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The Vanguard Australian Shares Index ETF (ASX: VAS) closed Thursday’s session at $99.92 per unit, down 0.22%.
This ASX ETF is one of the most popular exchange-traded funds (ETFs) on the market today.
It’s an attractive option for passive investors who don’t want to spend time researching individual stocks.
As we recently reported, the VAS ETF was the No. 1 most traded security among three generations of investors using the Selfwealth platform in FY24.
Based on data published by Selfwealth Ltd (ASX: SWF), Gen X, Millennials, and Gen Z investors all had a high buying conviction on this ASX ETF, with more than 80% of their trades being purchases.
The VAS ETF seeks to mirror the performance of the S&P/ASX 300 Index (ASX: XKO) before fees.
This means VAS ETF investors get exposure to blue-chip mega stocks like BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia Ltd (ASX: CBA), and CSL Ltd (ASX: CSL), as well as small-cap stocks at the back of the index, such as Megaport Ltd (ASX: MP1) and Temple & Webster Group Ltd (ASX: TPW).
Power of compounding with VAS ETF
Vanguard recently published some numbers showing what a $5,000 investment in the VAS ETF 10 years ago would be worth today.
The ETF provider said an initial investment of $5,000 in the VAS ETF on 1 July 2014, with distributions reinvested, would have been worth $10,720.52 on 30 June this year (excluding acquisition costs, fees and taxes).
So, the investment would have more than doubled in value over a decade.
That sounds pretty good. It takes into account the rise in the ETF price (capital gain), the distributions (dividends) you received, and the compounding effect of reinvesting those distributions.
While past performance is no guarantee of future performance, this example shows that reinvesting distributions were all a passive investor needed to do to double their investment over this period.
But what if they had invested some spare income, say $100 a month, into the VAS ETF along the way?
Glad you asked.
What your spare money can do for you
In a recent article, Vanguard pointed out that even small amounts invested regularly can seriously boost your long-term returns.
For example, if you had invested $5,000 in the VAS ETF on 1 July 2014, reinvested your distributions, and bought an extra $100 worth of units every month, your investment would now be worth $29,195.82.
That’s more than 2.5x the return achieved with no extra money in. That spare $100 a month is suddenly looking a lot more useful than its face value, right?
Once again, this is the magic of compounding at work.
What if you invested an extra $200 per month? Your investment would now be worth $47,671.12.
What about $500 per month? Well, now we’re getting into much bigger numbers. On 30 June this year, your VAS ETF investment would have been worth $103,097.01.
Foolish takeaway
If you like the idea of distribution reinvestment, Vanguard makes it easy. You can ask them to reinvest your distributions automatically by opting into the VAS ETF dividend reinvestment plan (DRP).
Check out how the Vanguard Australian Shares Index ETF performed in FY24.