Is the Vanguard Australian Shares Index ETF (VAS) a good buy for beginner investors?

Should beginners love this offering for Vanguard?

| More on:
A woman sits on sofa pondering a question.

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 Vanguard Australian Shares Index ETF (ASX: VAS) is an exchange-traded fund (ETF) that boasts a huge amount of investor money — around $13 billion. In this article, I'm going to look at whether investing in this fund is a good option for beginner investors.

An ETF offers investors a way of buying a group of shares in a single investment, so it's very handy for adding instant diversification to your portfolio. Some ETFs focus on a sector, like cybersecurity or video gaming, while others are based on a local or global share market.

The VAS ETF is based on the S&P/ASX 300 Index (ASX: XKO), which comprises 300 of the largest companies listed on the ASX.

Why Vanguard Australian Shares Index ETF is a good option for beginners

The ETF provider is Vanguard, one of the world's largest asset managers. The owners of Vanguard are the investors themselves, and it shares the profit with investors/us by lowering the management fees of the investments.

The VAS ETF has one of the lowest management fees of any fund in Australia, with an annual cost of just 0.07%. That's very close to 0%, and means investors get to keep nearly all of the funds in their investment account.

It's invested in all of the blue chips that you may recognise, such as BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Macquarie Group Ltd (ASX: MQG) and Woolworths Group Ltd (ASX: WOW).

For investors seeking dividend income, it's a decent option. An ETF simply passes on to investors the income received from its holdings. According to Vanguard, the current (partially franked) dividend yield was 4.4% for the VAS ETF.

Past performance is not a guarantee of what the future returns will be, but since the ETF started in May 2009, it has delivered a return of an average of 8.8% per annum.

Should it be a beginner's first choice?

There are a number of things to like about this ETF, but there are a few reasons why beginners may be better served by choosing something else.

A sizeable portion of the returns of the VAS ETF comes in the form of dividends, as I've mentioned. I'm guessing that a lot of beginner investors are also working, meaning that they're in a tax bracket where a decent portion of returns would be lost to tax each year. The higher the tax bracket, the more of the returns that would be lost.

I'd suggest that there are other ETFs that can deliver more capital growth, and less of the return comes from dividends. Capital returns are essentially only taxed when the investment is sold.

As an example, the Vanguard MSCI Index International Shares ETF (ASX: VGS) is invested in the global share market, and its biggest positions are names like Microsoft, Apple, Amazon.com, Alphabet, Meta Platforms and so on. Since the VGS ETF started in November 2014, its average return per annum has been 12.3%. So, not only has the gross return been higher, but less has been lost on the income return to tax as well.

The other negative I'd say about the Vanguard Australian Shares Index ETF is that while it is invested in 300 ASX shares, more than half of the portfolio comprises financial and mining shares – that's not great diversification, and banks and miners are not exactly known for delivering a lot of capital growth.

So, in summary, I think the VAS ETF is a solid option, but other choices could be even better for beginners over the long term.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon.com, Apple, Macquarie Group, Meta Platforms, Microsoft, and Vanguard Msci Index International Shares ETF. The Motley Fool Australia has positions in and has recommended Macquarie Group. The Motley Fool Australia has recommended Alphabet, Amazon.com, Apple, Meta Platforms, and Vanguard Msci Index International Shares ETF. 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 smiling woman with a satisfied look on her face lies on a rug in her home with her laptop open and a large cup on the floor nearby, gazing at the screen. researching new ETFs
ETFs

Is the Vanguard Australian Shares High Yield ETF (VHY) unit price a buy for passive income?

The VHY ETF has a reputation for big dividends. Is it a buy today?

Read more »

A man in his office leans back in his chair with his hands behind his head looking out his window at the city, sitting back and relaxed, confident in his ASX share investments for the long term.
ETFs

3 strong ASX ETFs to buy for simple investing

These funds make investing in quality stocks very easy.

Read more »

An older gentleman leans over his partner's shoulder as she looks at a tablet device while seated at a table.
ETFs

What is the Vanguard Australian Shares Index ETF (VAS) dividend yield?

This fund is known for paying sizeable income. But how big?

Read more »

Man looking at an ETF diagram.
ETFs

Why these ASX ETFs could be strong buys in August

Let's see why these funds could be worth adding to a balanced investment portfolio.

Read more »

Australian dollar notes in the pocket of a man's jeans, symbolising dividends.
Dividend Investing

Invested in ASX MOAT or other VanEck ETFs? It's dividend day!

Show us the money!

Read more »

female real estate agent stands proudly in front of house
ETFs

Can't break into the housing market? Here's 3 REIT ASX ETFs to consider

These three thematic funds focus on real estate 

Read more »

asx shares to buy and hold represented by man happily hugging himself
ETFs

5 fantastic ASX ETFs to buy and hold forever

These funds could be destined to deliver strong returns over the next decade and beyond.

Read more »

A woman looks questioning as she puts a coin into a piggy bank.
ETFs

The pros and cons of buying iShares S&P 500 ETF (IVV) units this month

Is this a good time to invest in this leading ETF?

Read more »