Complete Guide to ETF Investing in Singapore

What you'll learn:

• What are ETFs?
• What are the different types of ETFs?
• What's the difference between a passive and active ETF?
• What are the advantages and disadvantages of ETFs?
• What are some examples of popular ETFs?
• How to invest in ETFs in Singapore?

What are ETFs?

You might be wondering… what exactly is an ETF?

An exchange-traded fund, or ETF, is an investment that trades like a stock.

Like other types of funds, ETFs pool money from different investors into a basket of different investments. This includes stocks, bonds, REITs, and others.

By allocating the fund’s money across different securities, ETFs can provide investors with diversification.

What are the different types of ETFs?

In the same way that there are different types of mutual funds, there are also different types of ETFs with their own objectives.

Some ETFs invest in a combination of selected stocks and bonds, while others are designed to replicate the performance of a stock index like the S&P500. 

There are also ETFs that track the performance of a particular market sector, such as technology.

Naturally, different ETFs offer different amounts of diversification.

ETFs that focus on a specific sector, for example, typically offer less diversification than those tracking the performance of an index.

Not all ETFs are created equal!

What's the difference between a passive and active ETF?

Broadly speaking, there are two kinds of ETFs - passive and active ETFs.

Passive ETFs

Passive ETFs will usually track an index such as the Dow Jones Industrial Average.

The portfolio is simply updated on a quarterly basis to reflect any changes in the underlying index.

These ETFs provide an affordable and fuss-free way of getting exposure to a broad based index of stocks.

Active ETFs

Active ETFs involve a fund manager who is actively managing a basket of securities

As ETF shares are traded on a stock exchange, they usually incur commissions and other related fees.

This is usually for investors who are less than content with average returns in the market.

Unfortunately, not all fund managers are able to beat the market.

What are the advantages of ETFs?

We think ETFs are great for investors for a number of reasons.

First, they take the stress out of investing in single stocks. Investing in ETFs allows the everyday investor to achieve market returns over time without having to do individual stock picking.

This means not having to worry about which stocks to buy, making it easier for you to get started in investing. Investing in ETFs means that you don’t need to research individual companies which can be daunting for most.

Second, ETFs essentially provide you with market exposure to a wide range of stocks, bonds, REITs, and other assets at a minimal cost.

The low commission fees can be attributed to the passive nature of such ETFs which do not require a fund manager.

You will also be able to get investment exposure to a particular market using one single instrument (as opposed to buying individual stocks).

Third, ETFs are very easily traded on a stock exchange. They are much more liquid than mutual funds as they are much easier to buy and sell with an online broker.

What are the disadvantages of ETFs?

But there are also some drawbacks when it comes to buying ETFs.

First, you have to remember that most ETFs are simply created to track and not beat the index. Investors who are looking to achieve higher than market returns will feel disappointed by this.

Second, investing in an ETF still exposes you to market risk. If you have an ETF with exposure to the US market and the US experiences a market downturn, your investment will be directly affected. 

For this reason, it’s never a good idea to invest only in one particular market or sector. If you are exposed solely to the US market, you might also want to invest in ETFs with exposure to European and Asian markets.

Lastly, some ETFs may have high expense ratios. These are usually found in investment themes which invest in alternative investments or ones where the fund manager is actively trading almost everyday.

These ETFs can charge an expense ratio of over 3.00%. Most passively managed ETFs, however, will charge a reasonable 0.05% or less. 

Regardless, it's always to check what's the expense ratio for the ETF you are considering. 

What are some examples of popular ETFs?

There are many popular ETFs which vary from equity ETFs, bond ETFs, balanced ETFs, commodity ETFs, real estate ETFs, and so on.

But instead of boring you, we thought to pick three passive ETFs for the everyday investor to check out.

#1 - Global ETFs

When it comes to investing, simple may be an option for busy investors. A passive ETF that tracks a globally diversified index may provide long-term returns at a low cost.

One way to implement this investment strategy is by investing in an ETF like the Vanguard FTSE All-World UCITS ETF (VWRA), which tracks the FTSE All-World index.

It is made up of large and mid-cap companies from developed and emerging countries.

#2 - US market-cap index ETFs

The Vanguard S&P500 ETF (VOO)  gives investors broad exposure to publicly listed companies in the US.

This kind of ETF uses a passive investment approach that tracks the top 500 companies in the US.

#3 - Sector/Thematic ETFs

Sector ETFs allow you to invest in a specific sector, such as Singapore REITs or Gold. 

If you are looking at specific themes, find out more about what you should consider before investing in Singapore REIT ETFs, Singapore bond ETFs, and Singapore gold ETFs. 

Looking for more ideas? Check out our ETF tool.

How to invest in ETFs in Singapore?

So how do you get started with investing in Singapore ETFs? There are mainly three ways.

#1 - Open a stock trading account

Firstly, you can simply do it through an online brokerage account which allows you to buy or sell ETFs. This is the most common way for investors to gain direct access to Singapore ETFs.

If you do not have a brokerage account, read our step-by-step guide on how you can get started with investing.

Also, if you are wondering which brokerage platform to choose from, feel free to check out our guide on the different brokerage accounts in Singapore.

#2 - Set up a regular savings plan

Secondly, another easy way to get started with regular ETF investing is to set up a regular savings plan (RSP). Basically, this means that a fixed sum of money will automatically be invested every month.

This is important as it helps you with dollar cost averaging when investing in ETFs.

There are various RSP services offered by DBS, FSMOne, OCBC, and Phillip Securities which are suitable for beginners or investors that want to automate their monthly investments.

#3 - Set up a robo-advisor account

Thirdly, you can also get started with ETF investing via a robo-advisor. For more information, read our complete guide to investing with robo-advisors.