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

A woman looks internationally at a digital interface of the world.
ETFs

Looking for diversification through ASX ETFs? I'd buy these 2

These ETFs can provide exposure to great tech companies across the globe.

Read more »

Happy man holding Australian dollar notes, representing dividends.
ETFs

Invest $2,000 into these 5 ASX ETFs

Looking for quality options for your money? Check out these ETFS.

Read more »

ETF written in white with a blackish background.
ETFs

Why I think every retiree should own some ASX ETFs

ETFs could be a good place to put nest egg capital.

Read more »

The letters ETF with a man pointing at it.
ETFs

4 market-beating ASX ETFs to buy

These funds have beaten the market. Here's what they offer investors.

Read more »

A man points at a paper as he holds an alarm clock.
ETFs

3 ASX ETFs to buy and hold until 2050

These funds could be great long term options for investors looking to grow their wealth.

Read more »

Woman on a swing at a beach, symbolising passive income.
ETFs

One high-yield ASX dividend ETF to buy to generate passive income

This looks like an appealing, diversified option for dividends.

Read more »

ETF written on cubes sitting on piles of coins.
ETFs

Invest $5,000 into these ASX ETFs next month

I think these ASX ETFs are leading picks to buy before the end of 2024.

Read more »

Three people in a corporate office pour over a tablet, ready to invest.
ETFs

The best ASX ETFs to buy for the long term

Looking for quality long term investment options? Check out these ETFS.

Read more »