When it comes to stock investing, one of the simplest and very effective method is to have a diversified portfolio. A simple way to think of diversification is not to have all your eggs in one basket. For stocks, a basic diversification strategy is to have many different stocks instead of a few. Another is to make sure you don’t have all your stocks in one country, but rather spread out across a few, for example US, UK, HK, Singapore etc.
How Do You Keep Track of So Many Stocks?
If you have so many different stocks from different countries, your portfolio would probably consist of over 30 stocks. So how do you keep track of so many? The trick here is to invest in the index itself. Typical indexes such as the S&P 500 and STI cover generally 50-75% of the total market. That’s because the indexes generally consists of the largest companies in the particular market. A single index will be able to help diversify across multiple stocks easily.
[Free Ebook] How should you invest your first $20,000?
We asked 14 Singapore finance bloggers to share what they would do if they could go back in time and invest their first $20,000. They can no longer rewind time, but you can learn from their experience and hopefully start with a better footing.
Using Exchange Traded Funds (ETF) to Proxy Indexes
Traditional exchange traded funds are generally known as passive tracking funds as they track a particular index. Popular ETFs such as the Nikko AM STI ETF is tradeable on SGX like any other stock and mostly quite liquid. The ETF does charge a management fee to track the index, but they are usually quite low as compared to active mutual funds.
What ETFs are Available?
For Singapore the main ones are
Nikko AM STI ETF (G3B) and SPDR STI ETF (ES3), both of which track the Straits Times Index (STI) which is top 30 listed stocks in Singapore
They are both similar, main difference is that Nikko AM has a slightly lower expense ratio of 0.2% vs SPDR 0.3%.
Can I Buy Global ETFs on SGX?
The good news is that you can buy ETFs on global stock market just from SGX alone. However, the bad news is that foreign asset based ETFs are classified under Specified Investment Products, meaning you have to take a test to be able to purchase them. Some examples are listed below:
US – SPDR S&P 500 (S27) – Top 500 Listed Companies in the US
Australia – db x-trackers ASX 200 (LF1) – Top 200 Companies in ASX
HK – Lyxor ETF Hong Kong (A9B) – Top 49 Companies on HKSE
Europe – db x-trackers Euro Stoxx 50 (IH0) – Top 50 Listed Companies in Europe excluding UK
Do I Get The Dividends From ETFs?
Of course! Many of the top companies are solid dividend companies and you will be getting dividends from all the companies within the ETF. However, not all the ETFs distribute the dividends, some of them actually reinvest the dividends instead, so do check the divided track record of the ETF before investing.