Is the Vanguard Australian Shares Index ETF (VAS) outperforming your super fund?

There is a reason why Warren Buffett recommended an index investing.

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When it comes to growing your retirement savings, choosing between different investment options can be crucial.

One popular choice for Australians is the Vanguard Australian Shares Index ETF (ASX: VAS), known for its passive investment approach and low fees. But how does it stack up against your superannuation fund?

Vanguard Australian Shares Index ETF (ASX: VAS) performance

VAS is designed to track the performance of the S&P/ASX 300 Index (ASX: XKO), which includes Australia's top 300 companies listed on the Australian Securities Exchange (ASX). It offers investors a diversified exposure to the Australian stock market, aiming to replicate its performance.

According to Vanguard, the ETF performances for each time period to 31 May 2024 have been as follows:

  • 12.8% over the 12 months to 31 May 2024
  • 6.5% per year over the 3 years to 31 May 2024
  • 7.8% per year over the 5 years to 31 May 2024
  • 7.7% per year over the 10 years to 31 May 2024

As designed, the VAS ETF returns closely follow S&P ASX 300 Index returns, which rose 8.04% per year over the last 10 years to June 2024. This annual return is split into the price return of 3.74% and income return of 4.3%.

I note the comparison period is different by one month, explaining slight differences in returns. But we can say that over a long period, say 10 years, the index fund generates an annual return of approximately 8%. This means your invested capital would double every nine years, assuming reinvestment of your dividends.

What's the average investment return from super funds?

Before we make this comparison, it is important to remember that your superannuation fund, unlike the VAS ETF, may invest in assets beyond Australian shares, such as international stocks, bonds, property, and cash. Its performance will depend on the asset allocation strategy chosen by the fund managers.

For the purpose of this comparison, let's simply assume a 'balanced' super fund.

According to Chant West, as my colleague Sebastian summarised, the average returns of the average Australian balanced fund (41%-60% of growth assets) were as follows:

  • 9.4% over the 12 months to 31 May 2024
  • 5.3% per year over the 3 years to 31 May 2024
  • 6.7% per year over the 5 years to 31 May 2024
  • 7.2% per year over the 10 years to 31 May 2024

The Association of Superannuation Funds of Australia (ASFA) provides estimates for all super funds based on historical data. While this data is only available to June 2023, ASFA believes that superannuation funds achieved average annual returns as follows:

  • 9.2% over the 12 months to 30 June 2023
  • 5.8% per year over the 5 years to 30 June 2023
  • 7.4% per year over the 10 years to 30 June 2023

Making an informed decision

As reviewed above, a simple comparison based on performance history suggests the VAS ETF is doing slightly better than an average super fund.

After all, there's a reason why legendary investor Warren Buffett advocates index investing. With that said, there are other things to consider before jumping to your conclusion.

  • Performance history: Compare the annual returns of VAS with your super fund over the same period.
  • Asset allocation: Understand how much of your super fund is allocated to Australian shares compared to other assets.
  • Personal preferences: Evaluate whether you prefer a hands-on approach with ETF investments like VAS or rely on professional management through your super fund.

Overall, the VAS ETF appears to be a good place to consider for your retirement planning.

The VAS ETF is up 7.89% over the past year to $96.86.

Motley Fool contributor Kate Lee has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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