Is the Vanguard Australian Share ETF (ASX: VAS) a good long-term investment?
I certainly think it could be a good one for the long-term. One of the main things that I consider about if something is a long-term idea is if it has earnings diversification and whether it can grow earnings for years to come.
I believe that thinking can definitely be applied to this exchange-traded fund (ETF). It certainly has earnings diversification because it is invested in around 300 holdings because it seeks to track the ASX 300. It has large holdings like Commonwealth Bank of Australia (ASX: CBA), Transurban Group (ASX: TCL) and CSL Limited (ASX: CSL).
As time goes on the better businesses will rise to the top and the poor ones will get kicked out of the ETF. The only limit is that it's only for businesses on the ASX, so there could be better opportunities elsewhere in the world.
If you look over the past decade, the ASX has only gone sideways. But it has certainly been a strong performer this year with the resources sector doing well. Can earnings keep growing? Slowly, sure. The ASX is weighted to large, mature, cyclical businesses, so I'm not sure if their earnings will be higher in two years from now if the resource boom ends.
From my point of view, I wouldn't invest in this ETF for growth. I think it's a better choice for income because of the high dividend yield due to the higher dividend payout ratio of Australian businesses.
According to Vanguard, this ETF has a partially franked dividend yield of 4% and an annual management fee of only 0.10%, which is very low.
Foolish takeaway
There are reasons to like this ETF if your main investment style is passive ETF investing. However, it's likely to only offer slow medium-term growth and it's currently near an all-time high, I think there are better opportunities out there.
