Regardless of investment style, we as investors share a common goal of growing our wealth over time.
For income-seeking investors, the Singapore stock market is an attractive option, with its broad offering of real estate investment trusts (REITs) and blue chips that provide consistent and high dividends.
However, for investors seeking capital growth, the US market may be better suited as it presents far more exciting opportunities.
Higher capital growth potential
While the US has the dubious honour of having the most number of COVID-19 infections in the world, its leadership in the financial markets stands firm.
Two of the largest stock exchanges in the world, the New York Stock Exchange (NYSE) and Nasdaq, are located in the US.
They are also home to some of the world’s most valuable and successful companies such as Amazon.com (NASDAQ: AMZN), Alphabet Inc. (NASDAQ: GOOG), Apple Inc. (NASDAQ: AAPL) and Microsoft Corporation (NASDAQ: MSFT).
Many of these companies have delivered outstanding stock market returns for investors and continue to demonstrate strong growth prospects despite the current economic climate.
For example, Amazon’s shares are up 55% over the past one year while Apple’s shares are up 90% over the same period.
Meanwhile, over the past five years, the S&P 500 has risen by 48% (excluding dividends) while the Straits Times Index (STI) has actually declined by 18%.
In other words, if you had invested $10,000 in the S&P 500 five years ago, your capital would have grown to $14,800 today. The same amount invested in the STI however, would have shrunk to $8,200.
The higher return enjoyed by the S&P 500 is a reflection of the dynamism of its companies, many of which are global market leaders that are able to adapt and thrive through various economic cycles.
Grow alongside the top technology companies in the world
The US is also home to many of the world’s most innovative and fastest-growing technology companies.
For investors, these companies offer a way to tap into the key trends that can help you generate outsized returns.
For example, in software and cloud-computing, companies such as Adobe Inc. (NASDAQ: ADBE) recorded a more than a five-fold increase in share price from US$80.75 to US$457.68 over the past five years, for a compound annual growth rate (CAGR) of 41.5%.
In e-commerce, companies like MercadoLibre Inc. (NASDAQ: MELI), the largest online marketplace in Latin America, has seen a more than a seven-fold surge in share price from US$137.52 to US$1,015 over the same period, for a CAGR of 49%.
In the same space, Shopify Inc. (NYSE: SHOP), an e-commerce platform provider that helps businesses grow their online operations, has seen its share price soar from US$31.31 to US$1,017.30, for a CAGR of 100%.
Ultimately, technology companies possess immense growth potential as they benefit from long-term secular growth trends. The key to enjoying such immense gains is to find the ones that trade at reasonable valuations vis-a-vis their growth prospects.
A winning formula
Diversification is crucial to positioning an investment portfolio for long-term success. Traditional ways to create a diversified portfolio include increasing portfolio exposure to different countries or industry sectors.
An approach that has performed well in times of crisis is called the “barbell approach” where a portfolio is concentrated in two parts – income assets and growth assets.
To illustrate, Singapore REITs can be used as income stocks given their relatively high dividend-yield and favourable tax conditions (dividends are not taxed for Singapore stocks unlike in the US where the tax rate is 30%).
For growth stocks, focus on generating superior returns by targeting global market leaders or fast-growing technology companies with the ability to scale and disrupt the status-quo.
Against the current backdrop of falling interest rates, growth stocks also have the potential to perform better as investors seek assets with higher returns.
Get Smart: Seize the day!
Our goal at The Smart All-Stars Portfolio is to help our members build a portfolio of great growth stocks that can help you achieve your financial goals.
We continue to work hard to seize the right opportunities and uncover a select group of stocks so our members can invest with confidence and success.
Let us be a part of your growth investment journey today!
Disclaimer: Charlotte Lim owns shares in Apple, Alphabet, Amazon, Microsoft, Adobe and Shopify.