Why invest in US stocks from Singapore?

Key takeaways

• By investing in the US stock market, you can share the growth of the world's biggest and most innovative companies.

• Historically, the US market outperforms the Singapore market.  

• You can diversify your portfolio since you are investing outside of Singapore.

Most people would agree investing is important for building wealth over time. Nowadays, investors have plenty of choices when it comes to what they can invest in.

Even if you've decided you want to invest in stocks, another question presents itself: "Should I invest in Singapore or US stocks?"

While there is no right (or wrong) answer to that question, there certainly are pros and cons that Singapore investors should consider when considering whether to invest in US stocks.

Potential Benefits from US Stock Investment

• US markets may present better investment opportunities

The largest, most established companies in the world are usually listed on the US stock market. Even Sea Limited (the parent company of Shopee), one of Singapore's hottest tech names, is listed on the NYSE.

Among the list of top US stocks on the S&P 500 are companies whose products and services we use almost every day, right here in Singapore:

Investing in US stocks allows you to get access to some of the best global companies with substantial growth potential. 

Actually, the market cap of the US stock market is over US$50 trillion, while that of the Singapore stock market is only about US $800 billion. A more intuitive contrast is that the market cap of Berkshire Hathaway, just the 6th largest company in the US market, is worth roughly equivalent to all Singapore-listed companies combined.

In terms of investment returns, the US market also outperforms the Singapore market.

For example, investing in Singapore's benchmark index— the STI index—delivers a total return of 62% from 2009 to 2021— an annual return of 4.8% over the 13 years period. In that same period, the S&P 500 ETF delivers a return of nearly 7 times higher, or 430% in total.

• Global diversification for investment portfolio

The second reason to invest in US stocks is for geographical diversification.

By investing in the US stock market, you have the opportunity to participate in global growth stories.

The companies listed on the US stock market are not only American companies, but also companies from all over the world or multi-national companies with a global presence. What's more, many are big tech companies that aren't even bound by geographical boundaries.

So by investing in US stocks, you're actually investing globally.

As a Singapore resident, our homes, jobs, savings, CPF balances and other investments are naturally exposed to the ups and downs of the Singapore economy. Simply from a diversification perspective, it also makes sense to add some global exposure.

Geographical diversification adds stability and risk tolerance to your portfolio. 

Potential Benefits from Singapore Stock Investment

Warren Buffet advises investors to "never invest in a business you cannot understand". Starting your investing journey locally allows you to invest in the stocks of companies that you are likely to have a better understanding.

What's more, Singapore does not impose capital gains tax, inheritance tax and estate duties. Investors don't have to pay stamp duties when they purchase scripless shares listed on the Singapore Stock Exchange. Also Singapore does not have any tax or withholding on dividends.

The important thing is, when investing locally, we need not worry about risks related to currency exchange.

Fortunately, "investing globally" or "investing locally" is not an either/or question and investors can choose both. So if your portfolio haven't added any US stocks yet, you may consider doing some research on US stocks and grab your share of the world's biggest and most powerful corporate names.