One of the most commonly held investments these days for Aussie investors is Vanguard Australian Share ETF (ASX:VAS). I believe there are several reasons why you should consider it for your portfolio:
Investing in an index fund gives you exposure to a wide variety of shares with just one investment. Exchange-traded funds (ETFs) are simply a way of getting access to that index fund through the stock exchange, not through the provider.
This Vanguard ETF invests in the ASX 300, meaning you get exposure to 300 different businesses. You get a decent level of diversification with shares like Macquarie Group Ltd (ASX: MQG), CSL Limited (ASX: CSL) and Amcor Limited (ASX: AMC).
Vanguard is a world leader in providing low-cost ETFs, indeed it’s essentially a not-for-profit business.
The Vanguard Australian Share ETF only has an annual management fee cost of 0.14% per annum – this is very cheap compared to the typical 1% fee charged by my investment managers.
Lower fees for you mean higher net returns. A lot of investors fail to beat the market, so if you can achieve the market average for a low cost then you may be beating a good portion of investors.
Not only will you be achieving the average market return but you don’t have to put much time into it. Properly analysing shares takes quite a long time. With ETFs you don’t need to spend time reading company reports or worrying if you should buy or sell particular shares.
Investing in an ETF means you aren’t heavily exposed to a single share if it falls heavily. Although it also means you don’t get as much benefit from a share that grows strongly.
The Australian share market is known for paying out a high level of dividends. According to Vanguard the ETF had a yield of 4.1% before franking credits based on its September 2018 figures.
This yield is far more attractive than what you can get at the bank with interest.
Australia’s share market is weighted towards resource shares like BHP Billiton Limited (ASX: BHP) and banks like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC). This isn’t necessarily a truly bad thing, but their earnings can be cyclical and the index could be more diverse if it wasn’t weighted so much to the banks.
The banks may face troubles in the next few years due to findings in the Royal Commission, which could hurt the index’s total returns in the short-term.
Anyone wanting to get exposure to the Australian share market would do decently with this ETF. Over time other faster-growing businesses will become bigger constituents and that should boost the index’s growth profile.
However, a number of individual shares are likely to generate stronger returns than this ETF over the short-to-medium-term such as this reliable business which is now expanding into China.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.