Real estate investment trusts (REITs) and the Vanguard Real Estate ETF (VNQ) allow advisors in invest in real estate without actually owning property.

REITs are an ideal option for investors looking to add supplemental and passive income. In addition, investors can reap the benefits of price appreciation, particularly in the current real estate environment.

“REITs give investors the option of investing in real estate without the expense of purchasing and maintaining an actual property,” Yieldstreet explained. “REITs generally have wider diversification, lower risk factors, and potential appreciation so they may be potentially beneficial additions to an equity or fixed-income portfolio.”

VNQ seeks to provide a high level of income and moderate long-term capital appreciation by tracking the performance of the MSCI US Investable Market Real Estate 25/50 Index that measures the performance of publicly traded equity REITs and other real estate-related investments. The fund:

  • Invests in stocks issued by real estate investment trusts (REITs), companies that purchase office buildings, hotels, and other real property.
  • Aims to track the return of the MSCI US Investable Market Real Estate 25/50 Index.
  • Offers high potential for investment income and some growth; share value rises and falls more sharply than that of funds holding bonds.
  • Can help offset equity risk.

VNQ Chart

A Diversified Real Estate Portfolio

Per the Yieldstreet article, “put simply, passive real estate investing is investing in real estate without substantial hands-on effort or active participation from the investor.”

The diversification comes with a deep well of holdings to mitigate concentration risk. The largest holding as of 4/30/21, is American Tower Corp.

“VNQ, which tracks the MSCI US Investable Market Real Estate 25/50 Index, has 174 holdings,” an Investorplace article explained. “Since its inception in September, 2004, net assets have grown to $72.9 billion. In other words, it is one of the largest real estate ETFs.”

“The top three sectors of the fund include specialized REITs (37.7%), residential REITs (13.8%), industrial REITs (10.7%), retail REITs (10%), and health care REITs (8.%). Specialized REITs usually invest in telecommunications and data center spaces, which have seen increased growth in recent quarters,” the article added.

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