Beginner investors always hear from more experienced ones to choose between investing in individual stocks or Exchange-Traded Funds (ETFs).
They are told to focus on one type rather than spreading their time across both as a beginner.
However, many successful investors invest in both, and let us tell you why.
Why ETFs and Stocks Complement Each Other
ETFs track specific market sectors, including market indices, industry sectors, or specific themes.
Investors gain exposure to hundreds of stocks or commodities in a single ETF trade, spreading out risk and reducing reliance on any single company.
On the other hand, Singapore stocks allow investors to focus on specific high-quality businesses that offer the potential for higher returns.
Investors can put together a portfolio of dividend-paying companies tailored to their exact needs.
The Role of ETFs in a Portfolio
As each ETF consists of numerous holdings, there is instant diversification.
It can serve as a stable foundation of an investor’s portfolio.
Broad market ETFs also provide exposure to a wide range of companies.
Singaporean investors can easily access global markets and industries with investments in ETFs like SPDR S&P 500 ETF Trust (ARCA: SPY).
There is a lower burden on research when it comes to ETFs – you don’t need to deep dive into individual companies to stock-pick as an ETF features holdings pre-determined by the fund managers.
Singapore-focused ETFs like SPDR Straits Times Index ETF (SGX: ES3) are designed to track the performance of the Straits Times Index (STI).
For a more global approach, consider S&P 500 ETFs like iShares Core S&P 500 ETF (NYSEArca: IVV), which is one of the world’s largest ETFs.
Alternatively, global diversified ETFs like Vanguard Total World Stock ETF (ARCA: VT) hold nearly 10,000 different companies in the fund.
The Role of Singapore Stocks in a Portfolio
Investors can tailor a portfolio of reliable dividend-paying companies to your income needs.
Reliable local banks like DBS Group (SGX: D05) with a 4.2% dividend yield, and OCBC (SGX: O39) at 4% yield, can provide stable recurring income streams.
Investors may better understand local economic trends and the business of these local companies.
This familiarity can bring peace of mind for investors, especially those new in the scene.
Rather than broadly diversifying, investors can concentrate capital into a smaller group of assets that they believe in.
This concentrated approach targets higher returns, but also inherently carries higher volatility.
A Simple “Core and Satellite” Portfolio Strategy
The core-and-satellite portfolio strategy integrates the stability of ETFs with the growth potential of Singapore stocks
Core Portfolio (ETFs): Anchor your core investment in broadly diversified ETFs for stability. The goal here is steady, long-term wealth generation that mirrors the overall market.
Satellite Portfolio (Singapore Stocks): A smaller portion is allocated to carefully selected blue-chip and dividend stocks to target higher return potential. This adds steady recurring income and opportunities for investors to put capital into companies they personally believe in.
The core is your portfolio’s foundation, focusing on broad market diversification to minimise overall volatility.
It can make up 70% to 80% of your portfolio, needing minimal active management, for long-term wealth appreciation.
Satellites will make up the remaining 20% to 30% of your portfolio.
They allow you to personalise your portfolio to chase higher potential returns with higher risks.
For instance, as Southeast Asia’s biggest bank, DBS provides a plethora of banking and wealth management services.
Since 2001, the bank has been consistent in growing its payouts. For 1Q2026, DBS declared a dividend of S$0.81, of which S$0.66 was an ordinary dividend and S$0.15 in capital return, bringing its annualised total dividend to S$3.24.
Another blue-chip stock that Singapore investors can consider is Singapore Technologies Engineering (SGX: S63), the global defence and aerospace powerhouse.
STE reported S$3.3 billion in revenue for 1Q2026, an 11% year-on-year (YoY) growth.
It paid a total dividend of S$0.23 per share for FY2025, including a special dividend of S$0.05. For 1Q2026, the group declared an interim dividend of S$0.04.
Real estate investment trusts (REITs) are also popular amongst local investors.
As the largest Singapore REIT (S-REIT), CapitaLand Integrated Commercial Trust (SGX: C38U), or CICT, owns a diversified pool of retail and office buildings, including Plaza Singapura and CapitaSpring, providing strong, recurring rental income.
For FY2025, CICT’s distribution per unit (DPU) was S$0.1158, up 6.4% YoY compared to FY2024’s S$0.1088.
Why Diversification Matters
Different investments perform differently during different market and economic cycles.
ETFs help investors spread investments across a range of holdings, reducing concentration risk.
Combining investments across different sectors and countries helps improve portfolio resilience, as economic conditions differ between sectors and countries.
Common Mistakes Investors Make
Owning Too Many Similar ETFs: Investors buy multiple ETFs thinking they are diversifying, but many funds hold similar underlying stocks, which would then increase concentration risk.
Overconcentration in Local Stocks: Due to familiarity, rookie investors might overinvest in Singapore-related stocks, especially in local banks.
Ignoring Portfolio Purpose: Every investment should serve a role within the portfolio. Without a defined objective, you may take on unnecessary risk or panic during market volatility.
How Investors Can Adjust Over Time
Younger investors may lean more towards growth ETFs to build long-term wealth with the power of compounding.
Income-focused investors can gradually increase their dividend stock holdings, building a reliable income stream.
Your portfolio allocation should not be stagnant and needs to evolve according to your investment goals and life stages.
Get Smart: ETFs + Stocks = Best Of Both Worlds
ETFs and Singapore stocks are not competing for space in your portfolio.
They can work hand-in-hand to bring you both capital appreciation and dividend stability.
ETFs bring diversification and stability while individual stocks add income and potentially higher returns.
The smartest investors combine different types of investment to complement each other over the long term for wealth accumulation.
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Disclosure: Wenting A. does not own any of the stocks mentioned.
