You will be able to compare a world index, a single-country index and a Singapore index as a first holding.
Nadia's must-have list from lesson 5.1 said her first fund should hold shares in many countries. Her colleague Wei Jie thought that was overcomplicating it. "Just buy the US," he said. "That's where all the big companies are." Her father, who has held Singapore bank shares for thirty years, said the opposite: "Buy what you know. Buy Singapore."
Both have a point, and both are describing a different kind of index. For a first fund, there are three broad choices: a world index, a single large country, or Singapore. Each has a real advantage and a real drawback.
A world index holds large and mid-sized companies across many countries. Some cover developed markets only. Others add emerging markets too. Either way, thousands of companies and dozens of countries go into one fund.
The advantage is that no single market decides your result. If one country has a bad decade, others may not. You don't need to guess which economy will do best over the next twenty years, because you own a slice of most of them.
The drawback is that a world index isn't evenly spread. It's weighted by company size, as lesson 4.1, An ETF is a basket that follows an index, explained, and the US has the largest companies. So the US makes up the biggest share of most world indexes by a wide margin. Check the country breakdown on the factsheet to see the current figure. You're still diversified, but you're more tied to the US than the word "world" suggests. Most of the fund is also priced in foreign currencies, which brings in the currency risk from lesson 4.3.
Wei Jie's idea is a single-country index, and the US is the usual choice. It holds hundreds of large companies, many of them household names, and US shares have done well over the past few decades.
The drawback is that your whole result rests on one economy, one set of laws and one currency. Even large markets have had long bad stretches. The S&P 500 finished 2009 lower than where it began 2000, even with dividends counted, so ten years of holding it ended in a loss. Japan's main index, the Nikkei 225, peaked at the end of 1989 and didn't pass that level again until 2024. Japan was the second-largest economy in the world for much of that time.
That doesn't mean the US will repeat either story. It means that a country doing well for decades isn't proof it will keep doing so, and a single-country fund gives you no other markets to lean on if it doesn't.
Her father's idea is a Singapore index, most often the STI. It has obvious appeal. You know the companies, you can read about them in the news, and the fund trades in your own currency with no exchange rate to think about. Some Singapore companies also pay steady dividends.
The drawback is size and spread. The STI holds 30 companies, and a large part of its weight sits in a few sectors, banks especially. Singapore is a small part of the world's share markets. A fund on the STI is a concentrated bet on one small economy and a handful of industries, however familiar they feel.
Owning more of your home market than its share of the world is called home bias. It's common everywhere, and your job, CPF and property are already tied to Singapore. Build and run an ETF portfolio deals with how much home market to hold in lesson 5.1, Home bias: holding too much of what you know.
Here's how the three compare for a long-term first holding.
A world index spreads your money furthest. It's the type that best fits a "many countries" requirement, though it carries a heavy US weight and currency risk. A single large country is simpler to understand but rests on one economy. A Singapore index is familiar and free of currency risk, but it's narrow and concentrated.
Nadia chose the world index type, because it was the only one that met the first line of her must-have list. Wei Jie's US fund and her father's STI fund might suit other people, or might sit alongside a world fund later. Choosing several indexes and splitting money between them is portfolio work, and Build and run an ETF portfolio covers it in lesson 2.2, World, US, emerging or Singapore: what each index gives you.
For your own goal, weigh each of the three types against your must-have features, write down one advantage and one drawback of each, and decide which type you'll shortlist funds from.
For each of the three index types, write one advantage and one drawback for your goal, and pick the type you will shortlist from.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).