Compare a world index, a single-country index and a Singapore index as a first holding.
Once you know what you need from a first fund, the next decision is which kind of index it should follow. A first fund has three broad choices: a world index, an index of a single large country, or a Singapore index. Each has a real advantage and a real drawback. The right choice is the one that fits the must-have features you've already written down for your goal.
Nadia is making this choice now. Her must-have list from lesson 5.1 says her first fund should hold shares in many countries. Two people have given her advice. Her colleague Wei Jie thinks her plan is overcomplicated and tells her to just buy the US, because that's where all the big companies are. Her father has held Singapore bank shares for thirty years, and he tells her to "buy what you know" and buy Singapore. Wei Jie and her father both have a point, and each is describing a different kind of index.
A world index holds large and mid-sized companies across many countries. Some world indexes cover developed markets only, and others also include emerging markets. Either way, one fund holds thousands of companies from dozens of countries.
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 the spread isn't even. Lesson 4.1, "An ETF is a basket that follows an index", explained that indexes are weighted by company size, and the US has the largest companies. In most world indexes the US makes up the biggest share by a wide margin. When you look at a world fund, check the country breakdown on its factsheet for the current US weight. The fund is still diversified, but it ties you to the US more than the word "world" suggests. Most of the fund is also priced in foreign currencies, which adds the currency risk covered in lesson 4.3.
The US is the usual choice for a single-country index, and it is what Wei Jie has in mind. A US index holds hundreds of large companies, many of them household names, and US shares have done well over the past few decades. It is simpler to understand than a world fund.
The drawback is that your whole result depends on one economy, one set of laws and one currency. Even large markets have had long bad stretches. The S&P 500 ended 2009 lower than it started 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 did not get back above that level until 2024. For much of that period Japan was the world's second-largest economy.
These cases don't mean the US will repeat either story. They do show that a country doing well for decades is no proof it will keep doing so. If that country does badly, a single-country fund leaves you no other markets to lean on.
The usual Singapore index is the STI, and it is what Nadia's father is suggesting. You know the companies and can read about them in the news. The fund trades in your own currency, so there is no exchange rate to think about. Some Singapore companies also pay steady dividends.
The drawback is that the STI is small and narrow. It holds 30 companies, and much of its weight sits in a few sectors, banks especially. Singapore is also a small part of the world's share markets. However familiar the companies feel, an STI fund is a concentrated bet on one small economy and a handful of industries.
This connects to home bias, which means owning more of your home market than its share of the world. Home bias is common in every country. For a Singapore investor it adds to an existing concentration, because your job, your CPF and your property are already tied to Singapore. Lesson 5.1 of the course "Build and run an ETF portfolio", "Home bias: holding too much of what you know", covers how much of your home market to hold.
Side by side, the three types compare like this:
A world index spreads your money the furthest and best fits a "many countries" requirement, but it carries a heavy US weight and currency risk. A single large country is simpler to understand but depends on one economy. A Singapore index is familiar and has no currency risk, but it is narrow and concentrated.
Nadia chooses the world index type, because it is the only type that meets 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. It is covered in lesson 2.2 of "Build and run an ETF portfolio", "World, US, emerging or Singapore: what each index gives you".
Now make your own choice. Take the must-have features list for your goal and weigh each of the three index types against it: world, single large country and Singapore. Write down one advantage and one drawback of each, then decide which type you'll shortlist funds from. If you are looking at world funds, check the country breakdown on each fund's factsheet so you know the current US share.
Write one advantage and one drawback of each of the three index types for your goal. Then pick the type you will shortlist from.
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