SG vs US stocks - Which is better?
The U.S market may have outperformed, but the SG market has its own merits.
Born and bred in Singapore, it’s no surprise that I started my investment journey in the SG stock market.
This is known as the home country bias (or familiarity bias).
Home country bias is like our comfort zone. No one loves leaving their comfort zone.
It’s not until 2 to 3 years into my investing journey that I realised that there’s a better way to deploy my capital: the US stock market.
The SG stock market has often been criticised for its underperformance, and rightly so.
To make a comparison between the stock markets of the 2 countries, we use SPX to represent the US stock market and the STI for the SG stock market.
As at 4 Feb 2024, the US stock market has way outperformed the SG stock market. The SPX gave a total return of 1086% vs just 189% for the STI. That’s almost a 10X return over a 30+ year period.
Looking at these statistics, investing in the US market gives much higher gains, compounding our wealth at a much higher rate than its SG counterpart.
There’s another factor to consider when investing in a stock market outside of your home country: FX risk.
We can see that over the past 25+ years, the USD has weakened against the SGD, from as high as US$1=S$1.6 to just US$1=S$1.34 today.
The strength of the SGD cannot be underestimated when looking to invest outside of SG.
As always, there are pros and cons of investing in each country’s stock market.
Which stock market is better?
Historically, it is unquestionable that the U.S market far outperformed the SG market.
But the SG market has 1 thing going for it, that the U.S market doesn’t.
Dividends.
In SG, dividends are non-taxable. In the U.S, dividends are subject to 30% withholding tax.
If this is not bad enough, SG dividend yields are typically between 4% to 6%. This pales in comparison to U.S dividend yields of typically 3% and below.
What the U.S stock market lacks, it more than makes up for it in its growth.
For the very simple reason: Many of the companies listed in U.S are big, international companies.
In contrast, many companies listed on the SGX are small companies that only has presence in Singapore.
In fact, the components of the STI are more traditional companies, like the 3 SG banks.
It’s much easier to grow when you have a presence internationally, rather than just locally.
What’s your strategy?
Your investing strategy and personal life circumstances will determine which stock market you choose to invest in.
For someone with $1mil, investing in the SG market is not a bad idea.
With $1mil, you’ll probably be more concerned with capital preservation than growing your wealth.
A 5% yield will give you $50,000 a year in dividends.
Enough for someone to live a simple life.
On the other hand, for someone with $100,000, investing in the SG market may not make sense. A 5% yield on $100,000 gives us $5,000 a year in dividends.
Substantial but far from enough to sustain yourself.
The only exception is if the person with $100,000 has an ongoing stream of active income, and is willing to play the long game (decades) to get to 7 figures.
There’s a reason why retirees lean more towards dividends (SG), while younger investors lean more towards growth (SG).
The only thing to note is that there are many more gems to be found in US than in SG.
Conclusion
Personally, I am invested in both markets, for reasons highlighted above.
I want capital growth, but I also want my dividends.
So why not do both?
You can have your cake and eat it too.