In early 2024, Vanguard said,A fully paid loan programIf an individual investor lends securities for a short period of time and is likely to be paid to do so. This is generally good for investors. The fund lends securities to short sellers and others to compensate for them. Vanguard returns this boost with 1-16 basis points per year.
(The fully paid lending program isSecurities lending“It was done with Vanguard’s funds themselves. )
Let’s talk about whether participating in Vanguard’s fully paid lending program is valuable to WCIER and how much money they did it.
What is a fully paid loan program?
A fully paid lending program simply allows Vanguard to lend to a short seller and compensate it directly, using the securities that are sitting in your securities account. In anticipation of writing this post, I signed my biggest account, the trust’s securities account in April 2024. It holds a relatively large number of index funds representing most of the different stock asset classes in the portfolio. In 2024, the account holds all of the following securities: . .
- VTI
- Itot
- vxus
- Ixus
- vbr
- viov
- avuv
- DFSV
- VSS
- AVDV
- vteax
- vmmfx
. . . And I allowed Vanguard to lend out as much as possible that year. Let’s see how much money we made when we were writing this post in December 2024.
How much money did you make?
We were enrolled in this program for 8 or 9 months in 2024, and as you can see, most loans were only 1-4 days. It’s not a lot of days to pay interest. Sometimes the loan was a ridiculously small shares, like just six shares on April 8th. Just because you have a lot of stocks in your account doesn’t mean you’ll be lending a lot of stocks. Anyway, seven loans were issued in total between 8 and 9 months, and I received a total of $37.54 payments.
It’s pretty hard to get excited about that.
Again, I would like to emphasize that this is a big account and perhaps more money than most WCIERS retires. If you could do this with a larger account, how much do you think you’d be running in a $50,000 taxable account invested in similar securities? Not that much.
For more information, click here:
How to get the minimum distribution (RMD) you need in Vanguard
Updated before publication
This article was finally featured in April 2025, so I thought it would be helpful for anyone considering signing up to add a little update.
As you can see, we made another $14.46 in 2025. The biggest advantage I’ve ever gained from this program is the material I write blog posts.
Vanguard’s risk is a fully paid lending program
To be fair, I didn’t take much risk to make this money, and $52 is $52. I’m going to buy a nice lunch for two at Chickfill A. Ok, maybe just one lunch after the marginal tax rate of 45% has been applied. There were some great Boglehead forum threads on these programs from various brokerage companies.
The risks were discussed in excruciating detail. The main one seems to have lost the status of eligible dividends (Vanguard will be total for this via payments from Lieu-Lieu-Lieu). I’ve read a few stories about people making thousands of dollars from stocks that have been loaned out. They have to invest in something other than the typical widely diversified, low-cost index funds that we advocate here at WCI. Or maybe it’s the fact that no one wanted to short out anything in 2024, when the market seemed to be passing through the roof. Perhaps we’ll leave the program on for another year or two until we go through the bare market and see if it changes anything.
How to make more
You can make more by doing this with more investors interactive brokers and brokers who are shortening stocks like e-Trade. You can make more by purchasing more unstable investments, like individual stocks. You can make more when the market is falling. However, investing in a portfolio designed to maximize fully paid loan income seems stupid to me. I don’t think that anyone is using this technique primarily to achieve all kinds of important financial goals.
For more information, click here:
Securities Loans – Extra income or mirage?
Conclusion
Do typical index fund investors need to turn on a fully paid lending program in their Vanguard Brokerage account? no. Focus on what’s really important to your finances:
- I will boost your income
- Increase your savings rate
- Stick to a reasonable long-term investment plan
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What do you think? Are you taking part in a fully paid loan program at Vanguard or elsewhere? How much money do you make to do it? Are there any negative issues?
