How to invest in stocks in Singapore: a beginner’s guide grounded in evidence

Most people assume that picking the right stocks is what makes investors successful. Decades of real-world data suggest the opposite. In a landmark study of roughly 66,000 US brokerage accounts, the investors who traded most actively earned annual returns about 6.5 percentage points below the market — mainly because “activity” in and of itself is costly (past performance is not necessarily a guide to future performance or returns.)

This guide takes a clear position: for a beginner, the decisions that matter most are not related to stock selection. How you access the market, how much you pay to hold your investments, how widely you diversify, and how you behave in a downturn are likely to shape your returns far more than any single company you buy. 

The sections below set out what the evidence says about individual-stock investing, how to buy shares in Singapore and what it actually costs, how to build genuinely diversified exposure beyond the local index, and why the biggest risk a new investor faces is usually their own behaviour.

What the evidence says about picking individual stocks

The appeal of buying individual shares is obvious: direct ownership, potential upside from a name we “like,” reflection of individual conviction. The problem is that stock-market returns are far more concentrated than most beginners expect. In a study covering every US-listed stock since 1926, finance professor Hendrik Bessembinder found that just five companies accounted for a tenth of all the net wealth the market created, and the best-performing 4% of firms accounted for the entire net gain above one-month Treasury bills. The majority of individual stocks — 57.4% — returned less than those Treasury bills over their lifetimes. Of course, the corollary is - nobody knows which ones they are beforehand. 

The implication is uncomfortable for stock-pickers. If a small handful of companies - and it is hard to predict which ones - drive almost all of the market’s return, a concentrated portfolio is statistically more likely to miss them than to catch them. Diversification may be the mathematically rational response to how skewed stock returns are.

Professional investors attempting to “predict” winners and losers do not fare much better. According to the SPIVA U.S. Scorecard from S&P Dow Jones Indices, 79% of actively managed US large-cap funds underperformed the S&P 500 in the year to end-2025, and the shortfall widens over longer horizons. 

If most full-time managers, with research teams and data terminals, cannot reliably beat a simple index, the odds facing a beginner selecting a few names are worse still. This does not mean individual stocks have no place — it means they are better suited for a “satellite” allocation, occasionally expressing high conviction in a specific name or sector (past performance is not necessarily a guide to future performance or returns.)

How to buy shares in Singapore — and what it actually costs

To trade shares on the Singapore Exchange (SGX) you have two routes. The first is a Central Depository (CDP) account, which holds shares in your own name, linked to a broker’s trading account, so dividends and shareholder notices reach you directly. The second, used by most low-cost online brokers, is a custodian account, where the broker holds the shares as nominee and you are the beneficial owner. Custodian accounts are cheaper and faster to open; the trade-off is that corporate actions pass through the broker.

Costs fall into three layers. Trading costs - a one-off - include a broker commission (a minimum, typically between S$10 and S$25) plus SGX’s clearing fee of 0.0325% and access fee of 0.0075%, and GST. Singapore levies no stamp duty on SGX-listed shares, which is unusual among major markets.

The other two are recurring ones - and they matter more for overall returns. The larger cost is the annual fee you pay to hold a fund, or management fee. If you invest through a platform, a platform or advisory fee is charged on top of that. Both are deducted annually. To illustrate the mechanics — not a return forecast — a S$100,000 investment compounding at a hypothetical 6% a year for 20 years grows to about S$303,000 at a 0.30% annual fee, but only about S$251,000 at a 1.30% fee. That is roughly S$52,000, or 17% of the final balance, lost to costs alone.

What is diversification, and why buying one local index fund does not necessarily lead to a diversified portfolio

Buying a Straits Times Index (STI) ETF is often a beginner’s first move — but it is worth understanding what you are actually buying. The STI is highly concentrated: DBS alone accounts for roughly 25% of the index by weight, and Singapore’s three banks — DBS, OCBC, and UOB — together make up more than half of it. A local index fund therefore gives you outsized exposure to the financials sector. 

