Stocks.csv

ILPUnit TrustETFStocks Picking
Time Horizon6 - 10 years6 - 10 years6 - 10 years2-5 years
Time required for monitoringLittle to No timeLittle to No timeLittle timeRequires constant monitoring
Cost of feesMedium (2% - 3%)High (5%)Low – Medium (0.5% - 1%)Low (0% - 1%)
Duration of fees paidFirst 8 to 12 years then fee freeRest of life (when buying)Rest of life (when buying)Rest of life (when buying)
Expertise neededZero knowledge neededZero knowledge neededIntermediateAdvanced
Financial Advisor helpYesNoNoNO

ETFs, Unit Trust, ILP are simply different ways that assets such as stocks or bonds are packaged into. In essence, they are all funds. However, due to the difference in their structure, they are meant for individuals with different levels of skills. The table below explains the differences.

ETF Checklist – 6 questions to check if ETFs are suitable for you?

ETF Checklist 6 questions to answer before you start investing in ETFs - How to invest in ETF in Singapore - SG Insurance Hack
ETF Checklist 6 questions to answer before you start investing in ETFs
  • Prepared to have your money tied up for 6-10 years to ride out the waves or short term fluctuations.
  • Have the discipline to perform dollar cost averaging yourself.
  • Have the knowledge and time to monitor market trends and investment directions.
  • Know the strategy for the industry to invest in but does not have time to stock pick.
  • Understand the risks associated with the ETF – losing a substantial part of your investment during a bear market.
  • Understand returns may be lower than index fund after considering factors such as brokerage fee, commission fees, spread, FX fees, FX spread, fund fee, tax and tracking error.

Here are some of the common ETFs listed in the Singapore Stock Exchange (SGX).

Local ETFs (Listed on SGX)

  • SPDR Straits Times Index, STI ETF – Tracks the top 30 largest companies in Singapore –
  • Lion-Phillip S-REIT ETF – Tacks the performance of the Morningstar® Singapore REIT Yield Focus IndexSM (This is a reit etf, real estate investment trust ETF)

Asian ETFs  (Listed on SGX)

  • Hang Seng HK 35 Index SEHK- 35 largest companies listed in Hong Kong market with the majority of their revenue from outside mainland China
  • iShares USD Asia High Yield Bond Index ETF – High yield bonds by Asian/ Asian-based governments & companies
  • NikkoAM-StraitsTrading Asia ex Japan REIT ETF – High growth Asian REITs (excluding Japan)
  • SPDR GLD ETF – tracks the price of gold without having to physically take delivery and buy and sell gold.

Global ETFs (Not listed on SGX)

  • Invesco QQQ – Tracks 100 of the largest international and US companies in the technology, healthcare, industrial, consumer discretionary, and telecommunications sectors.
  • SPDR S&P 500 ETF Trust – Tracks 500 of the largest US companies.

Here is a short comparison of the various ETFs and their Time horizon

Comparison of the top 10 ETFs in Singapore.csv

ETF NameAnnualised returnAnnual Dividend*How much would you earn if you invested $10,000 10 years ago (inclusive of dividend)
SPDR Straits Times Index3.46%
Lion-Phillip S-REIT ETF-2.91%
Hang Seng HK 35 Index-2.655%
iShares USD Asia High Yield Bond Index ETF-0.33%
NikkoAM-StraitsTrading Asia ex Japan REIT ETF1.22%
Invesco QQQ 15.67%
SPDR S&P 500 ETF Trust12.93%

How to create an ETF portfolio using Core-Satellite method?

Core Satellite Investment Strategy -  How to invest in ETF in Singapore - SG Insurance Hack
Core Satellite Investment Strategy

Creating an ETF portfolio using the Core-Satellite method is a great way to diversify your investment and reduce risk. The core of the portfolio is made up of low-cost, broad-based index ETFs that track major market benchmarks. The satellite portion is composed of ETFs that target specific sectors or regions that you believe will outperform the broader market.

To get started, choose a few funds to form the core of your portfolio. Select funds that cover different asset classes, such as US stocks, international stocks, and bonds.

Then, to create the satellite portfolio, add a few sector or region-specific funds to the mix. Keep your overall costs low by sticking with ETFs with low expense ratios.

Rebalance your portfolio on a regular basis to keep it aligned with your investment goals. And don’t forget to monitor the performance of your holdings to make sure they are still meeting your expectations.

What to Look for in an ETF

When it comes to investing in exchange-traded funds (ETFs), there are a lot of things to consider. Here are four things to look for when choosing an ETF

  1. Low Expenses ratio: Expense ratio isin short the fund management fees of an ETF. Choose an ETF with a low expense ratio to lower costs.
  2. Liquidity: Liquidity is an important consideration for any investment, and ETFs are no different. When you buy an ETF, you’re buying a share of a basket of assets, so it’s important to make sure that the ETF you’re considering is highly liquid. That way, you’ll be able to sell your ETF shares quickly and easily if you need to. Most ETFs on large exchanges are highly liquid.
  3. Past performance: While Past performance is not necessarily indicative of future results, it can give you an idea of how the ETF has performed in the past. This information can help you make a decision about whether to invest in the ETF.
  4. Time horizon: Time horizon is the most important factor in investing; it refers to the timeline you are ABLE to wait to get good returns. Select a fund that has a time horizon that matches yours.

How Do I Start Investing in ETFs in Singapore?

There are a few ways to start buying ETFs in Singapore. One way is to buy through opening a CDP and brokerage account.

Another way is to sign up through an online broker (Moo Moo, Tiger and IBKR).

Since ETFs trade like stocks, you could simply purchase the ETF like an ordinary stock.

Conclusion: Should you invest in ETFs in Singapore?

If you are looking to begin investing in Singapore, ETFs may be a good option for you. They offer a variety of benefits, including low costs, diversification, and flexibility. However, you should also be aware of the risks involved with any investment. Ultimately, whether you invest in ETFs in Singapore will depend on your own financial goals and risk tolerance.

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