Is the Vanguard Australian Shares Index ETF (VAS) one of the best ways to grow wealth?

The VAS ETF makes it simple to invest in ASX shares.

| More on:
ETF spelt out with a piggybank.

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 most popular ASX exchange-traded fund (ETF) is the Vanguard Australian Shares Index ETF (ASX: VAS). I'm measuring popularity by how much money is invested in the fund, which was $18.7 billion at the end of January 2025.

ETFs like the VAS ETF track an index of shares. This fund tracks the S&P/ASX 300 Index (ASX: XKO), which is a list of 300 of the biggest businesses on the ASX.

This could be an effective option for investors that just want to track the performance of the 'Australian share market'.

Is it a good option to invest in? Here are some of my views on it.

Why the VAS ETF is useful

Investors don't need to find the next Microsoft or Amazon to grow their wealth at a good pace. If an investment delivers a return of 8% per year, it would mean their money doubles in approximately a decade.

There are some professional investors that fail to beat the return of the ASX share market, so owning the VAS ETF can lead to outperforming professional investors who look at shares for a living. Just achieving the 'average' is actually a pretty good outcome.

One of the main attractions of the Vanguard Australian Shares Index ETF is its incredibly-low annual management cost of 0.07%. Some funds that professionals manage charge 1% of the fund's value as fees, and may also charge outperformance fees if they do beat the market.

Over the past five years, the VAS ETF has delivered an average return per year of 7.9%. As part of those returns, the fund usually pays a pleasing level of passive income, which is largely the dividend income the ETF has received from the businesses it's invested in. In the last five years, the ASX ETF's distribution has been an average of 4.4% per year.

Why I don't think it's one of the best ways to grow wealth

The VAS ETF has done its job at tracking the ASX. However, the ASX 300 is dominated by ASX financial shares and ASX mining shares, which are not known for delivering big profit growth year after year.

I believe profit (growth) ultimately justifies share prices going higher, and funds the dividends.

According to Vanguard, the VAS ETF portfolio of companies had a return on equity (ROE) of 12.4% at 31 January 2025. For money not paid out as a dividend, investors may expect the retained money to make a return (profit) of 12.4%. So, if a business retains $100, it may boost annual profit by an additional $12.40.

The companies in the global share market usually have a higher ROE than 12.4%. For example, the Vanguard MSCI Index International Shares ETF (ASX: VGS) has a portfolio ROE of 19.6%. That means retained money could make a return of almost 20%.

Over the years, I'd expect the profits of businesses with a higher ROE to grow faster than those of businesses with a low ROE because the reinvested money can earn more. Therefore, businesses with a higher ROE are more likely to produce stronger shareholder returns over the long term.

Aussies can and perhaps should invest some money in the ASX share market/VAS ETF. However, for wealth growth, it may be more beneficial to allocate a larger portion to global businesses, especially if passive income is not a primary goal.

We should also remember that receiving higher levels of passive income could mean handing more of our returns over to the Australian Taxation Office. Income is taxed each year it's received. That may not be as effective as holding onto a growing asset and not selling it (and not activating capital gains tax (events)).

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 Amazon 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 Amazon, Microsoft, 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 businessman hugs his computer and smiles.
ETFs

Why these ASX ETFs could be top buy and hold forever picks

Let's see why these funds could be great options for investors to buy and hold.

Read more »

ETF written in yellow with a yellow underline and the full word spelt out in white underneath.
ETFs

3 ASX ETFs for a $500 investment

These funds offer investors access to companies both locally and across the globe.

Read more »

Gold bars and Australian dollar notes.
ETFs

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

Has this ASX gold ETF delivered for investors amid the recent gold price bonanza?

Read more »

A woman in a hammock on her laptop and drinking a smoothie
ETFs

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

Since inception, the Fang+ ETF's total returns have averaged 30.82% per annum. No wonder it's popular.

Read more »

Businessman smiles with arms outstretched after receiving good news.
ETFs

3 reasons why this fund could claim to be the best ASX ETF

I think this fund has great elements that make it one of the best ETFs on the ASX.

Read more »

Happy teen friends jumping in front of a wall.
ETFs

4 ASX ETFs for Aussie investors to buy in June

Let's take a look at what shares these funds are invested in.

Read more »

share buyers, investors, happy investors
ETFs

How I would build a $100,000 portfolio with ASX ETFs today

You don't need more than three ETFs to build a diversified portfolio...

Read more »

A young couple sits at their kitchen table looking at documents with a laptop open in front of them.
ETFs

3 reasons why the Vanguard MSCI Index International Shares ETF (VGS) is a strong long-term buy

I think this ETF is an excellent investment for a few different reasons.

Read more »