Creating Your Investment Portfolio: 4 Reasons Why Singapore Investors Need Overseas Exposure
This article is written in collaboration with dollarDEX. All views expressed in this article are the independent opinion of DollarsAndSense.sg
January 2020 marks not only the start of a brand-new year, but an entirely new decade. And along with it, probably a fresh batch of New Year’s resolutions that we hope to achieve. Staying healthy, spending more time with our loved ones, and starting our investment journey are likely to be some of the top goals that many people would be aiming for in 2020.
Whether you are looking to kickstart your investment journey or planning to bring your investment portfolio to the next level, thinking about the investments you wish to make for 2020 shouldn’t just be limited to local investment opportunities.
In the global world that we live in today, we’re already shopping online at overseas stores, using services offered by companies such as Netflix, Spotify and HBO Go for our leisure needs and travelling on overseas airlines for our holidays. Shouldn’t we also look at investing wherever opportunities lie be it local or overseas?
If you want to be a better, more well-rounded investor, then learning how to build a global investment portfolio that extends beyond Singapore is an essential skill to pick up.
# 1 Invest In Some Of The Biggest & Fastest Growing Sectors Worldwide
We all know Singapore is a small country. While the Singapore Exchange offers more than 700 companies you can invest in, this is nothing compared to some of the world’s biggest stock exchanges such as the New York Stock Exchange (NYSE), which offers about 2,800 different companies, which are collectively worth more than USD $16 trillion.
If you want to invest in some of the biggest technology companies around the world such as Alphabet (Google’s parent company), Apple, Microsoft, Amazon and Facebook, you will need to invest through U.S. stock exchanges.
If you want to benefit from the growth of China, then you will need to think about investing in some of the biggest banks and insurance companies in China such as the Bank of China (BOC), Industrial and Commercial Bank of China (ICBC) and Ping An Insurance.
Just like miners need to head to Australia to mine for iron and gold ore, and oil and gas companies need to build oil rigs in Saudi Arabia to extract oil, as savvy investors, we need to go to the right countries in order to invest in the sectors and companies that we want in our investment portfolio.
Investing solely in Singapore may restrict us to potential opportunities and growth of our investment portfolio.
# 2 Potentially Greater Returns From Our Portfolio
With more options comes greater opportunities to make higher returns. While the Straits Times Index (STI) have done well over the past 10 years with an annualised total return of 9.2% from 2009 to end 2018(including dividends reinvested), this is lower than the 10-year return of the S&P 500 which is 13.9% (including dividends reinvested).
Similar to career opportunities, if we want to enjoy potentially higher returns in our investment journey, we need to step out of our comfort zone in Singapore and look for potential opportunities that may lie in overseas markets.
# 3 Benefitting From Overseas Exposure
Most of us reading this are likely to also be working in Singapore.
Whether we are self-employed or working for a company, this means our employment income is largely based on the performance of our company, which in turn could be affected by Singapore’s economy. If the local economy performs poorly, our job, and thus our income, may also be adversely affected.
By exposing our investment portfolio to overseas markets, it can help us tap on overseas market growth rather than solely dependent on Singapore’s economy. In this case, we will not end up with an overweighted portfolio investing in Singapore but one with exposure to other markets that may have more growth potentials to give our investments a boost in returns.
The returns we earn from investing into much bigger markets overseas will not be as strongly correlated with the employment income that we earn from our job.
# 4 Protect Our Assets From Downturns In Singapore’s Economy
It isn’t just investment and employment income that we need to protect. It’s everything that we own.
Think about it. Since most of us live in Singapore and build our lives here, everything we own, such as our properties, our savings, and even our CPF monies and the interest it earns us is based largely on Singapore doing well as a country. If Singapore continues to do well, that’s good. If it doesn’t, some of the value of the assets we own, such as our properties may be affected.
By exposing to overseas markets, we de-risk our investment portfolio from Singapore doing well as a country. If Singapore continues to do well, we as citizens will reap the benefits. However, if Singapore doesn’t do well, we can rest a little easier knowing that our globally diversified investment portfolio might still be able to perform well on its own independently. With a more diversified portfolio, it also helps in managing risk better.
Building Your Own Globally Diversified Investment Portfolio Through dollarDEX
Similar to overseas online shopping, getting overseas market exposure isn’t difficult. Platforms such as dollarDEX allow Singapore investors to start investing in a wide range of unit trusts (also known as mutual funds) that can provide them with overseas investment exposure.
As an investor, you can easily filter the list of relevant funds based on parameters such as geographical region, industrial sector and whether a fund is an active or a passively-managed index-based fund.
And if you are new to investing and are unsure of what to do, fret not. dollarDEX have recommended portfolios that can help you get started after you have identified your risk profile through a risk questionnaire. You can then decide whether if you wish to buy the entire recommended portfolio or any of the recommended funds using cash or your Supplementary Retirement Scheme (SRS) funds.
Alternatively, if you are not sure when to enter the market or how much you need to start investing, you can consider the dollarDEX Regular Savings Plans (RSPs) or Value Averaging Plans (VAPs). Both these plans allow you to make regular investments into the funds of your choice each month, rather than having to make a one-off lump sum investment. Read up more about the differences between RSPs and VAPs in our explanation here.
Getting started with a global portfolio doesn’t have to be expensive either. At just $100 a month for each fund, you can start building your very own global portfolio today! Who says you need a large initial capital to get started. With dollarDEX, there are also no sales charge, platform fees or switching fees, which means your money is fully invested each month.
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