• Stocks allow you to own a small portion of a company, while bonds are a loan to a company or government.  

• You can avoid stock picking and spread out your risk with exchange traded funds or unit trusts. Exchange traded funds tend to be lower cost and passively managed, while unit trusts usually incur higher costs and are actively managed by fund managers.  

• Real Estate Investment Trusts are funds that invest in property with the aim of generating income. 

Investing for the first time can take us back in time. That’s because the whole investing journey itself could easily be compared to learning how to crawl when we were a baby and then, eventually, walk. 

Once we had the walking down, we knew what we were doing. It’s similar in investing. Getting the basics right might seem hard at first. 

But if we keep at the basics of investing, and get to grips with it, then we’re in a great position to make informed decisions with where we’re putting our money – when we want to grow it. 

So, to help investors just starting out, we’ve put together a quick guide of what we should know about all the major investment offerings out there before we start our wealth-building journey.  

Let’s start with the basic building blocks of stocks and bonds, before covering the common tools to carry our investment strategies: exchange traded funds, unit trusts and real estate investment trusts.  

What are Stocks? 

Stocks are also known as “equities” and are basically all the big listed companies you see on an everyday basis that trade on stock exchanges around the world. 

These can include the likes of DBS or Singtel here in Singapore, or Apple, Microsoft, and Tesla in the US.  

There are tens of thousands of stocks listed all over the world but world’s biggest stock exchanges (by market value) are located in the US. 

When you buy a stock, you can make money in two ways; price appreciation or dividends. With the former, you obviously want the stock you own to rise in value over time. Thinking about the latter, dividends can be paid by companies to shareholders. 

This is a return of excess profits, that the company sees no other use for, to its shareholders. Dividends tend to come from more mature businesses. 

Owning individual stocks can be very risky, though, as your money is tied to the fortunes of just one company and its business. 

If the stock price falls dramatically and never recovers, it can lead to a permanent loss of your capital. As an asset class, though, stocks offer much higher returns over the long term than other assets like bonds, gold or cash.  

What are Bonds? 

So what about Bonds? Bonds are also known as “fixed income” and, given the moniker, it’s unsurprising to know that they pay investors a set amount of income every year. 

This payment is called a “coupon” but buying individual bonds can be very difficult given how illiquid the bond market is (they don’t trade on an exchange) and how high minimum investments can be (sometimes as high as $250,000)!  

That’s just one reason why bond ETFs have become so popular as they have democratised the asset class for individual investors (more on that later). 

Overall, bonds tend to be much less volatile than stocks and bond prices typically go up when interest rates fall. As a result, when a bond’s price goes up, its yield will fall. 

The conventional wisdom in investing suggests having a diversified exposure across both stocks and bonds as, historically, they’ve had a broadly negative correlation. 

So, when stock markets crash, bonds are generally thought to outperform stocks and provide some protection for your portfolio. 

What are ETFs? 

Exchange-traded funds are one of the most popular investment products out there, for both beginners and experienced investors. But why is that? 

First, we should establish what they actually are. An ETF is a basket of securities that is “wrapped” into a single product that is then listed on a stock exchange – hence the name.  

With a listing on an exchange, the ETF can be traded every second during the exchange’s trading hours. 

The great thing about ETFs is that you can access nearly any investment asset through it, whether that be stocks, bonds, gold or commodities. 

Obviously, the most popular ETFs are those focused on stocks as this asset class offers the longest long-term potential for growth. 

By having hundreds, if not thousands, of stocks in just one ETF, you can get diversified access to global stock markets.  

These ETFs tend to be “passive” in that they track all the holdings that make up these large global indices, like the S&P 500 Index or the MSCI World Index.  

The second benefit of ETFs is that they are generally very low-cost in terms of their fees. This allows investors to keep more of those returns for ourselves. 

Growth of global ETFs’ assets under management (AUM), 2006-2023 (US$ billions) 

Source: ETFGI 

Their popularity can be seen from the chart above, as ETFs globally had only around US$600 billion in assets under management (AUM) back in 2006. 

However that amount exploded and sat at over US$11.6 trillion by the end of 2023.  

What are Unit Trusts? 

Unit Trusts (UTs) are also known as mutual funds. How UTs differ from ETFs is that they are run by professional teams of investment managers and analysts.  

By “actively” picking which investments to make, they are trying to “beat the market return” on a regular basis for those of us who invest with them. 

The UT structure has been a big feature of the investment landscape in Singapore for decades. While ETFs can be low cost and provide investors with access to difficult-to-buy markets, the costs of UTs are generally higher. 

For example, there tends to be a litany of charges when buying or selling, ranging from a sales charge or trustee fee through to a switching fee or redemption fee. 

All this makes UTs’ total expense ratio (TER) – or the percentage amount you pay every year to be invested in them – relatively high versus ETFs.  

Given the structure of a UT, its price is set only once per day (at the end of the day) and, as a result, pricing for investors who buy or sell isn’t transparent. 

What are REITs? 

Real estate investment trusts (REITs) are a great way for investors to get investment exposure to real estate without having to buy a whole property. Singapore is a big REIT hub in Asia, with many REITs listed on the Singapore Exchange (SGX). 

By delegating the managing and operating of these properties, investors in REITs can still collect the overall rental income of a portfolio of properties via the distributions (or dividends) that these REITs pay out. 

There tend to be big “sponsors” – or parent companies – like Mapletree, CapitaLand, or Frasers Property, that can provide these REITs with a pipeline of properties that they can acquire. 

Investors in REITs can decide to invest into REIT ETFs or own individual REITs across different property segments, like commercial, retail, logistics, and data centres. 

It should be noted, though, that REITs rely on taking on debt to grow their portfolios and, therefore, distributions to their unitholders. 

Therefore, REITs tend to benefit when borrowing costs (i.e. interest rates) are low and could potentially face some headwinds if borrowing costs are high. 

Understanding what’s out there in the investing world 

Beginning our investing journey can be quite daunting but it helps to equip ourselves with the requisite knowledge among all asset classes. 

By having this, we can hopefully decide what is the right “mix” for us when we start investing and as we age, too.  

That’s because what we invest in when we’re 20 years old will look very different to what we invest in when we’re 60 years of age. 

Fully grasping the basic elements of Stocks, Bonds, ETFs, Unit Trusts and REITs can provide us with a strong base which we can build on. Happy investing!