3 day wait for rebalancing

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Topic Author
Rosco
Posts: 82
Joined: Fri Oct 19, 2012 8:31 am

3 day wait for rebalancing

Post by Rosco »

In my perpetual ignorance, please bear with me. I have an ira with vanguard that had 6 or 7 etfs and it got out of balance in these last months. I thought I'd like to forget the whole mess so I sold (over the phone with vanguard assistance) the etf's on Monday and have to wait until Friday before I can put the whole mess into a LifeStrategy fund. Is this normal... Should I have done it differently to avoid being out of the market for that week or is this par for the course? Kinda was hoping for a mild economic collapse until Friday but oh well. S
scone
Posts: 1457
Joined: Wed Jul 11, 2012 4:46 pm

Re: 3 day wait for rebalancing

Post by scone »

We hold our 401k and Roths at Fidelity, and it does take some time for the accounts to clear. I have some money sitting there "pending" and it's been days now. I wonder if Fidelity or their agents make money off the float? Or are small retail investors last in line to get everything executed and finalized? Or some other reason? I really don't know. In any case, there's not much I can do about it, and no huge worry as the cash account is FDIC insured.

As an aside, I suppose this is an argument for keeping my 5% rebalancing band, as I have less cash sitting out of the market than I would with a larger band. OTOH, a larger band might capture momentum better. It would be interesting to torture the data to see which method was better.
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore
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telemark
Posts: 3389
Joined: Sat Aug 11, 2012 6:35 am

Re: 3 day wait for rebalancing

Post by telemark »

If there's an ACH transfer involved then three business days is pretty normal. I think they use carrier pigeons or something.
gt4715b
Posts: 534
Joined: Mon Jun 11, 2007 10:29 am

Re: 3 day wait for rebalancing

Post by gt4715b »

They're waiting until the ETF trades settle, i.e, you actually get the money from the person you sold your ETFs to. This takes 3 business days. This is normal.
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runner9
Posts: 2260
Joined: Tue Aug 02, 2011 8:49 pm
Location: Ohio

Re: 3 day wait for rebalancing

Post by runner9 »

Another pro for mutual funds over ETFs, you can sell and by the same end of day.
Jack
Posts: 3254
Joined: Tue Feb 27, 2007 1:24 am

Re: 3 day wait for rebalancing

Post by Jack »

This is a quirk of Vanguard because Vanguard Brokerage and Vanguard mutual fund company are separate business entities with separate accounting. Vanguard Brokerage cannot transfer the funds to Vanguard mutual fund company until the three-day settlement of the ETF sale. This three day settlement is an SEC rule.

If you had decided to purchase more ETFs, you could have done it the same day, because both the sale and the purchase would have occurred within the same Vanguard brokerage. But since you decided to buy traditional mutual funds from the separate Vanguard mutual fund company, you have to wait for funds to transfer between companies.

You don't have this problem in other firms like Fidelity, because Fidelity is just one big brokerage that also happens to sell mutual funds. It does not have a separate brokerage and mutual fund company. For Fidelity, there is no transfer between companies.
Topic Author
Rosco
Posts: 82
Joined: Fri Oct 19, 2012 8:31 am

Re: 3 day wait for rebalancing

Post by Rosco »

scone above says that he has the problem at fidelity also. annoying. s
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momar
Posts: 1359
Joined: Sun Nov 13, 2011 11:51 am

Re: 3 day wait for rebalancing

Post by momar »

runner9 wrote:Another pro for mutual funds over ETFs, you can sell and by the same end of day.
If he stuck with ETFs, he could have bought the replacement immediately.
"Index funds have a place in your portfolio, but you'll never beat the index with them." - Words of wisdom from a Fidelity rep
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