There are a number of compelling reasons to like the ASX's biggest exchange-traded fund (ETF), the Vanguard Australian Shares Index ETF (ASX: VAS).
It enables investors to invest in the S&P/ASX 300 Index (ASX: XKO), an index that tracks 300 of the biggest businesses on the ASX.
People can invest in the ASX ETF for a very cheap management fee of 0.07% starting from 3 July 2023. That means most of the fund's returns stay in the hands of the investor.
We can get a fair amount of diversification by investing in this option, which is useful for lowering risks.
Plus, the VAS ETF has a solid dividend yield of 4.5% according to Vanguard. The yield is further boosted by the attached franking credits generated when Australian income tax-paying companies pay their tax.
But there's one element that makes me think the Vanguard Australian Shares Index ETF is a great investment option.
The changing portfolio
I think the best reason that makes this ASX ETF a great long-term investment is that we can simply invest in it and just hold it without having to worry about the buying and selling of businesses.
Looking back 30 years ago, some of the biggest 30 businesses in the US included General Motors, Exxon Mobil, Ford, IBM, General Electric, Altria, ChevronTexaco, Chrysler, Boeing, Procter & Gamble, PepsiCo, and Eastman Kodak.
If I had bought the biggest 100 or 500 companies at the time and held them for 30 years, I don't think my portfolio would have done very well over the last three decades.
The biggest businesses are now names like Apple, Microsoft, Alphabet, and Amazon.com.
To me, a key part of the effectiveness of ETFs like the VAS ETF is that they don't need to hold the same businesses forever. If a company is in decline, then its position in the portfolio will steadily decline as well, making space for promising up-and-coming companies.
Names like Aristocrat Leisure Limited (ASX: ALL), Xero Limited (ASX: XRO), Wisetech Global Ltd (ASX: WTC), and Macquarie Group Ltd (ASX: MQG) are now much bigger than they used to be.
The great thing for me with the VAS ETF is that its portfolio naturally evolves, making itself future-proof rather than having to hold onto a business until it fades into obscurity, like Kodak or Blackberry.
However, while I like the Vanguard Australian Shares Index ETF as a way to invest in ASX shares, here are some other ETFs that I like even more.
