The Vanguard Australian Shares Index ETF (ASX: VAS) is the most popular exchange-traded fund (ETF) on the ASX. In this article, we're going to look at if it's feasible for someone to have a comfortable retirement owning VAS ETF units.
Owning ETFs can be very useful because they can provide useful diversification in a single investment.
The Vanguard Australian Shares Index ETF gives investors exposure to the S&P/ASX 300 Index (ASX: XKO), which are 300 of the biggest businesses listed in Australia. Its biggest five positions make up 32% of the portfolio. They are: BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), CSL Ltd (ASX: CSL), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC).
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Can VAS ETF fund a comfortable retirement?
The fund certainly ticks the diversification box. In terms of dividend income, the VAS ETF receives dividends over 12 months, and it distributes the money it has received every quarter.
According to Vanguard, the ETF currently has a dividend yield of 3.9%. This excludes the benefit of franking credits, which could be an after-tax bonus for some retirees. I'm not going to include it as a benefit in this article because everyone's tax positions are different – the franking credits may be needed to offset tax charged by the ATO.
According to the AFSA Retirement Standard, a retired couple aged between 65 to 84 years old currently needs $72,148.19 per annum for a comfortable retirement, while a single person needs $51,278.30.
At a dividend yield of 3.9%, a couple would need $1.85 million invested in the VAS ETF while a single person would need $1.31 million invested. If investors can benefit from franking credits, and see minimal (or no) taxes, then those balance requirements would be lower.
Foolish takeaway
The VAS ETF is a good investment choice, with very low management fees. However, I think it's worthwhile considering global shares to be part of a portfolio mix because of the stronger growth potential.
There are ASX dividend shares out there that can pay bigger dividend yields, which is the type of investment I like to regularly look at.
