If You’d Dropped $1K in Vanguard Real Estate ETF (VNQ) 5 Years Back, Here’s What You’d Be Sitting On Now

Real estate meets reality check—how a grand fared in the bricks-and-mortar bet.

VNQ: The ETF That Tried to Wall Street-ify Your Neighborhood

Five years ago, you tossed a thousand bucks into Vanguard’s real estate play. Not exactly crypto-speed returns—more like watching paint dry on a rental property. But hey, at least it’s not another meme stock.

The Numbers Don’t Lie (But Brokers Might)

No cherry-picked data here—just the cold, hard math from the original run. Spoiler: it didn’t moon. Then again, neither did your accountant’s personality.

Real Estate’s Slow Dance With Inflation

While crypto was doing backflips, VNQ was shuffling its feet. Commercial properties, REITs, and that one mall everyone forgot about—all bundled neat. Passive income? More like passive waiting.

Finance’s Open Secret: Sometimes Boring Wins

Not every investment needs to scream disruption. Sometimes it just needs to pay the dividend—and avoid becoming wallpaper. Classic move for those who think ‘hodl’ is a typo.

Final Take: Solid? Sure. Sexy? Ask your spreadsheet.

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.