The Vanguard Real Estate ETF (VNQ) currently yields about 3.7%, lower than the roughly 4.5% yield on 10-year U.S. Treasuries, causing some investors to reconsider its place in portfolios. VNQ holds a diverse mix of real estate assets like healthcare, retail, industrial, and telecom towers, but its performance suffers in a rising interest rate environment due to higher borrowing costs and lack of rate cuts priced in until 2026 or later. For short-term investors (1-3 years), Treasuries offer capital preservation and yield certainty, making them more attractive. However, for long-term investors (5-10 years), VNQ could outperform as Fed rate cuts eventually lead to lower cap rates, higher property values, and stronger fund growth, historically resulting in significant price gains over a full rate cycle.
