VNQ, the trading symbol of the Vanguard Real Estate Index Fund, is one of the most accessible options for beginner investors to gain exposure to a broad selection of U.S. real estate stocks, with over 160 U.S. shares held by the VNQ exchange traded fund (ETF).
Since its launch in 2004, VNQ has grown its assets to over $60 billion, helping spread its fixed expenses over a wide asset base. As a result, VNQ remains a low-cost (expense ratio of only 0.12%) option for investors of all sizes, from individuals just getting started in investing to institutions with decades of experience in the markets, to track the investable real estate stock universe in the United States.
In this article, we’ll share tips for choosing a stock broker to buy the VNQ ETF, provide a step-by-step guide to help you make your first purchase, highlight data provided by the ETF sponsor Vanguard, delve deeper into the reporting structure of VNQ, and more!
How to buy the VNQ ETF (Step-by-step guide)
1. Choose a good stock broker
Since VNQ is among the largest ETFs tracking U.S. real estate stocks, you can choose from many brokers to help you purchase. That said, consider the terms offered by each broker and ensure the broker you pick works with residents of your country. Below, we highlight four brokers that offer VNQ:
|Stock commission, US
|Free for US investors. Up to $0.0035 per share with a minimum of $0.35 for international investors
|Worldwide – exceptions apply.
|US and UK
|US, Hong Kong, China, Singapore, Japan, UK, Australia
2. Open and fund your account
Once you have weighed the pros and cons of each broker, you are all set to open an account. The process usually takes a few days as the broker verifies your identity. After the process is finalised, you must deposit money into your account.
3. Place a “Buy Order”
If you have found an online broker that suits your needs, managed to open an investment account, and made the initial deposit, you are all set to buy your ETF. All you have to do is find the ETF within your chosen broker and place a buy order. For this example, we will use the mobile version of Interactive Brokers GlobalTrader:
a) Search for Vanguard Real Estate ETF ( or the ticker “VNQ”) and select it from the list:
b) Click “Buy”:
c) Choose the order details. Now, it’s time to choose how to invest:
The three most important order parameters to set are:
- Type of order: By default, Interactive Brokers sets your order type as Limit, short for Limit order. This is good since it allows you to set a maximum price at which you are willing to buy the shares. The alternatives are a Market order, which will purchase your shares at the best available price immediately, and a Stop order, which is a more sophisticated order – it will enter a market order once a specific stop price is reached (in our example above, you may set the stop price anywhere below $82.09, for instance at $79).
- Limit price: Assuming you kept the “Limit” as the type of order, you need to set the maximum price you are willing to pay per share. If you use Market order, you do not need to fill this and will buy at the best available Ask price. If you use a Stop order, you need to set a Stop price.
- Shares: Here, you define the number of shares you want to purchase; alternatively, you may set a dollar amount instead.
Additionally, Interactive Brokers GlobalTrader allows you to set two more parameters that are not as important:
- TIF: Short for time in force. This option shows how long your order will remain active. It is set to Day by default, meaning it will get cancelled unless executed by the end of the day. The alternative is Good ‘Til Cancel, which means the order will be active for up to 90 days or until you cancel it manually.
- Market Hours: This option shows in which time interval your order will be valid. The default option is Extended, meaning your order participates in trading during regular trading hours, as well as before and after the regular opening hours of the exchange. However, while VNQ is one of the more liquid ETFs, trading in extended hours is often associated with larger bid-ask spreads and illiquidity, especially for smaller companies. Hence, you may want to change the default option to Regular, meaning your order participates in trading only during the regular opening hours of the exchange, when trading is most liquid. The last option is Overnight, which means your order only participates in trading after regular hours but before the exchange opens on the next day.
d) Preview the order: Finally, it is a good idea to click Preview and double-check everything is in order. A new window will appear:
e) Place the order: Once double-checking the order parameters, close the preview window (tap anywhere outside it or click Cancel) and drag Slide to Buy to the right to finish the process.
