The exchange-traded fund (ETF) Vanguard MSCI Index International Shares ETF (ASX: VGS) could be one of the top picks for a beginner investor to think about investing in.
Firstly, I think for most beginners, ETFs would be well-suited for their portfolio because of how easy they make it to track and achieve performance over the share market if the ETF tracks an index.
Certainly, I think that Aussie investors can do well with ASX shares, but it's also a good idea to get exposure to international shares. After all, they represent 98% of the global share market while the ASX is only 2%.
There are a few different ways to get exposure to international shares, but the ETF style of investing makes it very easy.
The idea of the Vanguard MSCI Index International Shares ETF is that it invests in the global share market, specifically major developed markets.
Here are three reasons why it could be a smart choice for beginner investors.
Diversification
The ETF has an extremely large number of businesses in its portfolio, offering very strong diversification. At 31 March 2023, it had 1,472 holdings. That's close to 1,000 more positions in the portfolio than the number of businesses in the All Ordinaries (ASX: XAO).
I think it lowers the specific business risk of the ETF.
Another element of the diversification is that the allocations are spread around different sectors, and I like the position of IT getting the biggest weighting of 20.8% as at 31 March 2023. The financials allocation was 14.6%, healthcare was 13.4%, industrials was 11.1%, and consumer discretionary was 10.7%.
Finally, I like the geographic diversification of the ETF. While many of these businesses do generate their profit from across the world, I think it's wise diversification to be invested in different markets.
The following markets have a weighting of at least 0.5% – the US, Japan, the UK, France, Canada, Switzerland, Germany, the Netherlands, Sweden, Denmark, Spain, Hong Kong, and Italy.
Quality holdings and performance
Vanguard MSCI Index International Shares ETF owns many of the world's strongest businesses in its portfolio, which can help its overall returns.
As of 31 March 2023, the ten biggest positions were: Apple, Microsoft, Alphabet, Amazon.com, Nvidia, Tesla, Meta Platforms, Exxon Mobil, UnitedHealth, and Johnson & Johnson.
The portfolio has performed soundly over the long term. In the five years to 31 March 2023, the ETF has produced an average return per annum of 11.1%. That's a good return for beginner investors to compound their wealth. However, keep in mind that past performance is not a reliable indicator of future performance.
Low fees
One of the most advantageous things about having Vanguard as the ETF provider is that it tries to provide investment options for as cheaply as possible.
The lower the fees, the more the returns are left in the hands of (beginner) investors. Over a long time period, this can really add to wealth-building efforts.
The Vanguard MSCI Index International Shares ETF has an annual management fee of 0.18%. While there are ETFs with cheaper fees, there are few options that provide that diversification in terms of both the geographic spread of the holdings and how many businesses they're invested in.
