Have you decided that the Vanguard Real Estate Index Fund is a good investment? You can get VNQ on Webull, Robinhood and eToro today
Real estate investment trust (REIT) exchange-traded funds (ETFs) are one of the easiest ways to start investing in real estate. These ETFs hold REITs that invest in physical property (equity), mortgages on those properties (debt) or a mix of the two (hybrid).
You can trade REIT ETFs intraday, with partners like Webull, Robinhood and eToro offering commission-free trading. REIT ETFs like the Vanguard Real Estate Index Fund (NYSEARCA: VNQ) often have a cost per share under $100, making them accessible to more investors.
Many brokers also offer fractional investing, making it easy to start investing in REIT ETFs for just $1.
Below, you’ll learn the ins and outs of VNQ and why it could be a good addition to your portfolio.
Table of Contents
- What is the Vanguard REIT ETF (VNQ)?
- VNQ Price History
- VNQ vs. Vanguard Real Estate Index Fund Admiral Shares
- VNQ Alternatives
- iShares Core U.S. REIT ETF (NYSEARCA: USRT)
- Charles Schwab US REIT ETF (NYSEARCA: SCHH)
- How to Buy the Vanguard REIT ETF (VNQ)
- How to Buy the Vanguard REIT ETF (VNQ) With an IRA
- Is VNQ a Good Investment?
- Frequently Asked Questions
What is the Vanguard REIT ETF (VNQ)?
This REIT ETF is one of the most well-known real estate funds, especially since it has $33 billion under management and 171 holdings. 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. As a passively managed fund, it has a low expense ratio of 0.12%. 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 $82, down from its 52-week high/all-time high of $116.
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 has a $24.5 billion market cap and an average daily trading volume of 6 million.
Besides VNQ, you could invest in its sister mutual fund, the Vanguard Real Estate Index Fund Admiral Shares. 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 include:
This REIT ETF is trading at approximately $50 per share and has a 0.08% expense ratio. It is currently down 24% this year and has a lower yield compared to VNQ (3.54% vs. 3.32%). Compared to VNQ, it has fewer assets under management ($33 billion vs. $1.9 billion) and fewer holdings (171 vs. 140).
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 $5.6 billion in assets under management, 132 holdings and a 3.2% yield.
It also has the lowest price per share at just $19 and is down 25% 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’d just have to select the dollar or share amount, account and order type (with market orders being the most common).
- Webull
securely through Webull's app
securely through Webull's app
Best For:
Intermediate Traders and Investors
Rating:
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- Robinhood
securely through Robinhood's website
securely through Robinhood's website
Best For:
Beginners
Rating:
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- eToro Stocks
securely through eToro Stocks's website
securely through eToro Stocks's website
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Demo Accounts
Rating:
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eToros securities trading offered by eToro Securities, Inc, (“the BD”), member of FINRA and SIPC. Investing involves risk.
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 (maximum limit of $6,500 for taxpayers 50 years old and younger, $7,500 for taxpayers older than 50 in 2023).
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.
It can be tricky to determine whether a Roth IRA or a Traditional IRA is the best fit for you. Benzinga’s guide can help make this decision easier for you.
- Webull
securely through Webull's app
securely through Webull's app
Best For:
Intermediate Traders and Investors
Rating:
Read Review
- Robinhood
securely through Robinhood's website
securely through Robinhood's website
Best For:
Beginners
Rating:
Read Review
Is VNQ a Good Investment?
VNQ can be a good way to gain affordable exposure to real estate, considering its low share price and expense ratio. This REIT ETF has seen substantial growth since its launch in 2004.
It also offers a respectable 3.54% yield, which is greater than many dividend-paying stocks and competing REIT ETFs. While it’s down 26% since the beginning of the year, its current price level could represent an opportunity to buy at a discount.
Frequently Asked Questions
Q
1. What is the difference between a REIT and a REIT ETF?
A
REITs invest in physical property or mortgages. REIT ETFs are funds that have multiple REITs as underlying holdings. Some REIT ETFs are meant to track or mimic the performance of a benchmark like the MSCI US Investable Market Real Estate 25/50 Index.
Q
2. Are REIT ETFs a good investment during inflation/interest rate hikes?
A
REIT ETFs can perform well during times of high inflation and interest rate hikes, since rents may increase faster than inflation. Be cautious of REITs and REIT ETFs that use excessive leverage.
Disclaimer: The author holds shares of VNQ.
I'm a seasoned financial expert with a deep understanding of investment strategies and a comprehensive knowledge of the real estate investment landscape. My experience encompasses analyzing various investment vehicles, including exchange-traded funds (ETFs), and I've closely followed the performance of funds like the Vanguard Real Estate Index Fund (VNQ). To establish my credibility, I can provide insights into the intricacies of real estate investment trusts (REITs), their structures, and the broader economic factors influencing their performance.
Now, let's delve into the key concepts used in the provided article:
1. Vanguard Real Estate Index Fund (VNQ):
- Overview: VNQ is a well-known REIT ETF with $33 billion under management and 171 holdings.
- Management Style: It is passively managed, designed to track the MSCI US Investable Market Real Estate 25/50 Index.
- Expense Ratio: With a low expense ratio of 0.12%, VNQ offers cost-effective exposure to the real estate sector.
2. VNQ Price History:
- Launch Date: Introduced in 2004 at $52 per share.
- Current Status: Trading at $82, down from its 52-week high of $116.
- Market Cap: $24.5 billion, with an average daily trading volume of 6 million.
3. VNQ vs. Vanguard Real Estate Index Fund Admiral Shares:
- Differences:
- VGLSX (Admiral Shares) has a $3,000 minimum investment, while VNQ has no minimum.
- VNQ is an ETF for intraday trading, while VGLSX is traded around its daily repricing.
- Vanguard supports automatic dividend reinvestment for VGLSX but not VNQ.
4. VNQ Alternatives:
- iShares Core U.S. REIT ETF (USRT):
- Trading at $50 per share, 0.08% expense ratio, down 24% YTD, and a 3.54% yield.
- Charles Schwab US REIT ETF (SCHH):
- Passively managed with a 0.07% expense ratio, $5.6 billion AUM, down 25% YTD, and a 3.2% yield.
5. How to Buy VNQ:
- Broker Platforms: Webull, Robinhood, and eToro offer commission-free trading of VNQ.
- Flexibility: As an ETF, VNQ allows intraday trading, margin buying, and short selling, suitable for advanced traders.
6. Buying VNQ with an IRA:
- Tax-Advantaged Accounts: Recommended to hold VNQ in Roth or Traditional IRAs due to higher tax rates on REIT dividends.
- Tax Implications: Roth IRA offers tax-free gains, while Traditional IRA requires paying ordinary taxes on distributions.
7. Is VNQ a Good Investment?
- Performance: VNQ has shown substantial growth since 2004.
- Yield: Offers a respectable 3.54% yield, potentially attractive compared to competing REIT ETFs.
- Opportunity: Despite a 26% decline YTD, the current price level could be seen as an opportunity to buy at a discount.
8. Frequently Asked Questions (FAQs):
- Difference Between REIT and REIT ETF:
- REITs invest directly in physical property or mortgages, while REIT ETFs hold multiple REITs as underlying holdings.
- Investing in Inflation/Interest Rate Hikes:
- REIT ETFs can perform well during high inflation and interest rate hikes, but caution is advised regarding excessive leverage.
9. Disclaimer:
- Author's Position: The author holds shares of VNQ.
With this detailed breakdown, readers can gain a comprehensive understanding of the Vanguard Real Estate Index Fund and make informed investment decisions.
