Real estate has been one of the worst-performing stock market sectors in recent years, mainly thanks to interest rate headwinds. While this hasn’t exactly been a great catalyst for real estate investment trust (REIT) returns lately, it has created opportunities for long-term investors to add top-quality real estate exchange-traded funds (ETFs) at relatively cheap valuations.
With that in mind, here are three real estate ETFs in particular that could be worth a closer look for long-term investors right now. Investing just $500 per month in REITs can make you a millionaire, so here are the ETF details and why they could be such effective wealth-creation tools.
The flagship real estate ETF
There’s a solid case to be made for investing only in the Vanguard Real Estate ETF (VNQ 0.60%) for real estate exposure. In full disclosure, this is the only real estate ETF I own in my portfolio, although I do own shares of some individual REITs.
The Vanguard Real Estate ETF tracks an index of U.S.-based real estate investment trusts. As of the latest information, there are 158 stocks in the portfolio. It is a weighted index, which means larger REITs comprise a greater percentage of the assets. To name just a few, some of the largest holdings include Prologis, Equinix, Simon Property Group, and Realty Income.
As of this writing, the Vanguard Real Estate ETF has a 3.6% dividend yield. This ETF has a low 0.13% expense ratio, meaning you’ll pay $13 in investment fees for every $10,000 invested. (This isn’t a fee you must pay. It will simply be reflected in the fund’s performance over time.)
Diversify your real estate exposure
One thing I’ve been doing in my own portfolio lately is trying to add some geographic diversification. And while I haven’t pulled the trigger yet, one ETF toward the top of my watch list right now is the Vanguard Global ex-U.S. Real Estate ETF (VNQI 0.67%).
Similar to the Vanguard Real Estate ETF, this fund tracks a weighted index of REITs. There are currently 678 of them in the portfolio, and the largest exposures are to Japan (23% of assets), Australia (12%), and the U.K. and Hong Kong (7% each).
It might surprise you to learn that the international version actually has a slightly lower expense ratio (0.12%) than the Vanguard Real Estate ETF. It is also a higher-paying ETF, with a 5% yield as of this writing.
An active approach to REIT investing
The JPMorgan Realty Income ETF (JPRE 0.84%) has the highest expense ratio in this discussion, with a 0.50% annual cost. However, this is an actively managed ETF that aims to find undervalued REITs with excellent financial strength and growth potential. In a nutshell, the goal of this ETF is to beat the REIT index that the Vanguard Real Estate ETF tracks.
It is a rather concentrated ETF, with just 31 stocks as of the latest information. There is certainly some portfolio overlap with the Vanguard index fund, but there are also some smaller REITs, such as Camden Property Trust, among the top holdings.
To be clear, you don’t need to take an active approach to REIT investing to produce strong returns over time, as I’ll discuss in the next section. But if you want to take a chance of beating the index, this ETF could allow you to do it.
How these ETFs could turn $500 a month into $1 million
To be sure, there’s no way to know for sure what these ETFs (or any ETFs) will do over any period in the future. But historically speaking, REITs have delivered annualized total returns of 10%-12% over long periods of time and with significantly lower volatility than the S&P 500.
For example, in the 20-year period ending in 2023, REITs produced annualized total returns of 10.4%. Using this rate of return, a $500 monthly investment in real estate ETFs like the three discussed here could grow to $1.06 million in 30 years.
Of course, there’s no way to predict future returns of any investment with complete accuracy. But the point is that for investors who measure their returns in decades, incrementally building positions in real estate investment trusts and holding them for long periods has been a winning strategy.
Matt Frankel has positions in Prologis, Realty Income, Simon Property Group, and Vanguard Real Estate ETF. The Motley Fool has positions in and recommends Equinix, Prologis, Realty Income, Simon Property Group, and Vanguard Real Estate ETF. The Motley Fool recommends Camden Property Trust and recommends the following options: long January 2026 $90 calls on Prologis. The Motley Fool has a disclosure policy.
