The exchange-traded fund (ETF) Vanguard Australian Shares Index ETF (ASX: VAS) could be an effective investment today for a number of reasons.
It's one of the most popular ETFs on the ASX. The ETF is over $12 billion in size, as of 31 January 2023.
For investors that don't know what this ETF does, it looks to track the S&P/ASX 300 Index (ASX: XKO), which represents 300 of the biggest businesses on the ASX.
It does this for a management fee of 0.10%, which is very low. This enables investors to track the market for almost no cost, and own a small piece of ASX 300 shares like Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP) and CSL Limited (ASX: CSL).
I think these are three of the best reasons to think about the Vanguard Australian Shares Index ETF right now.
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Cheaper
I like being able to buy my investments at a cheaper price. As Warren Buffett once said:
To refer to a personal taste of mine, I'm going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the 'Hallelujah Chorus' in the Buffett household. When hamburgers go up in price, we weep. For most people, it's the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don't like them anymore.
The Vanguard Australian Shares Index ETF is down more than 5% since early February 2023. That means investors are able to buy units of the ETF at a noticeably cheaper price and hopefully means that they can make a better return than someone who bought at the start of February.
'Buying the dip' with a useful investment seems like a smart move.
Dividend yield
The Vanguard Australian Shares Index ETF is invested in a number of ASX 300 shares that own higher-yielding businesses like CBA, BHP, National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ), Woodside Energy Group Ltd (ASX: WDS), Macquarie Group Ltd (ASX: MQG), Wesfarmers Ltd (ASX: WES) and Telstra Group Ltd (ASX: TLS).
The biggest positions in the ETF can have the biggest impact on the dividend yield of the ETF.
According to Vanguard, the ETF offers a dividend yield of 4.2%, plus the franking credits. That's a much higher dividend yield than many other ETFs offer, such as the iShares S&P 500 ETF (ASX: IVV).
The dividend yield can play an important role in the total returns of the ETF.
Effective investing
While it hasn't been the highest-performing ETF over the past five years, its returns have still been satisfactory enough to grow wealth.
According to Vanguard, the Vanguard Australian Shares Index ETF has returned an average of 8.5% per annum in the five years to 31 January 2023.
One of the best reasons to consider the ETF as a way to invest in ASX shares is because the portfolio changes its holdings as companies change and new businesses emerge. It's this regularly-changing portfolio that could enable the ETF to be as relevant and useful an investment as it is today.
However, I think there could be other ETFs that could achieve stronger capital growth.
