Why I think the VAS ETF is a top pick for beginners and experienced investors

Some investments make sense whether someone is buying their first shares or has been investing for decades.

I think the Vanguard Australian Shares Index ETF (ASX: VAS) falls into that category.

This exchange-traded fund (ETF) provides a simple way to own a large part of the Australian share market through a single investment.

The VAS ETF is a straightforward place to begin

For someone new to investing, choosing individual shares can feel daunting.

The VAS ETF removes much of that pressure by tracking the S&P/ASX 300 Index (ASX: XKO). Instead of deciding which Australian shares will perform best, investors gain exposure to hundreds of businesses.

That includes major banks like Commonwealth Bank of Australia (ASX: CBA) and miners like BHP Group Ltd (ASX: BHP), as well as healthcare companies, retailers, industrial businesses, and technology shares.

I think this can help beginners avoid putting too much money behind one early stock pick while they are still learning how the market works.

It also keeps the strategy easy to follow. An investor can regularly add money to the fund, reinvest dividends if they choose, and give the underlying businesses time to grow.

Experienced investors can still find plenty to like

Having more investing experience does not mean every part of a portfolio needs to become more complicated.

An experienced stock picker might own a collection of companies where they have particularly strong convictions, while using this Vanguard ETF to maintain exposure to the wider Australian market.

That means they do not need to personally identify every company that could perform well.

If a business becomes increasingly valuable, its influence within the market can grow. If another company loses ground, its importance can decline.

I like the idea of having part of a portfolio automatically track the Australian share market while leaving individual stock picking to areas where I believe I have a stronger view.

There is an income component to the VAS ETF

Australian shares have traditionally returned a meaningful amount of cash to shareholders through dividends.

Because the VAS ETF owns hundreds of those companies, investors receive payouts generated from the underlying portfolio. Franking credits can also form part of those distributions.

I would still view the ETF primarily as a long-term investment rather than simply chasing income. But receiving distributions while retaining exposure to potential capital growth gives investors more than one way to benefit over time.

Simplicity has value at every stage

I think investors sometimes assume they should make their portfolios more sophisticated as they gain experience.

I am not convinced that is necessary. Keeping part of a portfolio simple can reduce the number of decisions that need to be made and make it easier to stay invested through periods of volatility.

The VAS ETF will still fall when the Australian market struggles, so diversification does not remove risk. But it avoids having the outcome depend on a small number of companies.

Foolish takeaway

The reason I like the VAS ETF is that investors do not need to outgrow it.

It can provide a simple starting point for someone making their first investment and remain a strong portfolio holding years later.

For investors wanting broad Australian exposure without constantly choosing individual winners, I think the ETF deserves serious consideration.

The post Why I think the VAS ETF is a top pick for beginners and experienced investors appeared first on The Motley Fool Australia.

More reading

• Are these 2 top Vanguard ETFs still worth buying today?
• How to build an ASX portfolio you do not need to check every day
• How many Vanguard Australian Shares Index ETF (VAS) units do I need to buy for $10,000 of passive income?
• How much super do you need to retire on $100,000 a year?
• How I’d make investing easy with Vanguard ETFs

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 no position in any of the stocks mentioned. 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.