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

By Dr. Jim Dahle, WCI Founder

In early 2024, Vanguard rolled out its “Absolutely Paid Lending Program” the place particular person buyers might lend securities for brief durations of time and be paid for doing so. That is typically a very good factor for buyers, 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 totally remove among the very low Vanguard expense ratios.

(Notice that the Absolutely Paid Lending Program is barely totally 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 quick sellers after which compensates you instantly for it. In anticipation of scripting this publish, 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 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 publish in December 2024, let’s have a look at 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 may see, a lot of the loans had been simply 1-4 days. That is not plenty 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 plenty of shares shall be loaned out. At any fee, over the course of 8-9 months, there have been seven complete loans made, and we acquired a grand complete of $37.54 in funds.

It is fairly onerous to get enthusiastic about that.

Once more, I need to emphasize this can be a massive account, most likely extra money than most WCIers retire with. If we might solely make $38 all yr doing this with a giant account, how a lot do you suppose you are going to make with a $50,000 taxable account invested in related securities? Not very a lot.

Extra data right here:

Learn how to 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 slightly present data is perhaps useful to these contemplating signing up.

As you may see, we have made one other $14.46 in 2025. It appears the largest profit I’ve gotten out of this program to date is a few materials to put in writing a weblog publish about.

Dangers of the Vanguard Absolutely Paid Lending Program

To be truthful, I did not precisely tackle plenty 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 fee is utilized to it. There have been some nice Bogleheads discussion board threads about these applications on the numerous brokerage corporations:

The dangers had been mentioned in excruciating element. The principle ones appear to be shedding certified dividend standing (though Vanguard makes you entire for this by way of cash-in-lieu-of funds) and shedding SIPC safety on loaned shares. I even learn just a few tales about individuals making just a few thousand {dollars} off loaned shares. They should be investing in one thing moreover the standard broadly diversified, low-cost index funds that we advocate right here at WCI. Or possibly it is simply the truth that no person wished to quick something in 2024 when the market gave the impression to be going via the roof. Maybe we’ll depart this system turned on for one more yr or two till we undergo a bear market and see if that modifications something.

Learn how to Make Extra

Perhaps you may make extra for those who do that at a brokerage the place extra buyers are shorting shares like Interactive Brokers or E-Commerce. Perhaps you may make extra for those who 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 absolutely paid lending earnings appears folly to me. I do not suppose anyone is primarily utilizing this system to achieve any type of vital monetary targets.

Extra data right here:

Securities Lending — Additional Earnings or a Mirage?

The Backside Line

Ought to the standard index fund investor activate the Absolutely Paid Lending Program of their Vanguard brokerage account? No. Deal with what truly issues along with your funds:

• Boosting your earnings
• Growing your financial savings fee
• Sticking with an affordable long-term investing plan

What do you suppose? 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 detrimental points?