The Vanguard Australian Shares Index ETF (ASX: VAS) is the most popular and largest exchange-traded fund (ETF) on the ASX, with a fund size of $15.3 billion as of 30 June 2024.
It tracks the S&P/ASX 300 Index (ASX: XKO), enabling investors to get exposure to 300 of the largest businesses on the ASX in a single investment.
The VAS ETF has a number of attributes that suggest it could suit a lot of retiree financial needs.
Before I get into that, I think one of the most important investments most people can make is to ensure good financial foundations with a sizeable cash balance. For retirees with a satisfactory amount of assets, I'd suggest having an amount equivalent to a year's worth of (reasonable) spending as cash in a high-interest savings account. This ensures the person doesn't need to sell assets at discount prices during a bear market or recession.
Why it's useful for retirees
The Vanguard Australian Shares Index ETF provides investors with instant diversification because it includes so many different companies. I think it's better to own this fund rather than just a few ASX bank shares and ASX mining shares.
Thanks to its larger allocation to businesses such as National Australia Bank Ltd (ASX: NAB), Rio Tinto Ltd (ASX: RIO), and Telstra Group Ltd (ASX: TLS), it can provide a pleasing level of passive income.
According to Vanguard, its distribution payout return over the last 12 months was 4.16%, which is close to the 4% safe withdrawal method that is commonly talked about in financial circles.
Of course, volatility can occur. But over the long term, the VAS ETF has delivered capital growth. Over the past five years, the fund has achieved capital growth of an average of 2.8% per annum. That's not a lot, but it means investors have seen good passive income, and their wealth has grown.
Should it be the only investment?
There are no rules governing which investments retirees should allocate money to. Someone could choose to have all of their assets in cash, though I wouldn't advise that because it lacks growth and inflation protection.
The ASX share market is a wonderful hunting ground for opportunities, though I think investors would be missing out if they only invested in one market.
I believe we can find all of the investments we need on the ASX, but I'd want to make sure a retiree gets exposure to the global share market via ETFs. The ASX share market only makes up around 2% of the global market. Businesses like Microsoft, Alphabet, Amazon and Apple have delivered excellent long-term returns. They have helped the global share market outperform the ASX 300 over the past five years and ten years.
The global share market is likely to be where we'll find the next major growth story, such as the recent success of Nvidia.
That's why I'd want to invest in a fund like Vanguard MSCI Index International Shares ETF (ASX: VGS), iShares Global 100 ETF (ASX: IOO), VanEck MSCI International Quality ETF (ASX: QUAL) or Betashares Global Quality Leaders ETF (ASX: QLTY) alongside the VAS ETF in a retiree portfolio.
