Is Vanguard Diversified High Growth Index ETF (VDHG) the only investment you need?

This ETF provides enormous diversification.

| More on:
ETF in written in different colours with different colour arrows pointing to it.

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 Diversified High Growth Index ETF (ASX: VDHG) is a popular exchange-traded fund (ETF) for the diversification that it offers. Is it the only investment we need?

Vanguard is one of the world leaders at providing extremely low-cost investment options. The owners of Vanguard are the investors themselves – it shares the profit by making the investment funds as cheap as possible.

While Vanguard offers numerous index funds, the VDHG ETF is a bit different. It's invested across a number of funds, with a preference for growth-focused assets (shares) over defensive assets (bonds). There are a number of reasons to like it.

Extremely diversified

The VDHG ETF is invested across seven different funds. At the end of January 2023, these were the weightings for the growth funds:

Vanguard Australian Shares Index Fund (wholesale) (36.3%)

Vanguard International Shares Index Fund (wholesale) (26.6%)

Vanguard International Shares Index Fund (hedged) – AUD class (16.1%)

Vanguard International Small Companies Index Fund (wholesale) (6.4%)

Vanguard Emerging Markets Shares Index Fund (wholesale) (4.6%)

It's also invested in two bond funds, those allocations are:

Vanguard Global Aggregate Bond Index Fund (hedged) (7%)

Vanguard Australian Fixed Interest Index Fund (wholesale) (3%)

If we were to look at all of the underlying businesses that the VDHG ETF is invested in, it would be a four-figure number, meaning in the thousands. That's excellent diversification.

The addition of the bonds can provide the portfolio with some stability during global share market volatility.

Low fees

The VDHG ETF has very low costs considering how diversified it is. The lower the costs, the more the investment returns stay with the investor. This investment option has an annual fee of 0.27%.

Active fund managers typically charge at least 1% and sometimes outperformance fees as well. Fees can make a difference to our wealth to the tune of tens of thousands of dollars over 30 or 40 years.

Decent returns

Over the five years to January 2024, the VDHG ETF has made an average return per annum of 9.6%.

If someone invested $1,000, it would double to more than $2,000 in around eight years growing at that rate.

Of course, past performance is not a reliable indicator of future returns. The VDHG ETF could deliver better returns in the next five years (or it could do worse).

I think investing in shares gives it a good chance of returns over the long term, though that can come with more volatility.

Why I wouldn't make it my only investment

I like the concept of the VDHG ETF, and it can make things very simple for some investors.

However, if I'm going to invest in an ETF for the purpose of gaining exposure to shares, it may as well have 100% exposure to shares. In my mind, the bond returns are likely to drag on the VDHG ETF's return because they lack the potential to deliver strong capital growth.

It also has a very large allocation to the ASX share market, when the ASX only accounts for 2% of the global share market. I'd prefer a bigger allocation to global winners like Microsoft and Alphabet than what the VDHG ETF provides. I like Vanguard MSCI Index International Shares ETF (ASX: VGS), as an example that's purely about shares.

Suzanne Frey, an executive at Alphabet, 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 and Microsoft. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet 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

Man looking at an ETF diagram.
ETFs

These Vanguard ASX ETFs rose more than 15% in the last year

This ETF provider has had some winning funds in the last 12 months. 

Read more »

Five happy friends on their phones.
ETFs

3 ASX tech ETFs with serious upside potential

Let's take a closer look at these exciting funds.

Read more »

A couple cheers as they sit on their lounge looking at their laptop and reading about the rising Redbubble share price
ETFs

5 ASX ETFs to buy with $10,000 today

These funds could be worth a deeper dive. Let's see what they offer.

Read more »

A male investor wearing a white shirt and blue suit jacket sits at his desk looking at his laptop with his hands to his chin, waiting in anticipation.
ETFs

Why S&P 500 focused IVV ETF isn't as diversified as you might think

Is the IVV ETF a risky investment today?

Read more »

A elder man and woman lean over their balcony with a cuppa, indicating share rpice movement for ASX retirement shares
ETFs

The long game: ASX ETFs to target amidst an ageing population

These funds could be set to benefit from increased demand in global healthcare. 

Read more »

a smiling woman sits at her computer at home with a coffee alongside her, as if pleased with her investments.
ETFs

I rate this ASX ETF as one of the best Aussies can buy

This fund is incredibly high quality. Here’s why it’s so good…

Read more »

The letters ETF on wooden cubes with golden coins on top of the cubes and on the ground
ETFs

These 2 top ASX ETFs look like smart long-term buys after the RBA held rates in July

These could be two of the best ASX ETFs to buy today.

Read more »

A female ASX investor looks through a magnifying glass that enlarges her eye and holds her hand to her face with her mouth open as if looking at something of great interest or surprise.
ETFs

3 exciting ASX ETFs for Aussie investors to watch

Let's see why these funds should be on your watchlist right now.

Read more »