This 3.3% ASX dividend stock is my retirement safety net

I am, unfortunately (or perhaps fortunately, depending on your outlook), a long way off retirement, or at least the traditional retirement age. However, I am hoping that by investing in ASX dividend stocks, I can bring that date closer.

One of the stocks I am using for this endeavour is the Vanguard Australian Shares Index ETF (ASX: VAS). I view this index fund as a valuable investment that will help me achieve an early retirement. But also as a safety net for my income once I have put away the writer’s pen for good.

This exchange-traded fund (ETF) is structured in a way that gives me confidence that it will perform both of these functions admirably.

How? Well, unlike most dividend stocks, this index fund is designed to ensure my capital is always invested in the best and most successful businesses on our stock market. Like most index funds, the Vanguard Australian Shares ETF tracks an underlying index that is weighted by market capitalisation.

In its case, the index that it tracks, the ASX 300, holds the largest 300 stocks listed on our share market at any given time. That’s everything from Commonwealth Bank of Australia (ASX: CBA) and Telstra Group Ltd (ASX: TLS) to JB Hi-Fi Ltd (ASX: JBH) and Ampol Ltd (ASX: ALD).

VAS has the ability to pass on any dividends received from this collection of Australian shares as well. This does vary from year to year. And from quarter to quarter. Its four most recent payouts give this index fund a decent trailing yield of about 3.3% (at current pricing).

An ASX dividend stock to hold for decades

However, the largest 300 stocks aren’t static. Share prices, and thus the valuations of public Australian companies, change daily while the market is open. One day, Westpac Banking Corp (ASX: WBC) might be more valuable than National Australia Bank Ltd (ASX: NAB). The next day, investors might decide that NAB is worthy of a higher market cap.

To reflect these changes and ensure that the index fund always reflects the current state of affairs, the Vanguard  Australian Shares ETF readjusts its holdings every three months. This is what’s known as a ‘rebalancing’. As such, the more successful companies are added over time. The ones that fall out of favour with the market are pruned. Some are even given the boot entirely and replaced with a new up-and-comer. This all occurs without the investor, myself, having to lift a finger or expend any mental energy whatsoever.

The nature of this index fund means that VAS will consistently deliver the ‘average’ return of the sharemarket to my portfolio. Whatever that may be. Historically, this has come in at around 9.4% per annum.

By holding onto this fund, I am confident that it will continue to build my wealth and ensure a comfortable retirement when the time comes.

The post This 3.3% ASX dividend stock is my retirement safety net appeared first on The Motley Fool Australia.

More reading

• 3 ASX ETFs every beginner investor should know about
• What type of ASX stock has become a ‘mainstay’ of Aussie portfolios?
• The Vanguard Australian Shares ETF (VAS) now has its first real ASX rival
• The 3-ETF portfolio that could last a lifetime
• How to make your first $10,000 in the ASX share market

Motley Fool contributor Sebastian Bowen has positions in National Australia Bank and Vanguard Australian Shares Index ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.