The Vanguard ETFs I’d buy first if I were starting again

Money keeps pouring into two of the ASX’s most popular Vanguard exchange-traded funds (ETFs), and it’s not hard to see why. The Vanguard Australian Shares Index ETF (ASX: VAS) and Vanguard MSCI International Shares ETF (ASX: VGS) now collectively oversee roughly $40 billion in funds under management.

For a huge number of Australian investors, this pair effectively is the foundation of their portfolio. If I were starting from scratch, these two ETFs are exactly where I’d begin.

Building an investment portfolio from nothing can feel overwhelming. There are thousands of shares to sort through, endless opinions, and constant market noise pulling investors in every direction.

For beginners, ASX ETFs cut through all of that. Buy one fund, and you instantly own a slice of dozens, or hundreds of companies, without having to bet everything on picking the next big winner yourself.

VAS: owning corporate Australia in one trade

This top Vanguard ETF gives investors exposure to the 300 largest companies listed on the ASX. It’s a simple, one-click way to own a piece of corporate Australia.

Recent performance hasn’t been flashy. The fund is down around 3% over the past month and roughly 0.5% over 12 months. But chasing short-term returns misses the point of an ETF like this entirely.

What VAS really offers is broad exposure across Australian industries, paired with a genuinely attractive income stream. Commonwealth Bank of Australia (ASX: CBA) and BHP Group Ltd (ASX: BHP) sit among its largest holdings, each making up more than 10% of the fund.

The dividend yield currently sits around 3.8%. That is solid, but it’s worth remembering that Australian equities lean heavily on financials and resources. Buy VAS, and you’re making a concentrated bet on those two sectors whether you realise it or not.

VGS: the antidote to a home-country-only portfolio

This is where the second largest Vanguard ETF earns its place. It directly tackles the biggest weakness of an Australia-only portfolio: concentration.

VGS provides exposure to developed international markets and has returned around 8% over the past year. it spreads investors’ money across hundreds of companies well beyond the ASX. The US dominates the portfolio, with tech giants like Apple inc (NASDAQ: AAPL) and Nvidia Corp (NASDAQ: NVDA) each representing more than 5% of the fund at the time of writing.

That global reach matters. It reduces reliance on Australia’s relatively small, concentrated share market, and opens the door to industries and business models that barely exist on the ASX at all. Think large-scale semiconductor manufacturers, global software platforms and consumer tech giants.

None of that makes VGS risk-free, though. International markets can correct sharply and geopolitical shocks can hit hard. Currency swings in the Australian dollar can also chip away at returns for local investors.

The post The Vanguard ETFs I’d buy first if I were starting again appeared first on The Motley Fool Australia.

More reading

• Should I buy CBA shares before the end of September?
• Why I’d invest $50,000 of superannuation into these 3 top ASX ETFs
• Soul Patts vs BHP: Which ASX share is best for beginners?
• 2 ASX blue-chip shares that won’t be hit by $100 oil
• How much passive income can I earn off an $800,000 superannuation balance?

Motley Fool contributor Marc Van Dinther has positions in BHP Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple and Nvidia. The Motley Fool Australia has recommended Apple, BHP Group, Nvidia, 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.