Is the Vanguard REIT ETF (VNQ) a good investment in 2023? • Benzinga

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Have you decided that the Vanguard real estate index fund a good investment? You can enable VNQ Webbull, Robin Hood and eToro Today

Exchange-traded funds (ETFs) and Real Estate Investment Trusts (REITs) are one of the easiest ways to get started in real estate investing. These ETFs include REITs that invest in physical assets (stocks), mortgages on those assets (debt), or a combination of the two (hybrid).

You can trade REIT ETFs intraday, with partners such as Webull, Robinhood, and eToro that offer commission-free trading. REIT ETFs like the Vanguard real estate index fund (NYSEARCA: VNQ) often have a cost per share of less than $100, making them accessible to more investors.

Many brokers also offer split investing, making it easy to start investing in REIT ETFs for as little as $1.

Below you will learn the ins and outs of VNQ and why it could be a good addition to your portfolio.

What is the Vanguard REIT ETF (VNQ)?

This REIT ETF is one of the most well-known real estate funds, mainly because it has $33 billion under management and 171 holdings. Holdings include reputable REITs such as Realty Income Corp. (NYSE:O), Simon Real Estate Group Inc. (NYSE: SPG) and SBA Communication Corp. (NASDAQ: SBAC).

Like many Vanguard funds, VNQ is passively managed, meaning it is designed to track an underlying index such as 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 reduce costs compared to actively managed funds.

VNQ Price History

This ETF was launched in 2004 and was trading at $52. It currently trades at $82, down from its all-time high of $116 in 52 weeks.

Like other ETFs, it is sensitive to general market downturns. Several factors, such as the ongoing war in Ukraine, record inflation, exorbitant energy costs and spikes in interest rates, have led to the current bear market.

VNQ has a market cap of $24.5 billion and an average daily trading volume of 6 million.

VNQ vs. Vanguard Real Estate Index Fund Admiral Shares

In addition to VNQ, you could invest in its sister fund, the Vanguard Real Estate Index Fund Admiral Shares. Both are passively managed and provide diversification to the real estate industry for the same low expense ratio of 0.12%.

Here are some key differences between them:

  1. VGLSX has a minimum investment of $3,000, while VNQ has no minimum investment.
  2. VNQ is an ETF that can be traded intraday, while VGLSX can only be traded around the daily reset, which occurs at the end of each trading day.
  3. Vanguard supports automatic dividend reinvestment for VGLSX but not for VNQ.

VNQ Alternatives

Two major rival REIT ETFs similar to Vanguard’s REIT VNQ are:

iShares Core US REIT ETF (NYSEARCA: USRT)

This REIT ETF trades at around $50 per share and has an expense ratio of 0.08%. It is currently down 24% this year and is underperforming VNQ (3.54% vs. 3.32%). Compared to VNQ, it has less assets under management ($33 billion vs. $1.9 billion) and fewer interests (171 vs. 140).

US REIT ETFs Charles Schwab (NYSEARCA: CHH)

Like VNQ and USRT, this passively managed ETF has the lowest expense ratio compared to the other two ETFs at just 0.07%. It has $5.6 billion in assets under management, 132 holdings and a return of 3.2%.

It also has the lowest price per share at just $19 and is down 25% since the start of the year.

How to buy the Vanguard REIT ETF (VNQ).

VNQ is easy to trade online with no commission, thanks to Webull, Robinhood and eToro. Being an ETF, it also trades intraday, which means you can trade it at any time of the day, unlike mutual funds.

ETFs also give you more flexibility when it comes to trading strategies such as buying on margin (using debt to trade) or going short. However, approach both strategies with caution as they are intended for advanced traders.

Trading VNQ through typical brokers like those listed above takes a few minutes. All you need to do is select the dollar or inventory amount, account, and order type (market orders are the most common).

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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 is recommended that you hold REITs and REIT ETFs in tax-advantaged accounts such as IRAs because their dividends are taxed at higher ordinary tax rates.

When you open a Roth IRA, you pay no taxes on any gains or dividends from your REIT ETF.

A traditional IRA allows you to deduct your contributions (maximum limit of $6,500 for taxpayers age 50 and under, $7,500 for taxpayers over 50 in 2023).

However, you still have to pay regular taxes on the accrued profits and income from your REIT ETFs when you receive distributions from a traditional IRA.

Determining whether a Roth IRA or a traditional IRA is best for you can be difficult. Benzinga’s guide can help make that decision easier.

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Is VNQ a good investment?

VNQ can be a good way to gain affordable real estate exposure given its low share price and expense ratio. This REIT ETF has grown significantly since its launch in 2004.

It also offers a respectable 3.54% yield, higher than many dividend-paying stocks and competing REIT ETFs. While it’s down 26% so far, the current price level could be 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 assets or mortgages. REIT ETFs are funds with multiple REITs as underlying holdings. Certain REIT ETFs are designed to track or mimic the performance of a benchmark such as the MSCI US Investable Market Real Estate 25/50 Index.

Q

2. Are REIT ETFs a good investment during rising inflation/interest rates?

A

REIT ETFs can perform well in times of high inflation and rising interest rates because rents can rise faster than inflation. Beware of REITs and REIT ETFs that use excessive leverage.

Disclaimer: The author owns stock in VNQ.

Not all news on the site expresses the site’s point of view, but we automatically transmit and translate this news through programmatic technology on the site and not from a human editor.

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