Choosing between ETF vs stock is one of the first real forks in your investing journey. Do you want broad, low-maintenance exposure that tracks the market, or the higher-risk, higher-reward path of backing individual companies? This guide breaks down what ETFs and individual stocks are, how they behave in different markets, what they cost (including expense ratios and taxes), and how to build a portfolio that fits your goals. By the end, you’ll have a clear, actionable framework to invest confidently—whether you prefer a diversified core of ETFs, a dash of stock-picking flair, or both.
Table of Content
- What Are ETFs and Stocks?
- ETF vs Stock at a Glance
- Risk & Return: What History Suggests
- Costs, Fees, and Taxes for Singapore Investors
- How ETFs Trade
- Building a Portfolio: Core-Satellite Approach
- How to Buy in Singapore
- Portfolio Playbooks: Pick the Path That Fits You
- Quick Takeaways
- Conclusion
- Frequently Asked Questions (FAQs)
What Are ETFs and Stocks?
ETFs: Baskets you can trade
An exchange-traded fund (ETF) is a basket of securities (e.g., whole-market indices like the S&P 500, sector slices such as technology, or fixed-income baskets) packaged into a single unit that trades on an exchange like a stock. Buy one ticker and you instantly own a diversified slice of many holdings. Most ETFs track an index at low cost; some are actively managed. On SGX and overseas markets, ETFs are widely used as long-term “core” holdings because they deliver built-in diversification.
Individual stocks: Concentrated exposure, higher idiosyncratic risk
A single stock represents ownership in one company, so your outcome hinges on that firm’s fortunes. Great businesses can outperform the market, while disappointments can cause your returns to lag heavily. Compared with ETFs, single stocks typically carry higher volatility and concentration risk because you’re not diversified across many names.
Index vs active ETFs (and why this matters)
Index ETFs mirror a benchmark and aim for market returns minus fees. Active ETFs give managers discretion to pick and weight holdings in an attempt to beat the benchmark (usually with higher fees and potential tracking differences).
ETF vs Stock at a Glance
| Traits | ETF | Stock |
| Diversification | High (basket of securities) | None (single company) |
| Volatility | Usually lower than a single stock | Often higher; firm-specific risk |
| Return Upside | Market-level; fewer “home runs” | Potential for outsized gains |
| Drawdown Risk | Spread across many names | Company/sector events hit hard |
| Ongoing Costs | Expense ratio (e.g., ~0.03%–0.50%+) | No fund fee, but research/monitoring time |
| Trading Costs | Brokerage + bid/ask spread | Brokerage + bid/ask spread |
| Taxes on US dividends | Withholding tax (WHT) at fund level | WHT on foreign dividends |
| Typical Use Case | Core, long-term allocation | Satellite/tilts, conviction ideas |
Bottom line: Diversification and lower volatility are the ETF edge, while concentrated upside is the stock edge. Many investors use both.
Risk & Return: What History Suggests
Why diversification usually wins (and where it doesn’t)
ETFs reduce idiosyncratic (company-specific) risk by owning many companies. That typically lowers volatility relative to a single stock and increases the chance you capture market-average returns. The trade-off: diversification can dilute your best ideas—one reason many investors pair an ETF core with stock “satellites.”
The SPIVA lesson: active underperformance is common
S&P’s SPIVA scorecards repeatedly show that a majority of active US large-cap funds underperform their benchmark over long horizons (e.g., 65% underperformed in 2024). In other words, consistently beating the market is hard, even for professionals—so anchoring with a low-cost index ETF is a sensible baseline.
When single stocks can shine—and when they break
Individual names can beat index returns (think prolonged winners during tech booms), but they can also implode on earnings misses, regulatory shocks, or disruption. Position sizing and diversification matter, and ETFs can help in dampening these company-specific blow-ups.
Costs, Fees, and Taxes for Singapore Investors
Expense ratios, tracking error and tracking difference
ETFs charge an expense ratio — a small annual fee embedded in the fund). Also check tracking error (variability of the ETF’s return vs its index) and tracking difference (actual return shortfall vs index). Low-cost, efficiently run funds seek to minimise both, but it’s never zero.
Brokerage commissions, spreads, and liquidity
Both ETFs and stocks have two main trading costs: your broker’s commission and the bid–ask spread (the gap between the price to buy and the price to sell).
For ETFs, “liquidity” isn’t only about how many ETF units change hands. It also comes from how easily the shares or bonds inside the ETF can be traded. Large market makers, called authorised participants, can create new ETF units when demand is high and redeem units when demand is low. This creation-redemption process helps keep the ETF’s market price close to its NAV (the value of its underlying holdings).
