Is Vanguard Australian Share ETF (ASX: VAS) the best way to invest in ASX shares?
There are plenty of ways to invest in ASX shares including other exchange-traded funds (ETFs), listed investment companies (LICs) and trusts (LITs) as well as just picking the shares yourself.
The Vanguard Australian Share ETF could be the best way to invest because of a few different reasons:
Passive
It can be overwhelming trying to decide what to invest in and when to invest. Investing in the ETF can take out a lot of the guesswork and you can achieve the average market returns without giving it any thought.
Studies have shown that the less activity you do with your portfolio the better. Brokerage and tax are two costs that can happen every time you make an investment change, so it's best to avoid them.
Low fees
Vanguard ETFs are known to be some of the lowest-costing ETFs in the world because Vanguard isn't trying to make a profit from us, investors are the owners of Vanguard. It passes through profit to us in the form of lower management fees.
Vanguard Australian Share ETF has an annual management fee of just 0.10%, which is one of the cheapest way to invest in a portfolio of ASX shares in a single investment. The cheapest provider is BetaShares Australia 200 ETF (ASX: A200).
Diversification
Vanguard Australian Share ETF aims to track the returns of the ASX 300, so the ETF is invested in around 300 businesses. That sounds like good diversification to me.
The largest allocations in the ETF's holdings are to the ASX's biggest companies, so the big companies like Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP) and CSL Limited (ASX: CSL) feature at the top of the ETF's holding list. But, admittedly the large end of the ASX is focused on banks and resource businesses.
Good returns
Over the long-term the Australian share market has returned an average of 10% per annum, which doesn't include the bonus of franking credits. The returns have been solid.
I don't think some of the large ASX shares like banks or resource businesses will produce those types of returns going forward, but others may be able to like CSL and Macquarie Group Ltd (ASX: MQG).
Foolish takeaway
If you want passive exposure to how the ASX share market does then this ETF could well be one of the best ways to do that. But, the ETF's performance will be dictated by the underlying holdings and I'm not thrilled by what I see at the moment because of high valuations and poor performance by the banks.
