VNQ ETF

The Ivy Portfolio divides its investments equally, with 20% in domestic stocks, international stocks, intermediate bonds, commodities, and REITs, similar to the strategies of Harvard and Yale endowments. While REITs can provide good returns and are not closely linked to stock market performance, they can also drop in value during market downturns and may not be tax-friendly. Since many individuals already have a lot of real estate in their investments, adding more REITs can be risky; therefore, a small portion in a well-diversified portfolio is recommended.

By putting $50,000 into these three high-yield Vanguard ETFs, you could earn almost $2,000 in passive income each year. This investment strategy offers a way to generate income without actively working for it. It's a smart choice for those looking to grow their money over time.

There are great exchange-traded funds (ETFs) available for those who invest in dividends, including high-dividend ETFs and dividend growth ETFs. However, for my top choice of a dividend ETF to invest in for the long term in 2025, I believe the Vanguard Real Estate ETF (VNQ 0.34%) stands out as the best option.

VNQ provides a wide and affordable way to invest in the real estate sector, which includes REITs and related companies, making it a worthwhile choice. Although the difference in value between public and private REITs has decreased, there are still opportunities to take advantage of. Factors like a possible mild economic slowdown, steady interest rates, and limited new supply could benefit the real estate market in 2025.

2025 is just beginning, but after 2024 ended with some market challenges and interest rates that were higher than anticipated, there are some intriguing chances for investors. They don't have to purchase individual stocks to benefit from these opportunities.

In 2024, the REIT market almost reached our expectations, with a total return of +8.8% after the market disruption in December. Although the end result was not as strong as hoped, it does create a more appealing outlook for 2025. We predict a total return of 10% to 15% for REITs in 2025, supported by positive market feelings, strong financial positions, and possible beneficial acquisitions.

VNQ provides a dividend yield of 3.84% and has an expense ratio of 0.13%, as it follows the MSCI US Investable Market Real Estate 25/50 Index. Its P/E ratio is 40x, which is higher than SPY, mainly because of lower expected EPS growth of 4.5% for 2024, despite good price increases. VNQ may be affected by changes in Treasury yields based on new forecasts for PCE at 2.5% and interest rates at 3.75% in 2025.

Real estate has done better than other sectors in the past year, with VNQ achieving a total return of 26%, surpassing the tech-focused S&P 500 and the Dow Jones index. VNQ's strong performance is mainly due to its negative relationship with decreasing interest rates, which the market has already expected and adjusted for. Real Estate Investment Trusts (REITs) are particularly affected by interest rates because of their significant debt and dependence on tenant occupancy and rent, which can be influenced by rising rates.

Putting your money into an exchange-traded fund (ETF) that stands to gain from interest rate cuts could be a smart decision at this time, especially since more cuts may be coming soon. JPMorgan Chase predicts that there might be another rate cut in December, with additional cuts expected each quarter next year.