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VGSLX vs VNQ: Which REIT Fund Is Better?

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We compare VGSLX vs VNQ:

VGSLX and VNQ are among the first mentions when you talk about Vanguard real estate products.

To start, both VGSLX and VNQ track the MSCI US Investable Market Real Estate 25/50 Index.

However, they are not the same.

The biggest difference between VGSLX and VNQ is that VGSLX is an index fund and VNQ is an exchange-traded fund (ETF).

They are both issued by Vanguard.

This article will explore each Vanguard fund’s components and then compare them.

Choosing between the two won’t be a hassle if you digest every bit of information in this VGSLX vs VNQ.

VGSLX vs VNQ Comparison Graphic

 

VGSLX vs VNQ: An In-Depth Comparison

The main difference between VGSLX and VNQ is that VGSLX is a mutual fund while VNQ is an Exchange-Traded Fund (ETF).  VGSLX and VNQ track the same underlying index which is the MSCI US IM Real Estate 25/50 Index.

VGSLX is a mutual fund

VNQ is an exchange-traded fund (ETF)

Another significant difference is their minimum investment.

VGSLX is a Vanguard Admiral Fund therefore it has a $3,000 minimum initial investment.

VNQ is a Vanguard ETF that has no minimum investment.

VGSLX vs VNQ Comparison

I have another post with a full explanation of the difference between an ETF and a Mutual Fund.

VNQ is the ETF equivalent of VGSLX.

VNQ provides investors with the same market exposure as its admiral version VGSLX for the same expense ratio and with no minimum investment.

 

VGSLX vs VNQ: Provider

Both VGSLX and VNQ are Vanguard products focused on the real estate sector.  Vanguard is a reputable investment management firm in the United States, the second-largest following Blackrock.

Although Vanguard has other real estate funds, VGSLX and VNQ are their most popular REIT funds showing that investors find them credible.

Vanguard as a brokerage is well known for its good reputation.

 

VGSLX vs VNQ: Dividend Reinvestment

Dividend reinvestment is how a fund can support investors and put their returns to good use even though it is not sufficient to purchase a whole share.  Instead of waiting until you have a sufficient amount to buy a new share, you can buy fractional shares, which is a fraction of a share.

Fractional shares on the Vanguard platform only apply for VGSLX.  Vanguard does not support fractional shares for ETFs like VNQ.

To purchase fractional shares of VNQ you can use M1 Finance. (Use this link for a $50 Bonus)

Reinvesting dividends no matter how small can keep your portfolio growing as much as possible.

Key Takeaway: VGSLX allows automatic dividend reinvestment while VNQ does not.

 

VGSLX vs VNQ: Minimum Investment

For a first-time investment in VGSLX, you need to have a minimum of $3,000.  After that, you are at liberty to invest any amount you want.

As a first-time investor in VNQ, you only need to have the price of one share as a minimum investment.  This means that if VNQ’s share price is $100, you can invest in the fund with as little as $100.

So if you are starting small your best choice might be VNQ.

Alternatively, you could invest with no minimum requirement into VNQ or many other ETFs through M1 Finance. (Use this link for a $50 Bonus)

No or low minimum investment funds tend to attract more investors.  It lowers the barrier to entry for new investors and helps start your wealth-building journey.

No matter how attractive VGSLX may be from other angles investors on a tight budget may not be able to invest in it.

Investors starting small can invest in VNQ until they reach the $3,000 minimum and then transfer to VGSLX.

Alternately, you can simply keep investing in VNQ.

 

VGSLX vs VNQ: Section 199A

Real estate investment trusts (REITs) pay Section 199A dividends.  REITs enjoy some tax advantages, the state exempts them from federal corporate income since they pay over 90% of their income to investors as dividends.

These dividends are described as Section 199A dividends.

 

Both fund holdings can qualify for Section 199A dividends.

A 20% deduction applies to qualified REIT dividends received by mutual fund shareholders.

In practical application, if VGSLX or VNQ is a flow-through tax entity that transfers the tax to you, you could pay less.  You could be entitled to a 20% qualified business income deduction.

 

VGSLX vs VNQ: Real-Time Pricing

VGSLX is an indexed mutual fund, therefore, it doesn’t allow trading of shares during the day.  Investors submit their trades and they are executed once daily after the close of the market.

This may lead to difficulties in closing a position.

VNQ is an ETF product and therefore supports intraday trading and real-time pricing as well.

In other words, VNQ allows you to see its price change throughout the day during trading hours.

VGSLX trades once daily after market close

VNQ trades intraday with real-time pricing

 

VGSLX vs VNQ: Expense Ratio

VGSLX and VNQ have the same 0.12% expense ratio.  The implication is that whether with VGSLX or VNQ you’ll pay a $12 fee for every $10,000 you invest.

This makes them the same in terms of cost to an investor.

