It’s no secret that I’m a huge fan of VTSAX–and for good reason.
I put about $12K to work back in March 2020 into VTSAX–and it’s done quite well obviously with the Dow going from around 20K to 36K in the past couple of years.
I’d say it’s grown by about 75% at it’s peak from the when I bought the dip–pretty amazing performance.
I had friends that opted to invest in airlines and other single stocks–they’re still waiting on the big rebound to come there.
I opted to bet on the entire market–and I’ve road the broader market back up despite tons of big names that looked like attractive buys back in 2020.
Like VTSAX, VGSLX is also an index fund. Instead of mapping to the entire stock market VGSLX is broad diversification into real estate investments.
The 10 largest holdings in VGSLX as of 2020 are:
- Vanguard Real Estate II Index Fund
- American Tower Corp.
- Prologis Inc.
- Crown Castle International Corp.
- Equinix Inc.
- Digital Realty Trust Inc.
- SBA Communications Corp.
- Public Storage
- Welltower Inc.
- Alexandria Real Estate Equities Inc.
VGSLX is, by far, the largest real estate funds in the world with over $50B in assets (used to be over $70B before COVID–now it’s likely a lot more).
Since it’s Vanguard, the fees are ultra-low as well.
I’m new when it comes to the world of REIT funds–but this one looks promising. It’s fully diversified and office funds only account for about 8% of VGSLX
Pros of VGSLX: Why it might make sense
Since tech companies dominate market share right now–an investment in VTSAX is going to be heavily weighted to the top tech companies in the world like Facebook and Amazon.
That’s great–but as someone that works in the tech industry–I like the idea of diversification away from technology companies for at least some investments so all of our income isn’t completely dependent on one industry.
A major plus for VGSLX aside from diversification away from tech is how diversified the real estate holdings are.
When you buy VGSLX you’re getting a piece of apartment buildings, storage facilities, warehouses, Triple Net leases, retirement communities, and various commercial buildings.
In the event of a recession, things like storage units and apartment complexes actually do better–which provides a nice buffer as an investor if things go sideways (like they have during COVID).
I also feel really strongly that a lot of these mega office buildings are going to be retro-fitted for smaller office spaces in the near future.
As I write this now, I am sitting in a small one room office space that I rent out for approximately $300 per month.
My landlord called me the other day saying she had a waiting list of 5 other people that wanted to rent it out.
Back in November, it was easy to rent in this building–there were at least 3-4 vacancies and all of them were relatively cheap.
Now they are in demand from people that are forced to work from home and want somewhere to go to get out of the house and away from the distractions (kids, spouse, dogs).
Before hearing that, I was bearish on commercial real estate in a post-COVID world…now I think there’s a lane for a lot of these buildings to remain useful and producing income.
In fact, creating smaller units will likely mean the properties will become even more productive as work from “home” turns into “work from home when I want, but keep a cheap office on standby.”
Also, if you look at VGSLX as it stands right now–it’s still way off from it’s high back in February.
There is still a lot of room to grow back into it’s high and return a nice 30-50% return in a short time period, with great prospects of solid growth in the long term.
Hotel & Resort REITs only make up a little under 3% of the total index–so you won’t have to worry too much about a long term recession wiping out hotels and bringing down the fund.
Cons of VGSLX
Honestly, it’s performed worse than VTSAX over the long term. VTSAX has some of the biggest growth tech stocks in the world like Facebook and Amazon.
While residential real estate has been hot–I’m not so sure about the fate of large commercial spaces in a work-from-home world.
With VTSAX you don’t have to worry about it–the largest holdings in VTSAX aren’t tied to the fate of commercial real estate.
Pros of VTSAX
VTSAX is holly grail of index funds. A share of VTSAX gives the holder broad exposure to the largest, most prosperous companies in America.
As of this writing, the top 5 holdings in the index are all tech stocks: Facebook, Amazon, Alphabet (Google), Microsoft and Apple.
20 years ago, you’d see a much different list in the top 5–but you’d have the same results if you owned VTSAX–the winners come and go but you always own the winners.
If you’re reading this article, I probably don’t have to convince you of the benefits of indexing–just know that VTSAX is the index to rule all indexes. There is nothing that will give you broader diversification than a total stock market index like the ones provided by Vanguard or Fidelity.
VGSLX vs. VTSAX: What I Would Do
Ok let’s get to the damn point. I work in the tech field. The biggest positions in VTSAX today are tech stocks–so in theory I am more leveraged than the average person on tech.
Given that, I’d be ok putting some money to work in a real estate index for more diversification–but I’d limit it to 20-25% of my portfolio.
The biggest growth opportunities are in VTSAX long term–so if you’re under the age of 50 you’ll want at least 75% of your portfolio in an SP 500 or total stock market index.
In this environment with interest rates at zero, bonds are tough to hold before the age of 40.
I’d stick with VTSAX and avoid the headaches of having to predict where the real estate market is going to go in the next 10 years.
If you’re bearish on tech, or want to diversify somewhat away from tech (especially if you work in tech), I’d be OK with shifting 20-25% of the portfolio over to a real estate-based index.
If you’re near retirement and are looking for a conservative income-oriented fund–check out Vanguard’s Wellington offering.