If You'd Invested $1,000 in Vanguard Real Estate ETF (VNQ) 5 Years Ago, Here's How Much You'd Have Today

Source Motley_fool

Key Points

  • $1,000 invested in the Vanguard Real Estate ETF a decade ago would be worth about $1,770 today.

  • That’s significantly less than what the S&P 500 would have returned.

  • There are some good reasons for the sluggish performance, and it could be set to turn around.

  • 10 stocks we like better than Vanguard Real Estate ETF ›

I won't keep you in suspense. If you had invested $1,000 in the Vanguard Real Estate ETF (NYSEMKT: VNQ) a decade ago, you would have about $1,770 today, assuming you reinvested your dividends along the way.

This isn't a terrible outcome. After all, you wouldn't have lost money. But when you consider that $1,000 invested in an S&P 500 index fund such as the Vanguard S&P 500 ETF (NYSEMKT: VOO) 10 years ago would be worth $3,900, it doesn't exactly look like stellar performance.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Woman looking at monitor with frustrated expression.

Image source: Getty Images.

What went wrong?

The short version is that the real estate sector underperformed the S&P 500 because, first, the S&P 500 has been on an incredible bull run. It has produced annualized total returns of about 14.6% over the past decade, making it touch to beat.

In addition, real estate is perhaps the most rate-sensitive sector of the market. Over the past 10 years, we've seen two prolonged periods of Federal Reserve rate increases, with a global pandemic in between. In fact, the benchmark federal funds rate is more than 400 basis points higher than it was a decade ago.

Real estate investment trusts (REITs) have a strong history of outperforming the market in falling rate or zero-rate environments but underperforming when rates are high or rising.

Without turning this into an economics lesson, there are a few reasons REITs are so sensitive to interest rates. One is borrowing costs. REITs tend to rely heavily on borrowed money to grow, similar to how you might rely on a mortgage to buy a home. Rising rates make the economics of borrowing less favorable.

In addition, rising rates put pressure on commercial real estate property values, which tend to have an inverse relationship with risk-free interest rates (those offered by Treasury securities). The properties REITs own can literally be worth less simply because rates went higher.

On the other hand, it's worth noting that these things can also become real estate's biggest catalysts in a falling-rate environment.

Should you invest $1,000 in Vanguard Real Estate ETF right now?

Before you buy stock in Vanguard Real Estate ETF, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vanguard Real Estate ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $649,657!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,090,993!*

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*Stock Advisor returns as of August 25, 2025

Matt Frankel has positions in Vanguard Real Estate ETF and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Vanguard Real Estate ETF and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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