VNQ and SCHH both hold US real estate stocks. They differ in fee, in whether non-REIT property companies are allowed, and a little in risk. Before choosing, check whether you need a REIT fund at all: a total-market fund already holds real estate.
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They are close substitutes; the choice comes down to fee and index design. VNQ (Vanguard Real Estate ETF) tracks the MSCI US Investable Market Real Estate 25/50 Index, which “includes real estate management and development companies in addition to” REITs (VNQ fact sheet). SCHH (Schwab U.S. REIT ETF) tracks the Dow Jones Equity All REIT Capped Index, which holds REITs only and “excludes mortgage REITs and hybrid REITs” (Schwab).
Scope: US investors deciding whether and how to add a US real estate fund to a retirement portfolio. Global REIT funds, private real estate and owning rental property are out of scope. Education, not tax or investment advice.
| Situation (Oct 2026) | VNQ tends to fit | SCHH tends to fit | Neither may be needed |
|---|---|---|---|
| You want the lowest fee | 0.13% | Yes: 0.07% | |
| You want REITs only, no service companies | No: 5.5% real estate services | Yes | |
| Broadest real estate coverage | Yes: 139 stocks, all sizes | 122 REITs | |
| You already hold VTI or an S&P 500 fund | Yes: real estate is already inside | ||
| The only room is a taxable account | Tax drag | Tax drag | Often |
Fund facts and trailing NAV returns (average annual) from the Vanguard and Schwab fact sheets as of Sep 30, 2026 (SCHH holdings and SEC yield from Schwab, Oct 22, 2026); calendar-year returns, drawdowns and distribution yields from Exent market data (daily total return); correlation is an Exent calculation from month-end closes.
| VNQ | SCHH | |
|---|---|---|
| Index | MSCI US Investable Market Real Estate 25/50 | Dow Jones Equity All REIT Capped |
| What it holds | Equity REITs plus real estate services and developers | Equity REITs only |
| Mortgage REITs | None in its sub-industry list | Excluded by the index |
| Holdings | 139 stocks (Sep 30) | 122 securities (Oct 22) |
| Expense ratio | 0.13% | 0.07% |
| Assets | $35.9B ETF / $66.4B whole fund | $10.6B |
| Inception | Sep 23, 2004 | Jan 13, 2011 |
| Largest holding | Welltower 9.2% | Welltower 10.27% |
| 30-day SEC yield | Not shown by Vanguard | 3.52% (Oct 22, 2026) |
| Distribution yield, trailing 12 months (to Sep 30, 2026) | 3.80% | 3.08% |
| 1-year return | 1.68% | 5.27% |
| 3-year return, per year | 10.04% | 10.84% |
| 5-year return, per year | 1.34% | 2.25% |
| 10-year return, per year | 4.39% | 3.24%* |
| 2022 return | −26.2% | −25.0% |
| Peak-to-trough drop, calendar 2022 | −32.3% | −31.4% |
| Correlation with SPY, 60 months | 0.79 | 0.78 |
*SCHH tracked a different index, the Dow Jones U.S. Select REIT Index, until Jun 19, 2020 (Schwab fact sheet), so its 10-year record mixes two strategies. The years since then are the fairer comparison. For context, VTI returned 14.70% a year over the same 10 years (Vanguard). Trailing 12-month yields from Exent market data count all distributions paid in the 12 months to Sep 30, 2026, divided by the Sep 30 price; that is a distribution yield, not an SEC yield.
Mostly the same landlords. Both are led by health care REITs, then retail, industrial, data center and cell tower REITs. VNQ adds real estate services companies (5.5%) and leans into smaller companies: 24.8% of the fund is in small caps (Vanguard). Vanguard also lists its largest single position as Vanguard Real Estate II Index Fund (14.6% of assets), a sister index fund.
| Sub-industry, Sep 30, 2026 | VNQ | SCHH |
|---|---|---|
| Health care REITs | 18.6% | 19.50% |
| Retail REITs | 14.1% | 15.62% |
| Industrial REITs | 11.6% | 12.69% |
| Data center REITs | 11.0% | 9.54% |
| Telecom tower REITs | 8.2% | 7.94% |
| Multi-family residential REITs | 6.6% | 7.44% |
| Real estate services (non-REIT) | 5.5% | 0% |
Often not. VTI held 2.1% in real estate on Sep 30, 2026 (VTI fact sheet), roughly its market weight. Adding VNQ or SCHH is a decision to overweight one sector. Some investors do it for income or because REITs have sometimes moved differently from other stocks, but in the recent 60-month window the correlation with the S&P 500 was about 0.8 (Exent calculation), so the diversification is partial. How REITs did against inflation in 2021–22 is in what worked as an inflation hedge; TIPS and other retirement inflation tools are in inflation protection ETFs for retirement. If you keep a three-fund portfolio, real estate is already in the stock fund.