In fast or volatile markets, spreads can widen and prices can jump. To improve execution, use limit orders, avoid very thinly traded tickers, and try to trade during the main hours of the ETF’s underlying market. Popular, large ETFs usually have tighter spreads than small or niche funds.
Dividend withholding tax (US-listed vs Ireland-domiciled UCITS)
Dividend withholding tax (WHT) is the amount taken off a dividend before you receive it. It’s withheld at source by the market where the dividend is paid.
For non-US investors, dividends from US-listed ETFs and US stocks are typically subject to a 30% WHT. By contrast, many Ireland-domiciled UCITS ETFs that hold US stocks benefit from the US–Ireland tax treaty, which reduces the WHT on US dividends to 15% at the fund level.
A lower withholding rate means more of each dividend stays inside the fund (or is paid out to you), which can improve your net return over time—especially for accumulating share classes where dividends are reinvested automatically.
Singapore taxes (individuals)
Singapore does not impose capital gains tax on individuals; gains from the sale of shares are generally not taxable unless you are trading in shares as a business. Foreign-sourced income (including most overseas dividends) is generally not taxable for individuals when received in Singapore, with limited exceptions (e.g., via partnerships). This is separate from any foreign WHT already deducted at source.
Cost comparison (typical ranges)
| Cost Component | ETFs | Stocks |
| Fund Fee | ~0.03%–0.50%+ (expense ratio) | None |
| Brokerage Fee | Broker dependent | Broker dependent |
| Bid/Ask Spread | Tighter for large, liquid funds | Depends on stock liquidity |
| Other | Tracking error/difference | Research time/opportunity cost |
| Taxes | WHT varies by domicile; local rules apply | WHT on foreign dividends; local rules apply |
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How ETFs Trade
Getting good trade execution
ETFs trade throughout the day like stocks. To avoid paying more than you intend, place limit orders rather than market orders. Try to trade when the underlying markets are open (for example, buy a US-focused ETF during US hours). When the underlying securities are trading, prices usually sit closer to the fund’s NAV, and spreads tend to be tighter.
Leveraged/Inverse ETFs: designed for trading, not holding
Leveraged and inverse ETFs aim to multiply or reverse a single day’s index return. Over weeks or months, daily compounding can pull results away from what you might expect from the index itself. That’s why most long-term investors don’t use them as core holdings. If you do trade them, keep time frames short and monitor positions closely.
Building a Portfolio: Core-Satellite Approach
Core with ETFs, satellites with stocks (SGX and US examples)
A popular framework is core-satellite:
- Core (60%–90%): Broad, low-cost ETFs for global equities and/or bonds.
- Satellites (10%–40%): Hand-picked SGX dividend stalwarts, a few US growth names, sector/thematic or factor ETFs.
You capture market returns reliably with the core while expressing convictions through satellites—without letting any single idea dominate risk.
Time-saving automation: DCA and rebalancing
Automate monthly dollar-cost averaging (DCA) into your core ETFs. Review satellites quarterly. Rebalance back to target weights to avoid concentration creep after big moves.
Risk controls: position sizing and sell rules
For satellites, cap any single stock at, say, 3%–5% of total portfolio at cost (guideline, not a rule). Pre-define exit criteria (fundamental or technical), and keep cash for opportunity so satellites don’t overrun your core’s risk budget.
How to Buy in Singapore
For SGX-listed ETFs and stocks
Most Singapore investors either hold SGX counters in their own name via CDP (The Central Depository) or use a broker’s custodian. CDP gives you direct legal ownership, clear corporate-action notices, and a consolidated view across CDP-linked brokers. A custodian account holds shares in the broker’s name on your behalf, which can offer operational convenience such as a single relationship for trading, settlement, and statements. Choose CDP if you prefer direct ownership and centralised records. Choose custodian if you value streamlined administration and potentially lower all-in costs. In both cases, compare fees, corporate-action handling, transfer procedures, and service standards before deciding.
For US-listed ETFs and stocks
US trades are almost always held in a custodian account with your broker. You will typically fund in USD or convert SGD in-app, so check FX spreads and any conversion fees. Dividends from US-listed ETFs and stocks are generally subject to 30% US withholding tax for non-US investors. If you plan to DCA into high-priced names or broad ETFs, check whether your broker supports fractional shares so you can buy by dollar amount rather than full lots.
Picking a broker and placing an order
Choose a broker that offers:
- Market access (SGX, US, HK, LSE as needed)
- Competitive commissions
- Good execution and research tools. When placing orders, prefer limit orders, check bid/ask spreads, and avoid illiquid periods.
