By Dr. Jim Dahle, WCI FounderIn early 2024, Vanguard rolled out its “Absolutely Paid Lending Program” the place particular person traders might lend securities for brief intervals of time and be paid for doing so. That is usually an excellent factor for traders, the place the fund lends out securities to quick sellers and others and will get compensated for it. Vanguard has estimated this boosts returns by 1-16 foundation factors per yr. It is not so much, however that earnings can doubtlessly solely eradicate among the very low Vanguard expense ratios.
(Observe that the Absolutely Paid Lending Program is barely totally different from the “securities lending” performed by the Vanguard funds themselves.)
Let’s speak about whether or not collaborating in Vanguard’s Absolutely Paid Lending Program is price it for a WCIer and the way a lot cash I made doing it.
What Is the Absolutely Paid Lending Program?
The Absolutely Paid Lending Program merely permits Vanguard to make use of the securities sitting in your brokerage account to lend to quick sellers after which compensates you straight for it. In anticipation of penning this put up, I signed up our largest account, a brokerage account in our belief, again in April 2024. It holds a comparatively great amount of index funds representing many of the totally different inventory asset lessons in our portfolio. Throughout 2024, that account has held the entire following securities . . .
- VTI
- ITOT
- VXUS
- IXUS
- VBR
- VIOV
- AVUV
- DFSV
- VSS
- AVDV
- VTEAX
- VMMFX
. . . and I permitted Vanguard to mortgage out as a lot because it might in the course of the yr. As I write this put up in December 2024, let’s examine how a lot cash we made.
How A lot Cash We Made
We had been enrolled on this program for eight or 9 months in 2024, and as you’ll be able to see, many of the loans had been simply 1-4 days. That is not a variety of days on which to pay curiosity. Generally, the mortgage was a ridiculously small variety of shares, like simply six shares on April 8. Simply because you could have so much within the account doesn’t suggest a variety of shares might be loaned out. At any price, over the course of 8-9 months, there have been seven whole loans made, and we obtained a grand whole of $37.54 in funds.
It is fairly onerous to get enthusiastic about that.
Once more, I need to emphasize it is a giant account, most likely more cash than most WCIers retire with. If we might solely make $38 all yr doing this with a giant account, how a lot do you assume you are going to make with a $50,000 taxable account invested in related securities? Not very a lot.
Extra data right here:
Take a Required Minimal Distribution (RMD) at Vanguard
Replace Previous to Publication
We’re lastly getting round to publishing this text in April 2025, so I believed including somewhat present data is perhaps useful to these contemplating signing up.
As you’ll be able to see, we have made one other $14.46 in 2025. It appears the most important profit I’ve gotten out of this program thus far is a few materials to put in writing a weblog put up about.
Dangers of the Vanguard Absolutely Paid Lending Program
To be honest, I did not precisely tackle a variety of danger to make this cash, and $52 is $52. That’ll purchase a pleasant lunch for 2 at Chick-fil-A. OK, possibly lunch for only one after our 45% marginal tax price is utilized to it. There have been some nice Bogleheads discussion board threads about these applications on the numerous brokerage companies:
The dangers had been mentioned in excruciating element. The primary ones appear to be dropping certified dividend standing (though Vanguard makes you complete for this through cash-in-lieu-of funds) and dropping SIPC safety on loaned shares. I even learn a number of tales about individuals making a number of thousand {dollars} off loaned shares. They have to be investing in one thing in addition to the everyday broadly diversified, low-cost index funds that we advocate right here at WCI. Or possibly it is simply the truth that no one needed to quick something in 2024 when the market gave the impression to be going by way of the roof. Maybe we’ll go away this system turned on for one more yr or two till we undergo a bear market and see if that modifications something.
Make Extra
Perhaps you may make extra in case you do that at a brokerage the place extra traders are shorting shares like Interactive Brokers or E-Commerce. Perhaps you may make extra in case you purchase extra unstable investments, like particular person shares. Perhaps you may make extra when markets are dropping. Nonetheless, investing in a portfolio designed to maximise your totally paid lending earnings appears folly to me. I do not assume anyone is primarily utilizing this system to achieve any kind of vital monetary objectives.
Extra data right here:
Securities Lending — Further Earnings or a Mirage?
The Backside Line
Ought to the everyday index fund investor activate the Absolutely Paid Lending Program of their Vanguard brokerage account? No. Deal with what really issues together with your funds:
- Boosting your earnings
- Growing your financial savings price
- Sticking with an affordable long-term investing plan
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What do you assume? Do you take part within the Absolutely Paid Lending program at Vanguard or elsewhere? How a lot cash have you ever been making doing it? Any damaging points?
