Exchange-traded funds (ETFs) are a great way to build wealth through simple investing.
ETFs allow investors to invest into a whole group of shares at once. Sometimes that investment gives exposure to hundreds of shares, sometimes it’s over a thousand different shares.
When you invest in that many shares you really remove the individual company risk. It’s just a case of which geography or industry that you want to be invested in. Do you want an investment focused on Australia? The US? The whole world? Or perhaps you want to be invested in an ETF focused on robotics or perhaps healthcare.
Vanguard is a world leader in providing low-cost ETFs, the two ETFs I mention below are provided by Vanguard:
Vanguard FTSE Asia ex Japan Shares Index ETF (ASX: VAE)
This ETF is invested in over 1,200 Asian shares outside of Japan. It’s invested in shares across China, South Korea, Taiwan, Hong Kong, India, Singapore, Thailand, Malaysia, Indonesia and Philippines.
As an ETF, a lot of it is actually invested in bright, fast-growing tech companies like Alibaba, Tencent, Taiwan Semiconductor Manufacturing and Samsung.
Despite the trade war, this ETF is delivering solid returns. Since inception in December 2015 it has delivered net returns of 11.05% per annum. The ETF has an annual management of 0.40% per annum, which is cheap compared to many Asian-focused fund managers.
Looking at the financial numbers, it looks quite cheap. It has a price/earnings ratio of 14.5x, its earnings growth rate is 11.6% and it has a return on equity (ROE) of 15.9%.
If you don’t have much exposure to Asian then this could be a cheap, diversified way to do it.
Vanguard Australian Property Securities Index ETF (ASX: VAP)
This ETF is invested in 31 property businesses that are within the ASX 300 A-REIT Index.
I’d much rather invest in this ETF rather than buy a residential property because of the diversification it offers and it also offers a much better distribution yield of 4.5%.
Australian commercial property has performed well over the past decade with Australia’s lowering interest rates. Since October 2010 it has made an average return per annum of 12.3% with an annual management fee of 0.23% per annum.
It’s looking pretty expensive these days with a price to book ratio of 1.2x. Reflecting the underlying holdings, the ETF is mostly invested in retail, industrial and office real estate investment trusts (REITs).
After Australia’s hot property run, I think Asian shares are looking more interesting. Valuations are falling in Asia because of the coronavirus but the trade war seems to be calming down. February could be a good time to indirectly buy Asian shares.
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Motley Fool contributor Tristan Harrison owns shares of VANGUARD FTSE ASIA EX JAPAN SHARES INDEX ETF. The Motley Fool Australia has recommended Scentre Group. 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.