Why ETFs Should Be at the Heart of Your Portfolio in 2025
Exchange-Traded Funds (ETFs) have transformed the way retail investors access diversified portfolios. In Asia, ETF assets under management surpassed US$1.25 trillion in April 2025. This is a 8.4% gain year-to-date which highlights their explosive adoption.Locally, the STI Index delivered a 22.5% return over the past year, while REIT ETFs yielded nearly 6% in tax-advantaged distributions. Despite these attractive outcomes, only 28% of Singaporeans hold market-linked securities beyond mandatory schemes—an opportunity gap this playbook aims to bridge.
Anchored by Singapore’s core ETFs (ES3, CLR, MBH) and complemented by global staples such as VOO (S&P 500) and tactical growth tools like TQQQ (3× Nasdaq), this tiered guide tailors strategies for every experience level.
Source: https://etfgi.com/news/press-releases/2023/12/etfgi-reports-assets-invested-global-etfs-industry-reached-new
Part 1: Beginner Investors – Laying the Foundation
Core Philosophy: “Start small. Stay consistent. Let compounding work.”
Many new investors struggle with time constraints and emotionally driven decisions. A mechanical, rules-based approach eliminates guesswork while harnessing the power of consistent investing. New investors should establish and adhere to a predetermined strategy, with automation through Regular Savings Plans (RSPs) being the most effective solution to prevent emotionally-driven deviations.
By maintaining a disciplined approach to their pre-selected portfolio, investors can avoid the need for frequent monitoring. Clear benchmarks should trigger portfolio reviews only when necessary, though scheduled rebalancing can alternatively occur at fixed quarterly, semi-annual, or annual intervals.
1. Automation Is Your Ally
- Emotional Risk: Trying to “time the market” often leads to buying high and selling low
- Dollar-Cost Averaging (DCA): Investing fixed sums monthly smooths purchase prices over different market cycles
2. Suggested Core ETF Portfolio
Singapore Anchors (80%)
- ES3 (STI ETF): Tracks 30 top local companies (DBS, SingTel) with a 4.4% yield and 7.2% annualized returns since 2002.
- CLR (Lion-Phillip S-REIT ETF): Holds Grade-A commercial and logistics properties, offering ~5.9% post-tax distributions.
- MBH (Nikko AM SGD IG Bond ETF): Invests in AA-rated corporate bonds (Temasek, UOB) with a 4.7-year duration to cushion equity dips.
Global Diversifier (20%)
- VOO (Vanguard S&P 500 ETF): Low fee (0.03%), gives exposure to U.S. large-caps, and has outperformed the STI by nearly 50% over five years.
3. Automate with Regular Savings Plans (RSPs)
- Mechanics: Allocate S$500/month (e.g., S$200 ES3, S$125 CLR, S$75 MBH, S$100 VOO).
- Benefits: – DCA smooths volatility.
4. Annual Portfolio Check-Up
- Rebalance: If ES3 grows to 55% of your portfolio, redirect new contributions into underweight ETFs instead of selling—reducing transaction costs.
- Dividend Reinvestment: Enable auto-reinvestment to compound returns alongside new contributions.
Part 2: Intermediate Investors – Selective Diversification
Core Philosophy: “Diversify with intention, not by happenstance.”
This approach suits investors with portfolios exceeding S$20,000 and three to eight years of experience, who seek purpose-built allocations to enhance returns while actively managing risk. Those who began with Singapore-focused blue-chips or domestic ETFs should now explore global ETFs to mitigate home-market and sector concentration.
Building upon the core portfolio, sector-specific ETFs enable targeted exposure to capitalise on thematic opportunities and asset rotation. Given increased volatility, closer performance monitoring becomes essential, with more frequent rebalancing required to correct over- or under-weighting from thematic positions
1. Bridging Home Bias
Singapore’s STI is ~45% banks. Adding IWDA (iShares MSCI World) spreads risk across 1,600+ global companies in tech, healthcare, and consumer staples.
2. Capturing Thematic Growth
- SOXX (Semiconductor ETF)
- – Purpose: Underlying chips power AI, data centers, and 5G.
- CSPX (Ireland Domiciled S&P 500)
- – Purpose: U.S. large-cap exposure with 15% dividend withholding tax compare to 30% from SPY/VOO.
3. Sector Rotation and Timing
When rate cuts loom, REITs like CLR typically rally as borrowing costs fall. Conversely, in rising-rate environments, shifting capital into shorter-duration bond ETFs (e.g., IBND) helps preserve principal.
4. The 5/25 Rebalancing Rule
- Rebalance if any core ETF category drifts more than 5% off its target allocation.
- Rebalance if a single holding exceeds 25% of your total portfolio.
- Cost-efficient hackUse new contributions to buy underweight ETFs rather than selling winners.
Model Intermediate Portfolio
- Singapore Core (50%): ES3 + CLR
- U.S. Growth (25%): VOO + SOXX
- Global Bonds (15%): MBH + IBND
- Emerging Markets (10%): EEMA (ASEAN/India focus)
Part 3: Advanced Investors – Tactical Alpha Generation
Core Philosophy: “Innovate boldly, but anchor firmly.”
Seasoned investors with portfolios surpassing S$100,000 and over eight years of experience can now dedicate their allocations to high-conviction strategies while maintaining a stable core.
Leveraged or inverse ETFs enable amplified market exposure or strategic hedging with limited capital, including potential bear-market opportunities – though full comprehension of associated risks is imperative.
To optimise efficiency, utilise tax-advantaged instruments (like Irish-domiciled ETFs) and dynamically adjust bond duration exposure based on yield curve forecasts.
1. Leveraged & Inverse ETFs
- TQQQ (3× Nasdaq-100): Triples daily index moves—great in a clear uptrend, perilous if markets wobble.
- Rules of Engagement:
- Limit exposure to 5%
- Set a 15% trailing stop-loss
- Hold only during sustained trends (e.g., a tech-led bull run)
2. Yield Curve Arbitrage
- Concept: When short-term yields exceed long-term yields (inversion), buy short-dated government bonds (A35) and short long-duration corporate bonds (MBH).
- Outcome: Historically, such strategies captured 7–9% in returns for investments in inverted cycles when central banks decide to pivot.
3. Tax-Efficiency Structuring
- Ireland-Domiciled ETFs (CSPX) incur a 15% U.S. withholding tax versus 30% on U.S.-domiciled funds.
- SRS Accounts: Allow investors to grow their investment portfolio while reducing individual taxable income.
Part 4: The Tiered Evolution Framework
Key Insight: Treat your portfolio as a symphony—core ETFs set the rhythm while tactical and thematic instruments add dynamic solos.
Part 5: Conclusion & Evergreen Principles
- Stability First: Maintain at least 50% in Singapore’s core ETFs (ES3, CLR, MBH) for resilience.
- Purposeful Diversification: Expand into global equities, themes, and hedged funds only after securing your base.
- Discipline Over Emotion: Rebalance on schedule; reinvest dividends automatically to compound returns.
- Size with Prudence: Let risk tolerance—not FOMO—dictate position sizes, especially for leveraged instruments.
“Investment success is built one disciplined step at a time.”
Part 6: Quick Reference – Action Items by Stage
Coming Up Next: Our follow-up article, we will look at how to form a more diversified portfolio blending Singapore and global ETFs, as well as how to reduce potential dividend withholding tax on foreign ETFs.
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