What is an ETF?
An ETF, or exchange-traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange.
For example, the STI ETF as seen in the illustration below tracks the top 30 companies in Singapore which consist of familiar names like DBS, OCBC, SingTel etc.
However, as heavily debated in the SG Personal Finance Community, one would admit that just betting your life’s investments in the Singapore growth story would be myopic and undiversified. Hence, we shall look at other markets ETF. For example, in the USA, the S&P500 tracks the growth of 506 of the US top performing companies across industries like IT, Finance and Entertainment. You can refer more to the importance of overseas market diversification where we discuss this in detail.