Genuine diversification means spreading exposure across regions and sectors. A global equity fund — tracking an index such as MSCI World — holds hundreds of companies across different geographies, and may be suited to complement a domestic allocation. Currency is part of the picture too. In 2025 the S&P 500 returned about 17.9% in US dollar terms, but a weaker dollar eroded part of that for Singapore investors converting back to SGD, whereas the STI delivered about 28.8% with no currency translation. Home-market exposure has its place; the point is to hold it deliberately, not by default. (Past performance is not necessarily a guide to future performance or returns.)

For beginners, two types of vehicles make broad exposure accessible. Exchange-traded funds (ETFs) trade like a single share but hold a basket, usually tracking an index at low cost. Unit trusts — often called mutual funds — pool investors’ money into a managed portfolio priced at net asset value (NAV); passive versions tend to be less expensive, while active ones typically charge more for the attempt to beat the market. 

Regular savings plans help investors with more disciplined allocations, by investing a fixed sum automatically, applying dollar-cost averaging (DCA), which buys more units when prices are low and fewer when they are high. However, DCA does not assure a profit, and it does not protect against loss in a falling market. 

What is the largest drag on returns, and why investors need to be aware of their own behavioural biases

The largest and most consistent drag on individual investors’ returns is not stock selection — it is behaviour, and the pattern repeats across decades of data. Investors are roughly 50% more likely to sell a stock that has risen than one that has fallen by the same amount, crystallising gains and nursing losses; behavioural economists call this the disposition effect. They buy the stocks that dominate the headlines, and those attention-driven purchases tend to underperform the ones nobody is discussing. And losses hurt: research consistently finds the pain of a loss is felt about twice as intensely as the pleasure of an equivalent gain, which is why so many investors sell into a sell-off and lock in the damage.

Concentration compounds the problem. Familiarity feels like safety but is often the opposite — Enron’s employees held around 62% of their retirement assets in company stock when it collapsed, losing their jobs and their savings at once. The lesson is not to fear the market but to design around your own psychology: automate contributions, diversify by default, and make selling a deliberate decision rather than an emotional reflex. A diversified, automated, low-cost portfolio is likely to reduce the moments where behavioural biases can push you to take the wrong investment decisions. Before committing capital, it is also worth confirming that any platform you use is properly regulated. 

Investment implications

Investors in Singapore should aim to get a diversified exposure to a potentially cost-attractive core, funded through regular, automated contributions, while reserving individual stocks for a small satellite sleeve once you understand the risks.

In our view, the hardest part of investing is not building the portfolio but refraining from repeated trading triggered by behavioral biases, which typically leads to higher cost. That, in turn, increases the odds of underperformance. A simple, automated, diversified plan is far easier to hold through a downturn than a collection of individual convictions that each demand a decision.

On one hand, individual stock-picking offers control, engagement, and the possibility of outsized gains, and a minority of investors will do well at it. On the other hand, the weight of evidence — from Bessembinder’s skew, to SPIVA’s scorecards — is that most beginners achieve better long-run outcomes by starting broad, cheap, and with an automated periodic allocation, then potentially adding complexity only as their knowledge grows, and as satellite allocations. 

A fee-only platform such as Endowus — which charges a transparent advisory fee and rebates the trailer commissions it receives from funds — is one way to keep those costs visible while accessing diversified opportunities. 

Frequently asked questions

How much money do I need to start investing in stocks in Singapore?

You can begin with a regular savings plan from around S$100 a month. Starting small and contributing regularly tends to matter more than the size of your first investment.

Do I need a CDP account, or can I just use an online broker?

Both work. A CDP account holds SGX-listed shares in your own name and suits investors who want direct ownership; online custodian accounts are usually cheaper but hold shares under the broker’s nominee. Many investors use a custodian account for cost and reserve CDP for long-term local holdings.

Should a beginner buy individual stocks or funds?

The evidence favours starting with diversified, low-cost funds. Individual stocks concentrate risk, and most have historically underperformed a broad index over time. A small allocation to single stocks can be added once the core portfolio is in place. All investments carry risk, and past performance is not necessarily a guide to future performance or returns.

Is the Straits Times Index a diversified investment?

The STI is concentrated in a few large companies — Singapore’s three banks alone exceed half its weight — so it is best combined with global exposure rather than held as a sole equity investment.

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