Frequent trading policy

''Important: this is a summary description of a Vanguard policy. It may not be complete, up to date, or interpreted accurately. Do not act on this description without confirming it yourself with Vanguard, first by reading the policy, currently posted on this Web page (log-in required); second, by calling Vanguard to check. The policy is also spelled out in the Prospectus for every Vanguard fund.''

Vanguard's frequent trading policy

Most or all mutual funds have policies that restrict frequent trading, but the details vary from company to company.

Forum visitors often ask about the policy, particularly if they have just sold fund shares and have noticed that their online account page is now showing the fund with a mark:


 * §This fund account is restricted according to frequent-trading policy guidelines.

Important points:


 * "If you sell or exchange shares of a Vanguard fund, you will not be permitted to buy or exchange back into the same fund, in the same account, within 60 calendar days." The restriction only applies when you first sell, then buy. You can buy on one day and sell immediately on the next day.

If, for some reason, you wish to buy back into a fund after selling it, you do not need to wait 60 days. There are two easy ways to do it. They are clearly spelled out in Vanguard's policy. Both introduce a short delay into the process of placing the order, and one might surmise that such a delay is enough to discourage the investors who are the target of the frequent trading policy.


 * Send the order in by mail. "this rule does not apply to: ... Transaction requests submitted by mail to Vanguard by shareholders who hold their accounts directly with us. Please note that transaction requests submitted by fax or wire are subject to the policy." Similarly, if you sold by mail, you need not wait 60 days to buy back online.


 * Set up a "one-shot" automatic purchase or exchange. "this rule does not apply to: ... Transactions made through Vanguard’s Automatic Investment Plan, Automatic Exchange Service ... Automatic Withdrawal Plan." Accounts held at Vanguard have a number of automatic options: automatic investment, automatic withdrawal, and automatic exchange. You set them up under "account profile." These account features are normally used for automatically recurring transactions, e.g. "exchange $500 from VTSMX (Total Stock Market Index Fund) into VBMFX (Total Bond Market Index Fund) on the 4th of every month," but you can set up starting and ending dates that result in only a single transaction occurring. The system does not let you schedule an automatic transaction for the next day, so this introduces a day or two delay before the transaction completes.


 * There are no frequent trading limitations on ETFs.


 * You should call Vanguard and talk to a representative if you have any questions about the policy. Vanguard reps get asked questions like this all the time. They are not going to chide you just for asking.

Setting up a one-shot automatic transfer
Important: this describes an experiment performed on Vanguard's website Nov. 1, 2010 to confirm that the website allows you to specify "one-shot" automatic transfers. It is an accurate description of how the website behaved, and the behavior does not appear to violate Vanguard's statement of its frequent trading policy. The author of this section has performed such transfers without problem, and has discussed them with Vanguard reps prior to doing them without their raising any objections. However, if you have any concerns about whether Vanguard intends to have the website work in this way, or whether it is an unintended "loophole" or computer bug, ask Vanguard before trying it.

Log in to your Vanguard account, select Account Profile, then Automatic Exchanges. Select the fund you want to exchange out of (i.e. sell). Press continue. Select the account you want to exchange into (i.e. buy). Press continue. Enter the dollar amount of the transfer, "monthly" as the frequency. Click on the calendar icon next to the start date and select the next open available date, usually the next business day. Click on the calendar icon next to the stop date and select the day immediately following the start date. For example, on Nov 1st:



Press "continue." On the "review your schedule" screen, carefully review the exchange dates. The calendar should show exactly one exchange, marked with an "E."



(If it shows more than one, press "back" and tinker with your settings until only transfer is shown--or give up and place the order by mail). Press "continue" and complete the order. Note that the exchange occurs end of the next business day, i.e. a day later than an order you place directly in the usual way.