REIT dividends are mostly taxed as ordinary income. Vanguard notes that REITs “generally do not benefit from currently favorable tax rates on qualified dividends” (Vanguard VYM fact sheet), while qualified dividends are taxed at 0%, 15% or 20% (IRS Publication 550). One offset: individuals can deduct 20% of qualified REIT dividends under the section 199A deduction, and the IRS describes the rules for tax years beginning after 2025 (IRS). Because of the higher rate, many investors place REIT funds in an IRA or 401(k) and keep broad stock index funds in taxable accounts. More in tax-efficient ETFs for a taxable account.
Illustrative: a $600,000 stock portfolio, 95% VTI and 5% VNQ ($30,000). Inputs: VTI’s 2.1% real estate weight, VNQ’s 3.80% trailing 12-month distribution yield (Exent market data, to Sep 30, 2026), a 32% federal bracket, and all distributions treated as ordinary REIT dividends eligible for the 20% deduction.
| Step | Arithmetic | Result |
|---|---|---|
| Real estate share of the portfolio | 95% × 2.1% + 5% | about 7.0% (vs 2.1% with VTI alone) |
| Yearly VNQ distributions | $30,000 × 3.80% | $1,140 |
| Federal tax in a taxable account | $1,140 × 32% × (1 − 20%) | about $292 |
| Same income if it were qualified dividends | $1,140 × 15% | about $171 |
| Same holding in an IRA | no tax until withdrawal | $0 this year |
The tax gap is about $121 a year here ($292 − $171), and SCHH’s lower fee saves $18 a year on $30,000 ($39 vs $21). The bigger effect is risk: in 2022 the $30,000 slice would have lost about $7,900 at VNQ’s −26.2% ($30,000 × 26.24% ≈ $7,872).
| Fund | Pros | Cons |
|---|---|---|
| VNQ | Broadest US real estate coverage, including smaller companies and property services firms; long record since 2004; very large fund. | Fee nearly double SCHH (0.13%); not REIT-only; 5-year return of 1.34% a year trailed VTI by a wide margin. |
| SCHH | Lower fee (0.07%); REITs only, no mortgage or hybrid REITs; publishes a 30-day SEC yield (3.52% on Oct 22, 2026). | Smaller fund ($10.6B); index changed in 2020, so the long record is mixed; same sector and rate risk as VNQ. |
Expense ratios and holdings from Exent market data, Oct 25, 2026 (VTI from Vanguard, Sep 30, 2026):
| ETF | Expense ratio | Holdings | Note |
|---|---|---|---|
| USRT (iShares) | 0.08% | 123 | US REIT fund, similar size of holdings list to SCHH |
| XLRE (State Street) | 0.08% | 30 | Only 30 holdings, very concentrated |
| IYR (iShares) | 0.37% | 58 | US real estate, higher fee |
| VNQI (Vanguard) | 0.12% | 682 | Real estate outside the US |
| VTI (Vanguard) | 0.03% | 3,519 | No tilt: holds real estate at market weight (2.1%) |
When it is bought as a safe income fund. Counterexample: a retiree replaces part of a bond fund with VNQ for its yield. In 2022 the core bond fund BND lost 13.0% while VNQ lost 26.2%, and between Oct 9, 2007 and Mar 9, 2009 VNQ fell 70.0% peak to trough (Exent market data). A REIT fund is stock risk with a higher payout. It is also a poor fit for someone whose net worth is already mostly a home or rental property. For income planning, see ETFs for retirement income.
REIT funds react to interest rates more than most stock sectors (VNQ lost 26.2% in 2022), so a REIT tilt is easier to keep when you understand the rate backdrop behind a bad month.
Its sub-industry breakdown lists equity REITs and real estate services, with no mortgage REITs. SCHH’s index excludes mortgage and hybrid REITs explicitly.
Yes: 0.07% vs 0.13% a year, or $60 vs $130 per $100,000. Their holdings overlap heavily, so the fee is one of the main differences.
REIT dividends are mostly taxed as ordinary income, so many investors prefer an IRA, 401(k) or Roth IRA for them. In taxable accounts, a 20% deduction on qualified REIT dividends reduces, but does not remove, the gap.
Not necessarily. VTI held 2.1% in real estate on Sep 30, 2026. A REIT fund adds an overweight to one sector; it is optional, not a core retirement holding.
VNQ lost 26.2% and SCHH 25.0% in calendar 2022, more than the total US stock market (VTI −19.5%), as interest rates rose quickly (Exent market data).
Over the 12 months to Sep 30, 2026, VNQ paid 3.80% and SCHH 3.08% of their prices (Exent market data, all distributions). Payout timing and the mix of income, capital gains and return of capital differ; SCHH’s 30-day SEC yield was 3.52% on Oct 22, 2026.
No. REIT funds are stocks: 60-month correlation with SPY of about 0.8 and a 70% peak-to-trough fall for VNQ in 2007–09. Bonds and cash serve the stability role.
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Educational content, not investment advice. Examples are illustrative; past performance does not guarantee future results.