What are your thoughts about Singapore STI not being a good market to enter as it is very small, which might be a risk to invest in?

Hi Anonymous,

Thanks for your question. At MoneyOwl we suggest that you should be globally diversified in your equity portfolio – buying from many countries, sectors and companies.
Firstly, from an investment risk point of view, as you had mentioned, there is higher risk. We know that global stock markets go up in the long run but this does not apply to individual companies or even individual country indices. (Except maybe for S&P500, which while being a US index contains globalised companies.) STI is only 30 Singapore companies and as Frankie had said, it is tiny relative to the $70+ trillion sized global equity market. So the feeling of familiarity might actually belie the concentration risk you are taking. In MoneyOwl’s equity portfolios, there are about 8000 stocks.
Secondly, from a broader point of view of your human capital in addition to financial assets. Working and living in Singapore, you are already exposed to the macro risks of the Singapore economy in terms of the potential impact on your job – and arguably you are the the most important financial asset. You may not want to double down.
Thirdly, diversification is actually relevant to return and not just to risk. At any one time, there are countries, sectors and companies that are winners and others that are losers. It is impossible to predict consistently. But holding the whole market – globally – ensures that you will always have winners in your portfolio and you participate in global economic growth through companies that benefit from global demand. The logic is that stock prices are ultimately driven by earnings of companies, and earnings are driven by aggregate demand and aggregate demand is driven by population growth and increase in standards of living over the long term. Key words being aggregate and global. Hence, stock markets always go up in the long run even if there are wild fluctuations and crises in between.
Hope this answers your question!

It depends!

Yes you are right, the Singapore market is not as large as other foregin markets such as US. This may cause STI to take longer to recover and also have slower growth as showed evidently in history.

To answer your question whether it is enough to just invest in Singapore, it depends on your financial goals. If you are looking for dividends, Singapore is much better as we do not have tax as compared to 30% on US stock dividends. The dividend yield of Singapore stocks tend to be higher as well as most of the companies are catered towards a more defensive structure and prefer giving dividends.

However, the growth is very low + many of dividend investors like dividend for the passive income and cash flow. Do remember to do your calculations first to see if it is sustainably sufficient. Dividends are cyclical and grow base on how well the business is doing. A fair dividend yield would be 3-4% on average. To get $3k a month, we need 36k a year of dividendss which is a 3.6% dividend yield on a million dollar portfolio.

Because of this, some prefer to go for capital gains while they are younger before switching to dividend investing when they are of older age. For that case, markets outside of SG seem more feasible.​​​