The Vanguard MSCI Index International Shares ETF (ASX: VGS) is one of the most effective investments to grow wealth over the long-term, in my opinion.
Australians can have an affinity for the ASX, but it actually only accounts for approximately 2% of the global share market. I think it's a good idea to allocate a significant portion of money directly or indirectly to international shares.
There are a lot of great businesses beyond Australia's shares, and there are several reasons why this exchange-traded fund (ETF) is one of the best ways to get that exposure.
The VGS ETF gives excellent diversification
It may be difficult to decide which businesses to invest in – so why not invest in a large group of those businesses?
The fund gives exposure to around 1,280 businesses which are many of the world's largest companies listed in major developed countries from a variety of sectors.
There are a number of markets that have a weighting of at least 0.5% include the US, Japan, the UK, Canada, France, Germany, Switzerland, the Netherlands, Sweden, Spain, Italy and Hong Kong.
I also like that the industry exposure is diversified, but invested in areas with good earnings growth potential, such as IT, financials, industrials, consumer discretionary, health, communication services and consumer staples.
Low fees
One of the reasons why the Vanguard MSCI Index International Shares ETF is such an effective investment is the low management fees.
Costs can be a significant detractor from long-term returns for investors. I'd say the VGS ETF has low fees for the level of diversification it offers Aussies.
When fees are that low, it means most of the gross returns turn into the net returns.
Impressively, between inception in November 2014 to October 2024, the VGS ETF has returned an average of 13.9% per year.
Great businesses
The key reason why the VGS ETF has done so well for investors is that the companies in the portfolio have performed well.
It's invested in many of the world's strongest businesses from across the world including Nvidia, Apple, Microsoft, Alphabet, Amazon.com, Broadcom and Meta Platforms. Of course, there are hundreds of other recognisable names in the fund like Netflix, McDonald's, Costco, HSBC, Intuitive Surgical and JPMorgan Chase. These are the sorts of companies driving change.
I think the fund's quality sticks out with the return on equity (ROE) ratio, which says how much profit the company is making compared to how much shareholder money is retained within the business.
The higher the ROE, the better. That's a sign of quality and may suggest how much profit a business could make in the future on money that's invested in the business. It has a ROE of 19.6%.
The VGS ETF has a very promising outlook, in my view.
