The Vanguard Australian Shares Index ETF (ASX: VAS) is the biggest exchange-traded fund (ETF) on the ASX. I’m going to talk about some great reasons to own it.
The purpose of the VAS ETF is to invest in the ASX 300 (ASX: XKO), which represents 300 of the biggest businesses on the ASX.
There are many different reasons for liking the investment, so I’ll talk about three of them.
Diversification
Owning 300 different companies is a great level of diversification. For most people, being invested in the VAS ETF could be a better investment choice than just owning a small number of the ASX blue chip shares individually, such as just BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd (ASX: NAB) shares.
If investors own more shares, it reduces the risk of a particular investment hurting the overall return too much.
It gives greater exposure to some of the things the Australian economy is good at, including financials, resources and healthcare.
Low fees
For a long period of time, the only way for investors to buy a portfolio in a single investment was by investing in a fund managed by an active fund manager, who typically charged significant management fees.
Index funds, which just track a benchmark such as the ASX 300, have managed to significantly reduce costs for households, including the VAS ETF.
The Vanguard Australian Shares Index ETF has an annual management fee of just 0.07%. It’s one of the cheapest ETFs that Aussies can buy.
Portfolio adjusts over time
I think one of the most useful things to keep in mind about ETFs like VAS is that their portfolios steadily change as some businesses succeed and others fail.
We’re not just buying 300 businesses and then owning these same stocks for the rest of time. The VAS ETF a dynamic portfolio which regularly changes, ensuring we’re just owning businesses with a decent future and not hanging onto a business until it goes bust.
On the flipside, a rising business will become a larger position in the portfolio. Over time, businesses like REA Group Limited (ASX: REA) and WiseTech Global Ltd (ASX: WTC) have been added to the ASX 300 and become a larger position.
