Is it time to buy the Vanguard Australian Shares ETF?

The Vanguard Australian Shares Index ETF (ASX: VAS) is set to open at $106.92 on Friday, down approximately 6.5% from its 52-week high.

That is not a huge fall, but I think it does make the ASX exchange-traded fund (ETF) a little more interesting for long-term investors.

A simple way to invest in Australia

One of the main reasons I like the VAS ETF is its simplicity.

Instead of trying to pick which individual ASX shares will perform best, investors can gain exposure to a large basket of Australian companies in one trade. This includes Coles Group Ltd (ASX: COL), Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), Xero Ltd (ASX: XRO), and Zip Co Ltd (ASX: ZIP).

That can be useful because the Australian share market has plenty of high-quality businesses, but it can be difficult to know which ones will outperform over the short term.

The Vanguard Australian Shares Index ETF spreads the investment across 300 different companies and many sectors. That does not remove risk, but it does reduce the reliance on any single business getting everything right.

For investors starting out, I think that can be especially helpful. It gives them instant diversification and removes some of the pressure that comes with choosing individual stocks too early.

Dividends and franking

Another reason the VAS ETF appeals to me is income.

Australian shares are known for their dividends, and the VAS ETF gives investors exposure to that part of the market.

Many of the companies held by the fund pay dividends, and some of those dividends come with franking credits. That can be attractive for Australian investors, depending on their tax position.

I do not think Vanguard Australian Shares Index ETF should be viewed only as an income investment. There is still capital growth potential over time, especially if the Australian economy and corporate earnings continue to expand.

But the dividend component can help smooth the journey. Even when share prices are moving around, distributions can provide a useful return along the way.

A good first step

I think the Vanguard Australian Shares Index ETF can make sense for investors who want a straightforward way to put money to work in ASX shares.

It is not trying to be clever. It is not built around a narrow theme. It is not asking investors to guess which sector will be strongest next year.

Instead, it gives broad exposure to the local market.

That can be a good thing. A simple fund can often be easier to hold through market weakness than a more complicated strategy that requires constant checking and second-guessing.

The recent pullback from its 52-week high may also give investors a slightly better entry point than they had earlier in the year.

Of course, the VAS ETF can fall further if the broader market weakens. Investors still need to be comfortable with share market volatility. But for a long-term investor, I think buying after a modest pullback can make sense.

Foolish takeaway

I think now could be a good time to buy the Vanguard Australian Shares Index ETF for investors wanting broad Australian share market exposure.

It offers instant diversification, access to many of the country’s largest listed businesses, and the potential for both capital growth and dividends over time.

The fund will not be the most exciting option on the ASX, and it will not beat every individual share. But that is not really the point.

For investors who want a simple, low-fuss way to invest in Australian shares, I think the VAS ETF remains one of the strongest options on the market.

The post Is it time to buy the Vanguard Australian Shares ETF? appeared first on The Motley Fool Australia.

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• How to generate $20,000 a year in passive income on the ASX
• 3 Vanguard ETFs for Australian investors to build wealth by 2036

Motley Fool contributor Grace Alvino has positions in Commonwealth Bank Of Australia and Vanguard Australian Shares Index ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool Australia has recommended BHP Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.