If You'd Invested $1,000 in Vanguard Real Estate ETF (VNQ) 5 Years Ago, Here's How Much You'd Have Today

Core Insights - The real estate sector has significantly underperformed compared to the S&P 500 over the past decade, with a $1,000 investment in the Vanguard Real Estate ETF (VNQ) growing to approximately $1,770, while the same investment in the Vanguard S&P 500 ETF (VOO) would have grown to $3,900 [1][2] Performance Comparison - The S&P 500 has experienced an impressive bull run, achieving annualized total returns of about 14.6% over the last ten years, making it challenging for the real estate sector to keep pace [4] - The real estate sector's performance is notably affected by interest rates, as it is one of the most rate-sensitive sectors in the market [5] Interest Rate Sensitivity - The Federal Reserve has implemented two extended periods of rate increases over the past decade, with the benchmark federal funds rate now over 400 basis points higher than it was ten years ago [5] - Real estate investment trusts (REITs) typically outperform in falling or zero-rate environments but struggle when interest rates are high or rising [5][6] Economic Implications - Rising interest rates increase borrowing costs for REITs, which often rely heavily on debt for growth, similar to how individuals use mortgages to purchase homes [6] - Higher rates can negatively impact commercial real estate property values, which generally have an inverse relationship with risk-free interest rates, leading to potential declines in the value of properties owned by REITs [6][7]