The Financial Independence, Retire Early (FIRE) movement has been gaining in popularity in recent years, as increasingly investment-savvy people look to start early on the investing journey.
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Break the shackles
The goal is to build a sufficient nest egg to support an early retirement, taking advantage of the significant benefits of compound interest, often coupled with a frugal approach to spending.
A commonly cited savings target is to accrue a portfolio worth 25 times your annual expenses which can then be drawn down over time – this is known as the 4% rule.
One of the main tenets of the FIRE movement is also that rather than picking individual stocks, investors should buy index-tracking exchange-traded funds (ETFs), which remove the volatility of single stocks and if they track the right indices, tend to perform relatively predictably over time.
Once bought, investors are encouraged to regularly invest into the same portfolio of ETFs, and ignore market volatility in favour of a long-term view.
Local focus
With regards to VAS, Vanguard says it is Australia's largest ETF, which gives investors exposure to the top 300 companies listed on the ASX.
Vanguard says on its website:
The ETF provides low-cost, broadly diversified exposure to Australian companies and property trusts listed on the Australian Securities Exchange. It also offers potential long-term capital growth along with dividend income and franking credits.
Not surprisingly, the fund's largest holdings are in the big four banks, as well as BHP Ltd (ASX: BHP).
According to the Vanguard website, $10,000 invested five years ago would now be worth $14,793.
VAS has a management fee of 0.07%.
Looking further afield
The VGS ETF has a much wider remit than VAS, with exposure to about 1300 companies from developed countries, notably excluding Australia so it doesn't double up with VAS.
Vanguard says on its website:
Investing internationally offers greater access to sectors such as technology and health care that aren't as well represented in the Australian share market. The ETF provides exposure to many of the world's largest companies listed in major developed countries. It offers low-cost access to a broadly diversified range of securities that allows investors to participate in the long-term growth potential of international economies outside Australia.
The ETF's largest holdings are in US tech companies including Nvidia, Apple, and Microsoft.
Vanguard said $10,000 invested five years ago would now be worth $18,450.
The management fee for VGS is 0.18%.
