You will be able to explain home bias and decide deliberately how much Singapore exposure you want.
Grace's father has held Singapore bank shares for thirty years and never sold one. When she started investing, he told her to stick to what she knows, and her first fund was an STI ETF. It felt safe: local companies she could name, dividends in Singapore dollars, prices she could follow in the morning paper. When she cut her STI weight in lesson 2.4, Map indexes onto your allocation, part of her felt she was being disloyal.
That feeling has a name, and almost every investor in the world shares it.
Home bias is holding far more of your home market than its share of world markets. A Japanese investor who holds mostly Japanese shares, an Australian who holds mostly Australian ones and a Singaporean whose portfolio is mostly STI are all doing the same thing.
The benchmark is the market weight. In a world index weighted by market value, as lesson 2.1 described, each country's share reflects the value of its listed companies. Singapore's share of a world index is small, well under 1%; check the current figure on the factsheet of the index you use. So even a modest STI holding, say 15% of your shares, is many times Singapore's weight in the world market. That is a deliberate overweight, whether you meant it or not.
Lesson 2.2, World, US, emerging or Singapore: what each index gives you, showed that the STI holds 30 companies and leans heavily towards banks and property. A large STI holding is therefore a concentrated bet on a few sectors in one small economy, rather than a general bet on Singapore.
Concentration is not the same as danger. Singapore's large companies may do well. But a concentrated holding has fewer ways to recover when its main sectors have a bad decade, and a world fund spreads the same money across thousands of companies in dozens of countries and every sector.
Here is the part most people miss. Your portfolio is not the only place your wealth sits. For most readers of this course, a large share of everything they own is already tied to Singapore.
Your job is in Singapore, and your future salary is the biggest asset you have in your twenties and thirties. Your CPF savings are Singapore dollar balances held by the CPF Board. If you own an HDB flat or a condominium, your home equity rises and falls with the Singapore property market. Your cash is in Singapore dollars at Singapore banks.
Now picture a bad decade for Singapore: banks struggling, property prices falling, hiring slowing. A large STI holding would fall in the same years that your home value, your job security and possibly your bonus were under pressure. A world fund would not care much. That is the strongest argument against a big home overweight, and it is personal to you rather than a general rule about markets.
Grace runs the numbers with made-up figures. Her CPF balances total S$90,000, her share of the flat's equity is S$150,000, her cash is S$25,000, her STI fund S$12,000, her Singapore government bond fund S$20,000 and her world fund S$68,000. Treat the world fund's Singapore slice as a made-up 0.3%, or about S$200. That puts about S$297,000 of her S$365,000 total in Singapore-linked assets, about 81%, before counting her salary.
The reasons are real, and worth naming so you can weigh them honestly.
Familiarity is the first. You know the companies, you read about them, and owning them feels less like a leap into the unknown. Familiarity is comfortable, but it does not lower risk; the bank you bank with is not safer as an investment because you use its app.
Dividends are the second. Many STI companies pay regular dividends, and the income is attractive, especially to people who like seeing cash arrive. Lesson 4.2, Tax, costs and the behaviour each one encourages, discussed how that preference can work for or against you.
Avoiding currency risk is the third, and it is the strongest. Singapore shares are priced in Singapore dollars, so their returns reach you without a currency layer. Lesson 5.2 shows what currency moves do to foreign holdings, and lesson 5.3 covers when hedging helps.
None of these makes a home overweight wrong. They make it a choice with a price, which you can pay on purpose. Grace decides that some Singapore exposure in her shares is fine, but that 15% of her shares on top of an 81% Singapore-linked balance sheet is enough, and she will not raise it.
Before setting your own limit, you need the same picture she drew. Gather your CPF statement, an estimate of your property equity and your account balances, and the total will tell you more than any rule of thumb.
Add up every Singapore-linked asset you have, including property equity and CPF, and write the share of your wealth tied to Singapore.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).