The Vanguard Absolutely Paid Lending Program: Ought to a WCIer Even Hassle?

In early 2024, Vanguard rolled out its “Absolutely Paid Lending Program” the place particular person traders might lend securities for brief durations of time and be paid for doing so. That is usually a great factor for traders, the place the fund lends out securities to brief sellers and others and will get compensated for it. Vanguard has estimated this boosts returns by 1-16 foundation factors per 12 months. It isn’t quite a bit, however that revenue can doubtlessly fully get rid of a few of the very low Vanguard expense ratios.

(Be aware that the Absolutely Paid Lending Program is barely completely different from the “securities lending” achieved by the Vanguard funds themselves.)

Let’s speak about whether or not collaborating in Vanguard’s Absolutely Paid Lending Program is value 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 brief sellers after which compensates you instantly for it. In anticipation of penning this submit, 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 a lot of the completely different inventory asset courses 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 12 months. As I write this submit in December 2024, let’s examine how a lot cash we made.

How A lot Cash We Made

We have been enrolled on this program for eight or 9 months in 2024, and as you may see, a lot of the loans have been simply 1-4 days. That is not lots 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’ve got quite a bit within the account does not imply lots of shares will likely be loaned out. At any fee, 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 laborious to get enthusiastic about that.

Once more, I need to emphasize this can be a massive account, most likely more cash than most WCIers retire with. If we might solely make $38 all 12 months 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 info right here:

How one can 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 assumed including somewhat present info could be useful to these contemplating signing up.

As you may see, we have made one other $14.46 in 2025. It appears the most important profit I’ve gotten out of this program up to now is a few materials to write down a weblog submit about.

Dangers of the Vanguard Absolutely Paid Lending Program

To be truthful, I did not precisely tackle lots of threat to make this cash, and $52 is $52. That’ll purchase a pleasant lunch for 2 at Chick-fil-A. OK, perhaps lunch for only one after our 45% marginal tax fee is utilized to it. There have been some nice Bogleheads discussion board threads about these packages on the numerous brokerage corporations:

The dangers have been mentioned in excruciating element. The primary ones appear to be dropping certified dividend standing (though Vanguard makes you entire for this by way of cash-in-lieu-of funds) and dropping SIPC safety on loaned shares. I even learn a couple of tales about folks making a couple 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 perhaps it is simply the truth that no person wished to brief something in 2024 when the market appeared to be going via the roof. Maybe we’ll depart this system turned on for one more 12 months or two till we undergo a bear market and see if that modifications something.

How one can Make Extra

Perhaps you may make extra should you do that at a brokerage the place extra traders are shorting shares like Interactive Brokers or E-Commerce. Perhaps you may make extra should you purchase extra risky investments, like particular person shares. Perhaps you may make extra when markets are dropping. Nonetheless, investing in a portfolio designed to maximise your absolutely paid lending revenue appears folly to me. I do not assume anyone is primarily utilizing this system to succeed in any form of important monetary objectives.

Extra info 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 revenue
• Growing your financial savings fee
• Sticking with an inexpensive long-term investing plan

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 unfavorable points?