VTI vs. VNQ for early investor

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Rsanchez
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VTI vs. VNQ for early investor

Post by Rsanchez »

Would you invest in VTI or VNQ or both, and at what percent of your portfolio?

Thanks for your insights.
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arcticpineapplecorp.
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Re: VTI vs. VNQ for early investor

Post by arcticpineapplecorp. »

vti includes some real estate. not a lot, maybe 3% but that's how real estate is represented in the stock market.

some argue real estate is a much bigger part of the total economy.

I've heard 20% but others have said the "value" of real estate is as large or larger than the stock market's value.

whether you want vnq or not depends upon some factors:
1. do you own any real estate (i.e., do you have enough exposure in your portfolio already, even if it's not diversified)?
2. how do you deal with tracking error (performance of your portfolio differs from the market)? There will be times when vnq will underperform the market. Will you stay the course or not?
3. Some say if you want real estate exposure vnq is fine but should make up around 10% of your equity portion:
https://core-4.com/classic-core-4-portfolio/
so we're not talking a huge amount, but rather a slice. It might or might not make a difference. It will give you added diversification, but remember that diversification always means having to say you're sorry.

for a young person starting out, i would say skip vnq and focus on the total stock market (vti). Focus on increasing savings and earnings. That will give you the biggest bang for your buck, not whether you own real estate in your portfolio or not.
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David Jay
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Re: VTI vs. VNQ for early investor

Post by David Jay »

VTI is "Total (US) Stock Market", you get everything in one stock.

VNQ invests in REITs (real estate investment trusts), which is a narrow slice of the stock market.

I agree with "Arctic", start out with VTI only, only add "tilts" as you learn enough to believe in the tilt enough to continue to hold it when that sector is down.
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stan1
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Re: VTI vs. VNQ for early investor

Post by stan1 »

I may be reading too much into the question but I would not view VNQ as a proxy for residential real estate (e.g. putting money you are investing for a future home into VNQ). VNQ is also invested in data centers, cell infrastructure, storage units, logistics, offices, malls. Single family residential you might buy is very local.

So for an early investor I'd buy VTI and VXUS.

Home savings go into cash unless you want to speculate. I'm sure there are plenty of recent first time and upgrade homebuyers who got their down payment from cashing out TSLA and BTC. They got lucky.
JayDee37
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Re: VTI vs. VNQ for early investor

Post by JayDee37 »

VTI and VNQ are not really and "either/or" combo. If you only want one fund as you start out, use VTI. If you want to diversify beyond TSM, add some international and some bonds at the appropriate AA for your risk tolerance and goals. After that, if you also want to increase your exposure to real estate, add some VNQ.

I do not own any real estate so I do own VNQ as a part of my portfolio, but it's a smallish slice--about 6%. I have been pleased thus far with with its function as a diversifier. If I owned real estate I might be less inclined to own VNQ (although I do understand that residential real estate and VNQ are not the same sort of asset).
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JoMoney
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Re: VTI vs. VNQ for early investor

Post by JoMoney »

arcticpineapplecorp. wrote: Sun Dec 05, 2021 8:46 pm ... vti includes some real estate. not a lot, maybe 3% but that's how real estate is represented in the stock market.
...
Every stock in VNQ is also in VTI (at market weight), but VTI has A LOT more "real estate" than that.
If you look at the balance sheets of many stocks in VTI, there is quite a bit of real estate on their books.
VNQ only represents REITs which is just a specific type of corporate structure for a business that's primary business is real estate, and specifies a different tax treatment for the income at the corporate level and at the investor level.

Lots of real estate business going on that's not incorporated as a "REIT"
https://www.walmartrealty.com/
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arcticpineapplecorp.
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Re: VTI vs. VNQ for early investor

Post by arcticpineapplecorp. »

JoMoney wrote: Sun Dec 05, 2021 9:44 pm
arcticpineapplecorp. wrote: Sun Dec 05, 2021 8:46 pm ... vti includes some real estate. not a lot, maybe 3% but that's how real estate is represented in the stock market.
...
Every stock in VNQ is also in VTI (at market weight), but VTI has A LOT more "real estate" than that.
If you look at the balance sheets of many stocks in VTI, there is quite a bit of real estate on their books.
VNQ only represents REITs which is just a specific type of corporate structure for a business that's primary business is real estate, and specifies a different tax treatment for the income at the corporate level and at the investor level.

Lots of real estate business going on that's not incorporated as a "REIT"
https://www.walmartrealty.com/
good point. it used to be said that McDonalds is really in the real estate business, not burger selling because the vast majority of the net worth was tied to their great locations (resale value).
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
seajay
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Re: VTI vs. VNQ for early investor

Post by seajay »

arcticpineapplecorp. wrote: Sun Dec 05, 2021 8:46 pmI've heard 20% but others have said the "value" of real estate is as large or larger than the stock market's value.
According to this

Global (rounding) ...

Stock market cap 90Tn
Debt 253Tn
RE 280Tn

So perhaps a global cap weighted portfolio should comprise buying a home, with a 90% mortgage outstanding (being long or short bonds broadly washes), along with holding stocks to the value of around a third of the house price value?

$700K home, of which $630K is mortgaged ($70K owned), $210K stock.

That's considerable leverage (3.25x i.e. 910K value, 280K capital).

Another factor however is that buying stock also exposes you to what corporate bonds they issue, for US 2019 the figures were around $30Tn stock cap, $9Tn corporate bond cap.
Robot Monster
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Re: VTI vs. VNQ for early investor

Post by Robot Monster »

The David Swensen portfolio has a large REIT allocation. link
dbr
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Re: VTI vs. VNQ for early investor

Post by dbr »

Lots of people and possible portfolios include some amount in REITs. The question is one of those that has advocates either way and no clear conclusion either way. But there are lots of additions to total market that are mooted all the time. There are commodities, gold, factor tilts, the running debate about how much in international stocks, and you aren't even asking yet which bond fund to hold or why not 100% stocks nor why not follow Buffett and choose the S&P500 over the total market. I would advise that there is no magic sauce in any of those choices. VTI is fine.
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mrpotatoheadsays
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Re: VTI vs. VNQ for early investor

Post by mrpotatoheadsays »

Rsanchez wrote: Sun Dec 05, 2021 8:37 pm Would you invest in VTI or VNQ or both, and at what percent of your portfolio?
An "early investor"? You mean "young investor"? Neither.

I would be 50% AVUV and 50% AVDV. More risk (small); more return. Retire at 50.

Alternatives:
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