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

Should new investors start with the VAS ETF?

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The Vanguard Australian Shares Index ETF (ASX: VAS) is the most popular ASX-listed exchange-traded fund (ETF). Is it the right choice for beginners?

The ETF is $14.6 billion in size, there are a lot of people who have some money allocated to this investment fund.

As a reminder, an ETF is a fund that allows people to buy a basket of shares in a single investment. This means we don't need to go and buy hundreds of businesses ourselves. Fewer transactions save on a lot of brokerage fees, which is a great benefit. We also don't need to worry about all the buying and selling of the companies in the portfolio.

If you're a beginner looking for more information about money, investing and the ASX share market, then don't miss The Motley Fool Australia's free Financial Literacy Week coming up soon.

The reasons why the VAS ETF is so popular also explain why it could be a good choice for beginner investors.

Very low management fees

Not everyone wants to spend a lot of time looking at the share market, so delegating the investing could be a good idea.

Investment fees can make a big difference to our wealth over time. The VAS ETF has an annual management fee of 0.07%, whereas plenty of fund managers charge a fee of at least 1%.

A 10% gross return would become a 9.93% net return after a 0.07% fee. If we assume the same gross return of 10%, the net return would be 9% after a 1% fee. The difference of less than 1% may not seem that much in one year, but it can cause a large difference in dollar terms over a number of years.

$10,000 growing at an average of 9.93% per year would become $25,773 after ten years.

$10,000 growing at an average of 9% per year would become $23,674 after ten years.

That's a difference of more than $2,000!

Diversification

Owning the Vanguard Australian Shares Index ETF comes with underlying exposure to a lot of different businesses, which is good for beginner investors.

It tracks the return of the S&P/ASX 300 Index (ASX: XKO), which represents 300 of the largest businesses on the ASX.

Owners of VAS ETF units get exposure to the 300 holdings, with holdings like BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), CSL Ltd (ASX: CSL), Wesfarmers Ltd (ASX: WES) and Woodside Energy Group Ltd (ASX: WDS).

A lot of different sectors are represented in the portfolio, including ASX financial shares, ASX mining shares, ASX healthcare shares, ASX retail shares and so on. However, more than half is invested in financials and miners, which is less diversified than other share markets (such as the global share market).

Decent returns

The Vanguard Australian Shares Index ETF isn't full of large, fast-growing technology companies, so its long-term return hasn't been as strong as the Vanguard MSCI Index International Shares ETF (ASX: VGS) or the iShares S&P 500 ETF (ASX: IVV).

Having said that, the rate of returns and compounding is still good enough to enable good growth.

Over the past decade, the VAS ETF has achieved total returns per annum of 8.29%, which saw average passive income returns of 4.54% per year and average capital growth returns of 3.75%. These numbers don't include the benefit of franking credits.

I think Vanguard Australian Shares Index ETF is a good option for beginner investors, but I'd suggest it play just a part in a portfolio, with a substantial portion invested in global shares as well. The ASX only makes up around 2% of the global share market.

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 CSL, Wesfarmers, and iShares S&P 500 ETF. The Motley Fool Australia has positions in and has recommended Wesfarmers. The Motley Fool Australia has recommended CSL, Vanguard Msci Index International Shares ETF, and iShares S&P 500 ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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