Does the fall in the Vanguard Australian Shares Index ETF share price make it a no-brainer buy?

Is this ETF always a good buy when its cheap?

| More on:
A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The ASX share market has had a rough few weeks, no way around it. As it stands today, the S&P/ASX 300 Index (ASX: XKO) has lost around 3.6% over the past month alone, as well as a nasty 5.4% since 7 March.

In 2023 so far, ASX shares are barely breaking even after what was a stellar start to the trading year over January and February.

This means that the Vanguard Australian Shares Index ETF (ASX: VAS) has also been a bit shaky of late. This exchange-traded fund (ETF) is an index fund that tracks the ASX 300 Index. This means that wherever the ASX 300 goes, this index fund follows.

Indeed, Vanguard Australian Shares ETF units are now down more than 6.5% since early February and down around 9.2% over the past 12 months:

But this might not be such a bad thing for long-term investors. After all, as Warren Buffett tells us, cheaper shares usually mean better returns over the long run.

So do the weaker markets over the past month or so make the Vanguard Australian Shares Index ETF a no-brainer buy today?

Why is the Vanguard Australian Shares ETF a no-brainer buy?

I think it does. Whenever you are buying an index fund, you are essentially buying a small portion of every company that the index contains. In the Vanguard Australian Shares Index ETF's case, this means a small piece of the 300 largest companies listed on the ASX.

That's everything from Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP) and Telstra Group Ltd (ASX: TLS) to Coles Group Ltd (ASX: COL), JB Hi-Fi Ltd (ASX: JBH) and Ampol Ltd (ASX: ALD).

The way an index fund is structured means that the better companies grow in influence within the Index over time while the weaker ones are weeded out. This means that buying an ASX-wide index fund is essentially a bet on the long-term growth of the Australian economy. That is a bet that has historically been a lucrative one for investors.

The Vanguard Australian Shares Index ETF's managed fund equivalent has been around since October 1998. Since that time, this managed fund has returned an average of 8.11% per annum. That's despite the Asian financial crisis, the dot-com bust, the global financial crisis and COVID.

This fund's ETF variation has only been around since 2009. But over its shorter lifetime, it has averaged a return of 8.95% per annum.

So I think that buying this Vanguard index fund is always a good long-term investment. But buying it after a pullback? It's about as close to a no-brainer buy as you can get on the ASX, in my view.

Motley Fool contributor Sebastian Bowen has positions in Telstra Group and Vanguard Australian Shares Index ETF. 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 positions in and has recommended Coles Group and Telstra Group. The Motley Fool Australia has recommended Jb Hi-Fi. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on ETFs

The letters ETF sit in orange on top of a chart with a magnifying glass held over the top of it
ETFs

3 of the best ASX ETFs to buy in December

Here are three funds to consider adding to your portfolio next month.

Read more »

Man holding a calculator with Australian dollar notes, symbolising dividends.
ETFs

If I'd invested $5,000 in this ASX S&P 500 Index Fund 5 years ago, here's how much I'd have now

Would it have been a good idea to buy this ETF? Let's find out.

Read more »

Happy young woman saving money in a piggy bank.
ETFs

Did you know these ASX stocks are in the Vanguard Australian Shares Index ETF (VAS)?

The VAS ETF is an index fund that tracks the 300 biggest listed companies by market capitalisation.

Read more »

Man holding out Australian dollar notes, symbolising dividends.
ETFs

5 excellent ASX ETFs for a $500 investment next month

If you have $500 available to invest in the share market, then the exchange traded funds (ETFs) in this article…

Read more »

The letters ETF with a man pointing at it.
ETFs

IOZ vs VAS: Which is the better ASX Australian shares ETF to buy right now?

These funds are both popular options. Which is better?

Read more »

a man wearing casual clothes fans a selection of Australian banknotes over his chin with an excited, widemouthed expression on his face.
ETFs

Buy these ASX ETFs for passive income in 2025

These ETFs could be used to generate passive income next year.

Read more »

a man with a wide, eager smile on his face holds up three fingers.
ETFs

3 ASX ETFs to buy and hold for 10 years

Looking to make long term investments? Then check out these ETFs.

Read more »

ETF spelt out with a rising green arrow.
ETFs

Invest $5,000 into these ASX ETFs this week

These ETFs could be great options for investors with money to put into the market.

Read more »