Investing in REITs - VGSIX vs VNQ
I recently began investing and planning for retirement. I opened up a Roth IRA through Vanguard and bought about ,000 of Vanguard Target Retirement 2045 Fund (VTIVX). I'd like to invest in real estate through REITs.
I saw both of these REITs through my reading: Vanguard REIT Index Inv (VGSIX) and Vanguard REIT ETF (VNQ). I keep hearing ETFs are the way to go due to their low expense ratio. Beyond that, I don't know the difference between the two. Can someone explain what those differences are and the advantage of each? I plan to have about 20% of the REIT in my Roth (at least for this tax year).
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I'd start by reading the answer to What is the difference between shares and ETF?
A look at the Yahoo pages for Vanguard REIT Index Inv (VGSIX) and Vanguard REIT Index ETF (VNQ) show different annual expenses, 0.10% for the ETF, 0.24% for the fund. But, the ETF will have the trading cost of a stock purchase, say , which for small purchases will add up. (Think "it's a 1% cost to buy 00, but then I save .40/yr on fees.) For a 00 purchase, the commission is 0.5%, so it partially depends on the scale of your investing.
The same question was asked on www.bogleheads.org/forum/viewtopic.php?t=146578 (mirror), and has some pointers that complement JoeTaxpayer's answer:
At ,000, the fund will turn into Vanguard REIT Index Fund Admiral Shares and have the same 0.10% expense ratio.
Check out Vanguards ETF vs Mutual Fund pages: investor.vanguard.com/etf/etf-vs-mutual-fund Another page on ETFs vs. mutual funds: www.bogleheads.org/wiki/ETFs_vs_mutual_funds
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