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Is the Vanguard Australian Share ETF a good long-term investment?

Is Vanguard Australian Share ETF (ASX: VAS) one of the best ideas on the ASX for a long-term investment?

I think the average Australian would benefit enormously over the long-term by regularly investing in this exchange-traded fund (ETF) as opposed to doing nothing. I believe the share market is a great way for anyone to benefit from the compound returns and benefits of owning businesses.

ETFs are a wonderful way to invest in shares because it takes a lot of the guesswork out of the equation. It can be very hard knowing what the optimal time to buy shares of a business is. It can also be hard to know whether to hold, sell or buy more if your business hits trouble.

Another benefit of many of the biggest ETFs is that they have very low management fee costs. Unless a fund manager outperforms the market over the long-term it can be difficult to justify their fees. Vanguard is one of the cheapest ETF providers in the world.

The Vanguard Australian Share ETF looks to track the returns of the ASX 300. So, here are some of the benefits of the ETF:

Low management fee costs

This ETF has an annual management fee of 0.14% per annum, which is much cheaper than the typical 1% that many Australian fund managers charge. The lower the fees, the higher net returns that are kept for investors. Returns are uncertain, but fees are certain.


The ETF is (usually) invested in 300 ASX shares, which provides a very good level of diversification compared to owning just a few shares.

I’m sure you recognise many of the ETF’s largest holdings including Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and BHP Group Ltd (ASX: BHP).

Dividend yield

Australia is known for its high level of dividends because of the higher dividend payout ratios of its businesses, which is somewhat due to the influence of franking credits.

At the end of March 2019 it had a dividend yield of 4.3%, which doesn’t include the extra tax bonus of the franking credits.

Satisfactory prior performance

Over the decades, Australia’s share market has generated an average return per annum of around 10% (excluding franking credits). If it achieves this over the next four decades then it will be a solid performer for investors.

When you look at the past three years its return has been an average of 11.25%, so a double digit return is quite possible over the longer-term, but nothing is guaranteed.

Foolish takeaway

But, I don’t think it’s all plain sailing from here. Most of the biggest businesses in this ETF, particularly banks, face harder times in the short-term with Australia getting closer to a possible recession. I also don’t like that around a quarter of the ETF is invested in just the big four ASX banks – it somewhat defeats the idea of diversification.

I would rather invest in Vanguard MSCI Index International Shares ETF (ASX: VGS) for the global diversification if I were going to pick an ETF.

Even better, these top ASX shares look both cheap and quality in my opinion, I’d prefer them to the ASX index right now.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. 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.

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