In the past, many Singaporeans held the assumption that only particular types of people could pursue investing. Stock trading seemed to be the kind of activity that was reserved for experienced or wealthy individuals who had larger risk appetites. But this is an exciting time for even younger, less experienced, or more conservative Singaporeans to start their investment journey.
One of the investment options that are open to both beginners and intermediate traders alike are exchange traded funds, or ETFs. These funds, which are traded on the stock exchange, comprise a whole basket of securities such as stocks and bonds. What’s exciting about ETFs is that your returns won’t be on just one kind of share, but on the whole pool of securities contained there. Even if one financial instrument in the basket isn’t doing well, the losses can be evened out by the others that are.
An ETF can track the performance of a stock index, like the Dow Jones Industrial Average or Singapore’s own Straits Times Index. Alternatively, its success can be based on investments on physical commodities like precious metals. The level of diversification depends on the type of ETF chosen. ETFs that seek to replicate a stock index typically offer more diversification than those that follow commodities. Traders can earn money either by selling their positions when the ETF’s price rises, or by gaining dividends if the ETFs pay them out.
If you want to purchase ETFs in Singapore, you’ll need a brokerage account and a Central Depository or CPD account to safeguard your investment. ETFs are typically considered low-cost investment products because they aren’t actively managed, and therefore just fine for more passive investors. But how do you know whether ETFs will work for you or not? You can find out how to buy ETF in Singapore and start your investment journey with them if the following signs apply to your circumstance.
You Want to Expand Your Knowledge about Investments
ETFs are a great option for increasing your knowledge about investing, whether you’re starting out or you already have investing experience. They’re neither hard to learn about nor hard to track. If it’s among your goals to become a skilled investor, having ETFs in your portfolio will definitely level you up.
Your Goals Align with the ETF’s Investment Objective
Every ETF comes with its own investment objective, which determines the asset classes and the types of investment securities you’ll find in the pool. Some examples of investment objectives are growth, income, or a combination of both. You can consider yourself ready to invest in an ETF if you find one whose investment objective aligns with your own investment goals. For example, if their objective is to grow over a ten-year time horizon and you’re making a ten-year investment plan, consider that ETF.
You Want Flexibility When Trading
Another sign that you may be ready to buy an ETF is that you’re yearning to add flexibility to your trading activities. ETFs trade just like stocks, i.e. all day long. That means that you could make multiple transactions within the day if you so wished, unlike with a mutual fund. Many traders purchase ETFs for the flexibility they afford, so if this appeals to you, you can go ahead and pursue ETFs too.
You Know the Importance of Diversification
Over time, investors will learn the value of diversifying their assets in order to balance out risks. When you’re in a position to make more choices and diversify your investment portfolio, it may be time to add ETFs. Your shares in the basket, which may already be quite diverse to begin with, will prove extremely rewarding to you.
You Understand the Risks
Lastly, no ETF investor should purchase shares without being aware of the risks. There are different types of risks associated with ETFs, depending on what the ETF tracks. If you purchase a particular type of ETF, for example for a certain commodity, your share may be subject to related market-specific or industry-specific risks. You will also have to deal with any political or liquidity risks that come with adding country-based ETFs. If these risks don’t deter you from pursuing ETFs and you are willing to deal with them as they come, you’re in a good headspace to consider buying them.
Some Last Words about ETF Investments in Singapore
Now that you’ve examined whether or not you’re ready to buy ETFs, you can make your decision to invest. However, don’t forget to keep the following things in mind:
- It’s a good idea to do research on the different types of ETFs and the risks and returns you can expect from them. No two ETFs are the same, and you will want to compare them against each other before you settle on one.
- Even if ETFs are considered a passive kind of investment, generating you passive income, you shouldn’t be completely hands-off with them. Be conscientious about tracking the values and liquidity of instruments in the basket, just like you would for any other investment.
- Since ETFs trade like stocks, be ready to take care of commissions or other related fees that trading them requires.
ETFs don’t have to be your sole investment strategy, but they will be a valuable addition to your portfolio. Moreover, they can increase your acumen for careful, well-rounded, and profitable investing. If the information above has secured your confidence about investing in ETFs, go look into them today!