Why do investors buy the Vanguard Australian Shares Index ETF (ASX:VAS) when they can buy individual shares?

Here’s what an ETF can do for your portfolio…

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As most investors would be aware of by now, the emergence of the exchange-traded fund (ETF) investment vehicle has been one of the most dramatic trends to watch over the past decade. Twenty years ago, the range and scale of the ASX ETF sector was a drop in the ocean compared to what this industry is today.

Just last month, we covered how ASX ETFs saw their best month of fund inflows in history over September. The $123.5 billion in total ASX ETF funds under management we saw that month was also a record high.

But what is it about an ETF that’s so appealing to investors? After all, most investors who buy into an ETF, like the ASX’s most popular fund – the Vanguard Australian Shares Index ETF (ASX: VAS), can just as easily buy individual shares like Commonwealth Bank of Australia (ASX: CBA), Telstra Corporation Ltd (ASX: TLS) or Woolworths Group Ltd (ASX: WOW) if they so choose.

Why do some investors choose ETFs over ASX shares?

Our own chief investment officer at the Motley Fool, Scott Phillips, tells us why some investors find ETFs like the Vanguard ASX 300 ETF so appealing:

ETFs like the Vanguard ASX 300 ETF offer instant, broad diversification for investors, and offer a market-matching return, less that tiny fee [0.1% per annum in this case].

So, if you want an easy, hands-off investment, or to kick off a new (or newly reinvigorated) portfolio with a great ‘cornerstone’ position, one of these ETFs can be great.

And the nice thing about Vanguard is that it’s a not-for-profit, meaning they’re not looking to make money off its investors, but for its investors, which is nice piece-of-mind. There are others, though, including the iShares Core S&P/ASX 200 ETF (ASX: IOZ) and BetaShares ASX 200 ETF (ASX: A200).

So it’s that killer combination of a market-matching return, ultra-low fees, and easy diversification that many investors find so appealing about ETFs like the Vanguard ASX 300 ETF.

On that last point, there are undoubtedly more than a few investors who would rather just own every company on the ASX 300 Index, than try to decide for themselves if CBA, Woolies, or Telstra is the best fit for their portfolio.

More than just the ASX blue chips…

Scott tells us the benefits of owning ETFs aren’t just confined to the ASX blue chips such as Telstra or CBA:

Vanguard has a lot of other ETFs to add some additional diversification to your portfolio. If you’re looking for smaller companies, the Vanguard MSCI Australian Small Companies Index ETF (ASX: VSO) does just that.

The Vanguard MSCI Index International Shares ETF (ASX: VGS) provides access to the world’s developed markets (excluding Australia), adding an international flavour to your portfolio. And the Vanguard US Total Market Shares Index ETF (ASX: VTS) well… gives you exactly that!

So, something to think about when you’re next taking a look at your portfolio? Or perhaps you’re just wondering what all the rage over these newfangled ETFs is about.

The beautiful thing about investing is that we can all make our own rules for our own portfolios. You can go full individual shares, full ETFs, or a nice “cross-pollination” with both, as Scott said last week.

Motley Fool contributor Sebastian Bowen owns shares of Telstra Corporation Limited. Scott Phillips owns shares of Vanguard MSCI Index International Shares ETF, Vanguard MSCI Australian Small Companies Index and Telstra Corporation Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Vanguard MSCI Index International Shares ETF. The Motley Fool Australia owns shares of and has recommended Telstra Corporation Limited. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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