The Vanguard REIT, formally known as the Vanguard Real Estate ETF (VNQ), is a popular exchange-traded fund designed to give investors exposure to a diversified portfolio of real estate investment trusts (REITs). These trusts invest in income-generating properties such as office buildings, residential complexes, industrial parks, and shopping centers.
As one of Vanguard's flagship real estate funds, VNQ is known for its low expense ratio, strong historical performance, and ability to generate dividend income, making it a go-to option for both passive and active investors seeking to incorporate real estate into their portfolios.
With its focus on diversification and cost efficiency, the Vanguard REIT provides an accessible way to gain broad exposure to the real estate market without directly owning property.
What is the Vanguard REIT ETF (VNQ)?
This REIT ETF is one of the most well-known real estate funds, especially since it has nearly $69 billion in net assets, 155 holdings, and expense ratio of 0.12%. Its holdings include reputable REITs like Realty Income Corp. (NYSE: O), Simon Property Group Inc. (NYSE: SPG), and SBA Communications Corp. (NASDAQ: SBAC).
Like many Vanguard funds, VNQ is passively managed, meaning that it’s designed to track an underlying index like the MSCI US Investable Market Real Estate 25/50 Index. Investing in low-cost passively managed funds can save fees compared to actively managed funds.
VNQ Price History
This ETF was launched in 2004, trading for $52. It’s currently trading at $96.24, down from its 52-week high of $99.58. VNQ has a $33.3 billion market cap.
Like other ETFs, it’s susceptible to general downturns in the market. Several factors like the ongoing war in Ukraine, record high inflation, sky-high energy costs, and interest rate spikes have led to the current bear market.
VNQ vs. Vanguard Real Estate Index Fund Admiral Shares
Besides VNQ, you could invest in its sister mutual fund, the Vanguard Real Estate Index Fund Admiral Shares (VGLSX). Both are passively managed and provide diversification to the real estate sector for the same low expense ratio of 0.12%.
Here are a few main differences between them:
- VGLSX has a minimum investment of $3,000, while VNQ has no minimum investment.
- VNQ is an ETF that can be traded intraday, while VGLSX can only be traded around its daily repricing, which happens at the end of each trading day.
- Vanguard supports automatic dividend reinvestment for VGLSX but not VNQ.
VNQ Alternatives
Two main rival REIT ETFs similar to Vanguard's REIT VNQ are:
iShares Core U.S. REIT ETF (NYSEARCA: USRT)
This REIT ETF is trading at approximately $61.34 per share and has a 0.08% expense ratio. It is currently up 26.3% this year and has a lower yield compared to VNQ (3.87% vs. 2.81%). Compared to VNQ, it has fewer assets under management and holdings.
Charles Schwab US REIT ETF (NYSEARCA: SCHH)
Like VNQ and USRT, this passively managed ETF has the lowest expense ratio compared to the other two ETFs at only 0.07%. It has $7.81 billion in net assets and a 2.96% yield. It also has the lowest price per share at just $22.74 and is up 9.8% YTD.
How to Buy the Vanguard REIT ETF (VNQ)
VNQ is easy to trade online commission-free, thanks to Webull, Robinhood, and eToro. Since it’s an ETF, it also trades intraday, meaning that you can trade it at any time during the day, unlike mutual funds.
With ETFs, you also have more flexibility when it comes to trading strategies like buying on margin (using debt to trade) or short selling. However, approach those two strategies with caution since they’re meant for advanced traders.
Trading VNQ through typical brokers like the ones listed above takes a few minutes to complete. You’ll just have to select the dollar or share amount, account, and order type (with market orders being the most common).
How to Buy the Vanguard REIT ETF (VNQ) With an IRA
With partners like Webull and Robinhood, you can hold VNQ in a Roth or Traditional IRA. It’s recommended to hold REITs and REIT ETFs in tax-advantaged accounts like IRAs, since their dividends are taxed at higher ordinary tax rates.
If you open a Roth IRA, then you won’t pay taxes on your REIT ETF’s gains or dividends. With a traditional IRA, you could deduct your contributions. However, you’d still have to pay ordinary taxes on the accumulated gains and income from your REIT ETFs when you take distributions from a traditional IRA.
Is VNQ a Good Investment?
VNQ can be a good way to gain affordable exposure to real estate, considering its share price and expense ratio. This REIT ETF has seen substantial growth since its launch in 2004. It also offers a respectable 3.87% yield, which is greater than many dividend-paying stocks and competing REIT ETFs.
However, VNQ's performance is influenced by interest rates and economic conditions, so it's best suited for long-term investors comfortable with market fluctuations.
Frequently Asked Questions
What is the average return of Vanguard REIT?
The average annual return of the Vanguard Real Estate ETF has been approximately 8–10% since its inception in 2004. However, returns vary depending on market conditions, interest rates, and the broader economic environment.
Is VNQ a buy or sell?
Whether VNQ is a buy or sell depends on your investment goals, market outlook, and financial situation. It may be a buy if you’re seeking diversified real estate exposure, income from dividends, and a hedge against inflation. It could be a sell if you’re concerned about rising interest rates, economic slowdown risks, or need liquidity.
Does VNQ pay monthly dividends?
No, VNQ does not pay monthly dividends. It typically distributes dividends quarterly.
Disclaimer: The author holds shares of VNQ.