The average expense ratio for similar funds is 1.06%, so an expense ratio of 0.12% for VGSLX and VNQ is extremely low

 

VGSLX Description

Security Type: Mutual fund
Segment: Real Estate
Family: Vanguard
Net Assets: $84 Billion
Expense Ratio: 0.12%
Management Style: Passively Managed
Minimum Investment: $3,000

According to Vanguard, Vanguard Real Estate Index Fund Admiral Shares (VGSLX) invests in real estate investment trusts which are companies that purchase office buildings, hotels, and other real estate property.

REITs have often performed differently compared to stocks and bonds.  Therefore, this fund can offer diversification for a portfolio that already includes stocks and bonds.

VGSLX tracks the performance of the MSCI US Investable Market Real Estate 25/50 Index.

This index measures the performance of publicly traded Real Estate Investment Trusts (REITs) equity alongside other real estate-related investments.

The fund aims to offer investors a decent long-term capital appreciation and returns by closely replicating the underlying index’s investments.

This makes VGSLX a passively managed REIT.

 

VNQ Description

Security Type: ETF
Segment: Equity: Real Estate
Family: Vanguard
Net Assets: $84 Billion
Expense Ratio: 0.12%
Management Style: Passively Managed
Minimum Investment: None

Vanguard Real Estate ETF (VNQ) invests in stocks issued by real estate investment trusts (REITs) which are companies that purchase office buildings, hotels, and other real property.

VNQ tracks the MSCI US Investable Market Real Estate 25/50 Index.

This index measures the performance of publicly traded Real Estate Investment Trusts (REITs) equity alongside other real estate-related investments.

The fund aims to offer investors a decent long-term capital appreciation and returns by closely replicating the underlying index’s investments.

This makes VNQ a passively managed ETF that is considered a REIT investment.

 

VGSLX vs VNQ: Which is Better?

The biggest difference between VGSLX and VNQ is how they are classified.  VGSLX is a mutual fund while VNQ is an ETF.  Mutual funds and ETFs differ in terms of how they are traded.

Mutual funds are only traded on the platform of the issuer, for instance, you can only buy a VGSLX share on the Vanguard platform.  On the flip side, ETFs can be traded on a larger number of investment apps and websites.

Also, VGSLX trades once daily while VNQ trades intraday.

VGSLX and VNQ can both be very good investments and will always perform the same.  They are also both low-cost funds.

Therefore, the answer to: is VGSLX or VNQ better depends on your investing preferences and if you prefer mutual funds or exchange-traded funds.

Both share a common goal, to track the performance of the MSCI US Investable Market Real Estate 25/50 Index.

That’s why VGSLX and VNQ have the same performance and cost (0.12%).

Here is VGSLX and VNQ Performance:

VGSLX vs VNQ Performance Comparison

Now let’s consider the benefits that each of these real estate products offers you as an investor.

VNQ Advantages:

  • No Minimum Investment
  • All Day Trading
  • Can Purchase On Other Platforms

VGSLX Advantages:

  • Automatic Investing
  • Once Daily Trading
  • Can Purchase Fractional Shares

VGSLX stands put for automatic dividend reinvestment which means it allows you to reinvest your dividends via fractional shares.

This way you can enjoy the advantage of compounding which boosts your portfolio significantly.

The 199A QBI Deduction is also a plus as you can qualify for a 20% qualified business income deduction. (This is not tax advice, consult a tax professional)

Related Posts:

 

VGSLX and VNQ Pros and Cons

One of the biggest downsides of investing in VGSLX is the $3,000 minimum investment which can pose a challenge for so many investors.  High entry requirements can discourage especially new investors.

The absence of real-time pricing or intraday trading in VGSLX since it is not an ETF also can make it less desirable for investors who intraday trading.

Intraday trading can also be a negative if it encourages day trading but if you target day-trades or seize opportunities for quick price movements, this fund may be your best fit.

Next, REIT income distribution in mutual funds differs from ETFs.  REIT income distribution is considered ordinary income and this attracts big tax rates.

ETFs, pay dividends which offer investors a fair tax treatment.

Both VGSLX and VNQ provide exposure to the real estate market and are passively managed.

Again, one of the benefits of investing in VNQ over the VGSLX is that VNQ has no minimum investment.  This makes it more accommodating to first-time investors.

The intraday trading and real-time pricing of VNQ make it possible to see any changes in your account balance during the day.

That is not to say that VNQ does not have its downsides.

A major drawback of the fund is that it does not encourage the purchase of fractional shares.  More so, you can’t reinvest your dividends and enjoy the power of compounding in this area.

This can be a serious deterrent to long-term investment goals.

 

MY Winner: VNQ

From this VGSLX vs VNQ, we have seen that these two funds are almost identical, but consider these points before you make your final stand:

With VGSLX, you stand a chance to make more returns through dividend reinvestment and compound interest, but you need $3000 to start investing.  You can also buy fractions of shares.

With VNQ you can take advantage of quick price movement and you don’t need a minimum investment.

You can now choose between the two based on your investment needs and preferences.

 


Disclaimer
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This information is my opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.
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