VNQ, or the Vanguard Real Estate Index Fund, is an ETF that tracks the MSCI US Investable Market Real Estate 25/50 Index, a United States-focused index that seeks to capture the large, mid and small-cap segments of the U.S. real estate equity market universe. You can learn more about the benchmark index in its November 2023 factsheet, available here.
VNQ is well diversified (the ETF holds over 160 different stocks), with the largest individual holdings being the top U.S. REITs such as:
- Prologis with a weight of ~7.55%
- American Tower with a weight of ~5.80%
- Equinix with a weight of ~4.95%
As a result, the top 10 individual holdings of VNQ currently account for about 36.5% of the ETF’s total exposure.
Since MSCI US Investable Market Real Estate 25/50 Index weights and composition change constantly as prices move and new companies are added or deleted (the index is usually rebalanced four times a year), you can find detailed information on VNQ’s holdings on its dedicated website, available here.
From a sector perspective, VNQ is heavily tilted to Industrial REITs, which account for 12.7% of ETF assets, followed by Retail REITs at 12.60% and Telecom Tower REITs at 12.1%:
The good thing about the VNQ is that it is an excellent, low-cost (expense ratio of 0.12%) investment vehicle for beginner and entry-level investors, as all changes needed to track the performance of the MSCI US Investable Market Real Estate 25/50 Index are automatically carried out by Vanguard, which manages the ETF. You only need to allocate capital to the ETF and (hopefully) watch it grow. VNQ also pays dividends quarterly.
Vanguard’s website keeps track of some key statistics of VNQ and its benchmark:
The two key ratios reported above are:
- Price/Earnings Ratio, or P/E. A measure of the company’s profits relative to its market capitalisation.
- Price/Book Ratio, or P/B. A measure of the company’s accounting value relative to its market capitalisation.
It is worth noting that US REITs depreciate their real estate just as one would depreciate a piece of machinery over time. However, unlike machinery, real estate tends to hold its value better over time (think of what house prices were 20 years ago!). This accounting treatment lowers profits (i.e. the P/E ratio above seems elevated). Furthermore, depreciation also lowers book value (i.e., the P/B ratio above may look elevated). Since depreciation is a non-cash expense, REITs often have cash available for distribution to shareholders in excess of accounting profits.
Last but not least, If you want to expand your U.S. real estate allocation with a diversified real estate exposure to markets outside the United States, you may want to consider another Vanguard fund:
- Vanguard Global ex-U.S. Real Estate Index Fund (ticker VNQI), which invests in over 650 international real estate companies. Largest holdings include Goodman Group at 2.88%, Mitsui Fudosan at 2.32%, and Vonovia at 2.14%. The ETF distributes dividends, and the expense ratio stands at 0.12%.
VNQ’s Financials and Performance
Once you have purchased VNQ ETF shares, keeping track of how VNQ is doing relative to other ETFs is a good idea. Doing so will give you greater insight into whether to add to your position, hold it, or sell it to pursue better opportunities elsewhere.
Apart from Vanguard’s dedicated website (available here), specialised platforms help you understand how VNQ is doing financially. One platform you can use is Koyfin – you can access ETF Holdings, Sector and Industry breakdowns, Dividend history, and more! Get a 20% discount on Koyfin.
For example, Koyfin allows you to quickly identify top-performing REITs among VNQ’s holdings:
That said, while such platforms cannot substitute your research 100% of the time, they can be very useful tools in the research process, saving you time and providing new investment ideas.
Who is Vanguard?
Vanguard is the second-largest asset manager in the world, behind BlackRock. Vanguard is the asset manager that democratises index funds by offering them to the general public. You can read the company’s complete history here. Some key facts about the company are:
- Vanguard was founded in 1975.
- It currently manages 430 funds.
- It has over 50 million clients.
- It has 20,000 employees.
Hence, it is fair to say Vanguard is one of the safest options when choosing an ETF provider.