The etf connect website has VNQ yield around 6.5%. Is that right? I am almost nearing a buying point for some VNQ as a long term hold in my IRA. I am looking for DRIP candidate. Possibly, the VNQ yield could vary with its component REIT dividends? I am aware of a principal loss on VNQ but as long as the yield stays at an attractive rate, the long term income stream looks OK. Plus, I want to incorporate some real estate into my portfolio, and doing it via an ETF like VNQ seems less anxiety ridden than trying to finance a house by a longshot.
This ETF paid me $3161 of income on an $80k investment for 2007. Currently the value is $68k, though it has gone down a lot more since my initial purchase and has just recently started to come back up.
The 1099s showed this break-down for tax purposes:
Total ordinary divs: $1951.68
qualified: $5.26 (no kidding)
Cap Gains dist: $607.38
unrecap 1250 gains: $7.91
non-dividend distributions: $589.53
Some of these categories seem weird because I converted from the REIT mutual fund to the ETF early after the first distribution.
All said it is the worst investment I have made to date. There is virtually no tax advantage and its hideously volatile. With my tax situation, I wish I had put the same money into VCAIX, the California state tax exempt bond. Since I can stay put, I am in a wait and see position. When the value comes up a little more I will sell and put it into VCAIX, then eventually build into VCADX (the lower fee admiral version).
Note: there is a brokerage fee for reinvestment with ETFs which in my mind makes them unattractive for automatic reinvestment.
May I respectfully urge you to reconsider, for your own sake. REITs have been beaten up pretty badly, and you bought at the exact wrong time it seems. Those bad losses make you want to look for an exit point, which usually turns out to be the exact wrong time to sell. I made the same mistake with gold and oil. The better approach is to average down by buying the dips. Real estate will come back, and so will REITS. As to Muni's, they're ok, I have a good amt. in that asset class. But over the long run, REITs will get you 8 to 12%, while Munis will only get you about 5-6% (taxable equivalent). Again over the long haul, you'll be leaving a lot of money on the table.
This is from Vanguard's web site:
"The Vanguard® REIT Index Fund pays quarterly distributions consisting of dividend income, return of capital, and capital gains. However, the tax characteristics of these distributions cannot be determined until after the end of the year since the REITs in which the fund invests do not designate the composition (i.e., dividend income, return of capital, and capital gains) of their payments until the new calendar year.
"Since Vanguard cannot know the taxability of the portfolio's distributions during the year, unadjusted and adjusted effective yields are calculated.
"The current unadjusted effective yield is 4.83% as of 12/31/2007, which includes the entire distribution (dividend income, as well as return of capital and capital gain).
"The current adjusted effective yield is 4.44% as of 12/31/2007, which is the unadjusted yield reduced by an estimated return of capital. The estimated return of capital, based on the average weighted return of capital of all the REITs on the Morgan Stanley REIT Index, for the past 2 calendar years is 10.65% in 2006 and 5.70% in 2005.
"Please remember that the yield is calculated monthly like other stock funds and that Vanguard is not quoting a 30-day SEC yield."
I went back and checked my dividends on VNQ for the last year. It's running about 5%, on average. Of course, the dividend is nice, but return OF capital is not as good as return ON capital, if you get my drift. I began to nibble at VNQ when REITs first began to swoon, then recently increased my position three-fold (before the recent rate cut). If you are investing (??????) in the stock market to garner a down payment, might I suggest a passbook savings account as an alternative. Playing the market is not for the faint of heart, nor for those seeking to build a down payment.
The market is fun, if you are playing with money you can afford to lose. They don't call it a casino fer nuttin.
If you really want to bet on housing, by the way, buy XHB, the homebuilder ETF. While the low may have already been reached a few days ago, it's still relatively cheap. I piled on XHB at the same time I piled on VNQ. Buy when others are in hate. It works like a charm, if you have patience.
Good luck, and
Happy House hunting
Thanks for the reply. The idea was to get some real estate exposure in my investments via ETFs rather than financing a position with a rental property. I am not looking for a down payment actually. I am fine where I live. The home builder ETFs and finance sector ones I am keeping an eye on. The ITB fund is doing well today. I think though, we will have a horse race these next months. My opinion is alot investors/mom/pop/401K folks got spooked by the market selling down since autumn and are itching to sell at an other market top. Just my opinion. I am staying short in this market with a few ultra short ETFs too. I really think that we will see major volatility until some kind of capitulation happens.