The Vanguard MSCI Index International Shares ETF (ASX: VGS) is an exchange-traded fund (ETF) provided by Vanguard. I believe it could have something for every investor.
Vanguard is one of the world's largest ETF providers and it aims to provide those investment funds as cheaply as possible for the investors.
This specific ETF aims to give investors exposure to many of the world's largest companies listed in major developed countries. It is invested across a large number of businesses – at the end of August, it had 1,466 holdings.
There are many different investors in the market, such as young investors, retirees, investors looking for income, growth investors and so on.
First, I'm going to run through a couple of advantages of the VGS ETF, and then explain why it can work for any portfolio.
Diversification
Diversification is a useful trait for an ETF investment because, for example, it lowers risks by decreasing the danger for the overall portfolio if something goes wrong for a particular sector or country.
Vanguard MSCI Index International Shares ETF's portfolio is invested in a variety of countries including the US (71.3% of the portfolio), Japan (6.3%), the UK (4%), France (3.4%), Canada (3.2%), Switzerland (2.8%), Germany (2.3%), the Netherlands (1.2%), Denmark (0.9%), Sweden (0.9%), Italy (0.9%), Spain (0.7%) and so on.
The sector allocation is good, with five industries having a weighting of more than 10% – IT (22.7%), financials (14.3%), healthcare (12.7%), consumer discretionary (11.2%) and industrials (11%).
Low management fees
One of the great things about ASX ETFs is that they can have very low management fees, enabling investors to gain exposure to the returns of the local or global market for a very low cost.
The VGS ETF has an annual management fee of 0.18%. There are ones that have an even cheaper fee, but I think it's very good for how much global diversification it provides.
Great businesses enable good returns
There is no guarantee that an investment is going to generate good returns. However, over the ultra-long term, we've seen that businesses that are growing their customer base, selling more services and increasing profit are likely to be appreciated by investors.
Businesses like Apple, Microsoft, Amazon.com, Alphabet, Nvidia, Tesla, Meta Platforms and so on have proven they can grow profit.
Not every business within the Vanguard MSCI Index International Shares ETF will succeed, but as a group, I think they'll be able to keep increasing in value over the years.
Over the past five years, the VGS ETF has delivered an average return per annum of 10.9%. Young investors and growth investors can do very well with that level of return. In 15 years, investing $1,000 a month returning 10.9% per annum turns into around $410,000.
In the past five years, the average distribution (income) return from the ETF has been 2.4%. That's not terrible for retirees or income-focused investors. For people wanting stronger cash flow, what I'd do is consider re-investing the distributions and selling down the holdings.
Imagine someone had $200,000 invested in VGS ETF units. If it made a 10% return in a year, the value would grow to $220,000. An investor could achieve a 5% 'yield' by selling 5% of the value – 5% of the starting $200,000 would be $10,000. Selling $10,000 would mean ending the year with $210,000 of capital value and achieving a good yield.
Of course, the share market doesn't exactly work like that – sometimes the market drops and sometimes it goes up more than 10%. I'd be inclined to sell smaller amounts regularly, such as 1.25% each quarter, so we'd be talking about selling $2,500 every three months for the first year. This could help avoid sequencing risk.
