This article was written in collaboration with UOB Kay Hian. All views expressed are the independent opinion of DollarsAndSense.sg
Most people would agree that it’s important to invest to grow our wealth over time. At the same time, investors today have plenty of choices when it comes to what they can invest in.
Even if you’ve decided that you want to invest in stocks, the natural question would follow: should you invest in local or overseas stocks?
While there is no right (or wrong) answer to that question, there certainly are pros and cons that Singapore investors should consider when thinking about whether or not to invest in global markets.
Invest In What You Know (Locally)
Warren Buffet, arguably the world’s most famous investor, advises investors to “never invest in a business you cannot understand”. This advice is useful to remember and is also the reason why new investors are usually advised to start their investing journey locally.
Starting your investing journey locally allows you to invest in the stocks of companies that you are likely to be more familiar with, such as DBS, OCBC, UOB, SingTel and CapitaLand, which you probably have first-hand experience with.
With more than 600 stocks listed on the Singapore Exchange (SGX) across various industries, there certainly are sufficient options for Singapore investors to pick from to build their investment portfolio.
Lower Currency Risk When You Invest In Singapore Stocks
When investing locally, we do not need to worry about foreign currency exchange rate risk, since our investment will be in Singapore Dollars (SGD).
This is unlike making an overseas investment that has to be made in foreign currency. For example, if you buy a U.S. stock, you will likely need to fund your investment in U.S. Dollars (USD). This also means if the stock performs well (e.g. 10% return in a year), but the USD depreciates against the SGD, your actual performance (in SGD) will be lower than 10% because of foreign currency depreciation against the SGD.
Of course, it’s also worth noting that just because we are investing in local companies doesn’t mean our investments are completely immune from foreign currency exchange. Many local stocks such as DBS and SingTel are also global companies who have major operations in overseas markets such as China, India and Australia.
Overseas Markets May Present Better Investment Opportunities
While it’s a good idea for Singapore investors to start their investing journey locally, restricting our investment to just Singapore companies also comes with its own sets of limitations.
In the world we live in today, we should no longer be restricted by the options offered to us only in Singapore. As consumers, most of us are already spending money with overseas e-commerce sites such as Alibaba and Amazon, and not just at NTUC FairPrice. We are also subscribing to streaming services from international brands such as Netflix and Spotify and, not just the cable TV plan provided by local telcos.
If that’s the case, why should we then restrict our investment choices to just locally-listed companies on the SGX when some of the world’s largest and most successful companies are in the New York Stock Exchange (NYSE), NASDAQ Stock Market (NASDAQ) and NYSE ARCA?
Many companies with global footprint can offer us greater opportunities to earn higher and diversified returns. For example, if we wish to invest in technology companies, then we should consider investing the likes of Facebook, Amazon, Apple, Netflix and Alphabet (Google), which are listed on U.S. stock exchanges.
Work Towards Global Diversification For Our Investment Portfolio
In an increasingly global world, simply owning a local portfolio only isn’t good enough.
For many of us who are living and working in Singapore, it’s common to find the bulk of our net worth tied closely to Singapore. For example, our retirement savings could be in our CPF accounts or held in Singapore-based savings accounts. We are likely to own a property which is in Singapore. We may work for companies that are based in Singapore. Anything which impacts Singapore as a country will also affect us.
While some of us may think of overseas companies as hard-to-understand entities, the truth is that most global companies that many investors invest in are also immediately recognisable. We interact with them on a daily basis (e.g. Apple, Facebook, Google) and pay for their services and products.
Global diversification in our investment portfolio can help ensure that even if Singapore does experience a downturn, our uncorrelated investment portfolio wouldn’t be impacted as much, and may even provide us with an uplift. There are also exchange traded funds (ETFs) replicating the S&P Index, Dow Jones Industrial Average where you immediately invest into a diversified portfolio.
To help sum up the key points of investing overseas vs locally, you can refer to this infographic we created:
Using A Brokerage Account That Allows You To Invest Both Locally And Overseas
When you first start investing, you are likely to be more comfortable with investing in stocks that you are familiar with on the SGX. We say, go for it!
SGX is a good place for Singapore investors to start looking for investment opportunities, with many quality blue-chip companies in various sectors such as banks, property developers and real estate investment trusts (REITs) that you can choose from.
To invest directly in stocks on the SGX, you will need a local brokerage account, such as one with .
As you gain experience, you may wish to work towards diversifying your investment portfolio by investing in global markets. Your can also give you access to major financial markets around the world such as the Hong Kong Stock Exchange (HKEX), NASDAQ Stock Market (NASDAQ), New York Stock Exchange (NYSE) and many others. This provides you with convenience, since you can invest in both local and overseas stocks using the same brokerage account, rather than needing to open and fund different brokerage accounts.
Besides offering access to both local and global stock markets, also allows you to invest in other products such as bonds, Contracts For Difference (CFD), CFD 10, Daily Leverage Certificates (DLCs), ETFs, Unit Trusts and more.
Incorporated in 1970, UOB Kay Hian turns 50 this year. To celebrate this, the brokerage firm is running a , where you stand a chance to win a grand prize of S$50,000 when you invest or trade in eligible products offered by UOB Kay Hian during this period.
Get more details about this promotion from UOB Kay Hian .
In addition to the grand prize, Monthly draws will also be held until June 2020 where a lucky winner will win $2,000 each month. So get started today by .
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