Portfolio Playbooks: Pick the Path That Fits You
Playbook 1: Set-and-Forget (Low Effort)
- Who it’s for: New or busy investors who want market returns with minimal upkeep.
- What to hold: 80–90% in a broad global equity ETF plus a global/SGD bond ETF; the rest in cash for DCA and emergencies.
- How to run it: Automate monthly DCA, review once a quarter, rebalance yearly back to target weights.
- Why it works: Built-in diversification, low cost, and fewer decisions. Optionally add an SGX dividend ETF if you want local income.
Playbook 2: Core-and-Conviction (Moderate Effort)
- Who it’s for: Investors seeking market-level growth plus selective upside.
- What to hold: ~70% low-cost core ETFs (global equity + bonds), ~30% “satellites” (e.g., STI dividend names, 2–4 US growth stocks, or a sector/factor ETF).
- How to run it: DCA into the core; add satellites on a preset schedule or valuation triggers; rebalance semi-annually.
- Risk guardrails: Cap any single stock at 3–5% of the total portfolio; keep sector tilts < 20% each to avoid concentration.
- Why it works: The core stabilises outcomes; satellites express your views without letting one bet dominate risk.
Playbook 3: Research-Driven (Higher Effort & Risk)
- Who it’s for: Confident stock pickers willing to put in time and accept volatility.
- What to hold: 50–60% ETF core for resilience; 40–50% in 8–15 individual stocks across sectors/regions.
- How to run it: Maintain a written thesis per stock, define entry/exit rules (fundamental or technical), and review monthly.
- Risk guardrails: Max 5% per position at cost, <25% per sector, set stop-loss or downgrade rules before you buy.
- Why it works: You still anchor to the market while giving yourself room to pursue alpha.
Quick Comparison
| Profile | Effort | Typical Mix | Rebalance | Risk Guardrails | Best For |
| 1. Set-and-Forget | Low | 80–90% core ETFs, 10–20% cash/bonds | Yearly | None beyond target weights | Simplicity, long-term compounding |
| 2. Core-and-Conviction | Medium | ~70% core ETFs, ~30% satellites (stocks/thematic ETFs) | Semi-annual | 3–5% max per stock; <20% per sector | Balanced growth with controlled tilts |
| 3. Research-Driven | High | 50–60% core ETFs, 40–50% 8–15 stocks | Monthly/quarterly | 5% max per stock; <25% per sector; pre-set exits | Experienced stock pickers seeking alpha |
Quick Takeaways
- ETFs = diversification + lower volatility; stocks = concentration + higher upside/risk.
- Costs matter: expense ratios, spreads, and potential withholding taxes all add up.
- It’s hard to beat the market consistently (SPIVA data), so many investors start with an ETF core.
- Use limit orders and mind liquidity—especially for smaller ETFs or off-hours trading.
- Leveraged/inverse ETFs are trading tools, not long-term holdings for most people.
- A core-satellite approach blends reliability with room for conviction, fitting many Singapore investors
Conclusion
Choosing ETF vs stock isn’t a binary choice. For most Singapore investors, a low-cost ETF core is a strong foundation: you gain broad exposure, reduce single-company risk, and free up time. If you enjoy research and accept higher volatility, add stock satellites to tilt toward your convictions. Keep costs and taxes in view (expense ratios, spreads, withholding taxes), use limit orders, and automate DCA to stay consistent. From here, shortlist 1–2 broad ETFs that match your goal (global equity, SGD bond) and 2–4 stocks you truly understand. Build the core first, then add satellites thoughtfully. That’s how you turn “ETF vs stock” from a question into a repeatable investing system.
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Frequently Asked Questions (FAQs)
1) Is an ETF safer than a stock?
Generally yes, due to diversification, but ETFs still carry market risk and can fall in broad sell-offs.
2) What is an ETF expense ratio, and why does it matter?
It’s the fund’s annual operating cost. Lower fees and small tracking differences help you keep more returns over time.
3) Do I need a CDP account to buy ETFs?
For SGX-listed securities, holdings may be kept in CDP under your name or with a broker custodian. Overseas markets (e.g., US) are typically held via custodians.
4) How does US dividend withholding tax affect me?
US-listed ETFs/stocks typically face 30% WHT for non-US investors. Many Ireland-domiciled UCITS ETFs reduce this to 15% at the fund level via the US-Ireland treaty.
5) Are leveraged ETFs suitable for long-term investing?
They aim to magnify or invert daily moves; over longer horizons, compounding can cause drift. Most long-term investors avoid using them as core holdings.
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