With a wide range of Vanguard exchange-traded funds (ETFs) to choose from, there's one fund I'm attracted to the most.
It's good to aim for diversification in our investments because it spreads the risk across more businesses and industries. Owning assets other than ASX shares, such as bonds, can also nicely diversify your portfolio.
However, it is possible to invest in too many different things, leading to what some people call 'di-worsification' when too much diversification reduces returns.
And ideally, we'd like to buy a variety of investments that don't reduce returns.
My top Vanguard ETF pick is the Vanguard MSCI Index International Shares ETF (ASX: VGS), and I'll explain below how I came to that choice.
Bonds don't appeal
In my mind, the share market is the leading place to invest for returns. We can find good companies that have proven their ability to develop appealing products and services, re-invest profits over time, and positively compound their results.
Let's look at the various Vanguard ETFs for ideas.
I like Vanguard Diversified High Growth Index ETF (ASX: VDHG) and its siblings as a 'one size fits all' idea, but they all have an allocation to bonds, which may reduce long-term returns. Bonds can't grow the underlying profit and increase their value in the way that businesses can.
Bonds may reduce short-term volatility – and some people may like that – but I want an ETF comprising 100% shares.
US tech giants are excellent businesses
The ASX share market and the non-US global share market are both solid options. Vanguard Australian Shares Index ETF (ASX: VAS) and Vanguard All-World ex-US Shares Index ETF (ASX: VEU) have their positives.
In trying to narrow the choices down to my favourite Vanguard ETF, I think it's important to get exposure to many of the world's strongest businesses in a single investment, such as Microsoft, Apple, Amazon, Nvidia, Berkshire Hathaway and so on.
Neither the VAS ETF nor VEU ETF have exposure to those leading US giants, so I can't call them my number one.
Geographic diversification can be useful
VGS ETF and the Vanguard US Total Market Shares Index ETF (ASX: VTS) are both excellent ideas, with many high-quality holdings.
Arguably, the VTS ETF has been a better investment up until now, and it comes with a lower management fee than the Vanguard MSCI Index International Shares ETF.
However, if I were to invest in only one Vanguard ETF, I'd prefer to own a fund that can give exposure to great businesses listed worldwide, not just from one country. The United states has been an incredibly strong economic force for decades, though that may not always be the case in the future.
The VGS ETF is invested in many compelling non-US businesses, including Novo Nordisk, ASML, Nestle, LVMH, Accenture, Linde, SAP, and Royal Bank of Canada.
So that's my ultimate pick of the bunch. But with that, I'll also add that I like to balance my ETF investing with buying individual ASX shares.
