Is the Vanguard Australian Shares ETF (VAS) your best choice for a bottom-drawer ASX share?

Vanguard's VAS may be popular, but is it the best choice for passive investors?

| More on:
A baby reaches into the bottom drawer of a chest of drawers.

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

Key points

  • Vanguard's Australian Shares Index ETF is ASX's most popular index fund
  • But there are many passive investments available to hands-off investors on the ASX aside from the VAS ETF
  • Vanguard's 10-year performance tells us that it remains a compelling choice, however

There are a large group of investors (and would-be investors) on the ASX who are just looking for a bottom-drawer investment.

There are many Australians who understand the wonders that ASX shares can unlock in terms of building wealth over time. But far fewer of those Australians actually want to follow in the path of Warren Buffett and become individual stock pickers.

After all, building your own share portfolio takes a lot of time, and research. It involves reading annual reports and sifting through income statements, looking at a company's revenue, earnings and profits. Not to mention building up a high tolerance for the wild emotions that investing can elicit. It's not for everyone, that's for sure. 

What is a passive investment stock?

This is where a bottom-drawer investment can come in handy. A bottom-drawer investment is one that requires little ongoing maintenance, you can put your money in it, and just 'set and forget' not having to worry about financial statements, pricing, valuation and when to buy or sell.

One popular option that fills this role is the Vanguard Australian Shares Index ETF (ASX: VAS). This exchange-traded fund (ETF) is the most popular of its kind on the share market. The VAS ETF works by holding the largest 300 companies on the ASX, weighted by market capitalisation (size).

So it is a single investment that represents a stake in 300 different ASX companies. That includes everything from BHP Group Ltd (ASX: BHP) and Telstra Group Ltd (ASX: TLS) to Commonwealth Bank of Australia (ASX: CBA) and JB Hi-Fi Ltd (ASX: JBH).

For this reason, it is a great bottom-drawer investment. You can set it and forget it, safe in the knowledge that you will always have a stake in the ASX's 300 largest shares, whatever they may be (the ETF is 'rebalanced' every quarter to ensure that it only holds the largest 300 companies).

But is this the best option for passive investors on the ASX?

Is the Vanguard Australian Shares ETF the best passive investment on the ASX?

Well, let's get into the numbers. So the VAS ETF, as of 31 May, has averaged a return of 8.02% per annum over the past ten years, including reinvestment of dividends. Over the past five years, it's 7.42% per annum, and 11.35% per annum over the past three.

Not bad for a bottom-drawer investment.

But let's see how it compares to some other passive investing options.

Another popular passive investment on the ASX is ASX 200 ETFs. These funds are more common than ASX 300 funds like VAS but offer less diversification since you are only getting exposure to 200 shares, rather than 300. ASX 200 ETFs have delivered similar returns over the past decade.

One prominent ASX 200 fund is the iShares Core S&P/ASX 200 ETF (ASX: IOZ). As of 31 May, this ETF had returned an average of 7.92% per annum over the past ten years.

Another option for hands-off investors to consider is listed investment companies (LICs). These function in a similar fashion to the index funds listed above, but have actively managed portfolios instead of index-tracking ones. They are also structured as a company, not a trust.

One of the most popular LICs out there is Argo Investments Ltd (ASX: ARG). Argo specialises in conservative investing through a portfolio of ASX blue-chip shares. According to this LIC, Argo has given its investors a total shareholder return (share price growth plus dividends) of 6.9% per annum over the past decade.

So it seems that the Vanguard Australian Shares ETF is indeed a top option for passive income investors to consider today, having given shareholders one of the best returns over the past ten years compared to other bottom-drawer investments. But remember, past performance is no guarantee of future returns.

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 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

Happy young couple saving money in piggy bank.
ETFs

Buy these top ASX ETFs for a passive income boost

These funds could be worth a closer look if you are hunting income from the share market.

Read more »

A couple sitting in their living room and checking their finances.
ETFs

Where to invest your first $1,000 – reliable ASX ETFs

Here are some long term options for first time investors 

Read more »

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

$10,000 invested in CRYP ETF a year ago is now worth…

This exchange-traded fund allows investors to gain exposure to cryptocurrency in a different way.

Read more »

The letters ETF with a man pointing at it.
ETFs

Where to invest $5,000 in ASX ETFs in June

These funds could be worth a look if you have money to invest this month.

Read more »

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

3 things about the Vanguard Australian Shares Index ETF (VAS) every smart investor knows  

This fund has a number of interesting characteristics. Here’s what I’m focused on.

Read more »

ETF on different coloured wooden blocks.
ETFs

BetaShares reaches $50 billion FUM: What are their 5 most popular ASX ETFs?

Do any of these 5 ASX ETFs appeal to you?

Read more »

ETF written on cubes sitting on piles of coins.
ETFs

2 amazing ASX ETFs I wish I'd bought a decade ago

These funds are impressive with their holdings and returns.

Read more »

tick, approval, business person with device and tick of approval in background
ETFs

Why this could become my favourite ASX ETF to buy

This ASX ETF ticks all my boxes.

Read more »