Questions about Vanguard ETFs

[hgm735]

Hello,

I tried to find the answer on the Vanguard website but am still confused - Is there any restriction on the number of times you can trade Vanguard ETFs (including buying and selling the same ETF within a day) - Any restrictions on ETFs at all?

I have approx 500k in a federal settlement money mkt acct (in addition to some savings in the bank). Was previously in VWINX as well as various stock ETFs and seriously underestimated my risk tolerance, especially concerning bonds. Add the uncertainty of today's environment, and my risk tolerance is seriously lower than I thought -- Everything feels like "this is a new situation, and all of the old rules of investing don't apply!" Plus, the market feels overvalued right now, but what do I know?

So to do something with my money and not just let it sit there, have been trading various ETFs - diversifying with stocks, bonds, and gold in equal-ish segments and selling before market close. So far, balance has increased slightly (This is due to indecision, as I have no idea what set of funds I can hold in the long run without selling impulsively - I figure if I'm extremely cautious with buying and selling ETFs in the short term and being happy with tiny increases, that this is better than doing absolutely nothing) My plan is to quit doing this entirely if I lose everything that I gained in doing it so far. (Overall feeling is that I want to "wait" until there is a correction of, say, 10%, then invest in stocks for the longer term)

BTW, I am retired. I won't need to withdraw this money for at least a year, assuming that I can keep living frugally.

What do you guys think?

 

[Sunset]

My opinion only, but you asked...

You will be fine, until suddenly you face the reality the market dropped 5% or so , while you were in the bathroom.
Then you will sell all to lock in your losses...
You will repeat the process again and again.
Day trading is one of the fastest ways to lose your money, and you are Day Trading, make no mistake about it.
Then you will cash out the remaining few dollars left, to earn 1% at the bank and watch your purchasing power get eaten alive by inflation each year.

You are exactly the type of person that needs to buy a balanced fund, like Wellington and Wellesley and a small cd-ladder, ($50,000) and then close the books and stop looking at the market.

You will lose easily over $5,000 in purchasing power in 1 year by simply keeping the $500K and savings in the bank.

 

[exnavynuke]

The best way to get $1 million day trading is to start with $2 million...

 

[panacea]

The best way to get $1 million day trading is to start with $2 million...

+1
For someone that describes himself (herself??) as having a low tolerance for risk, you're playing like you have a very high tolerance for risk. Put together a simple but diversified portfolio and rebalance quarterly. Autopilot.

 

[REWahoo]

Wow. OP, what you're telling us is you're afraid of heights so you plan on tying a rope around your neck and jumping off a cliff so you can get down sooner.

...buy a balanced fund, like Wellington and Wellesley and a small cd-ladder, ($50,000) and then close the books and stop looking at the market.

+1

 

[LOL!]

@hgm735, yes, there are restrictions, but you won't notice them until it is too late.

Right here on the Vanguard web page
https://investor.vanguard.com/investing/trading-fees-commissions
it says:

Vanguard mutual funds & ETFs (exchange-traded funds)
There are no commissions when you buy and sell low-cost Vanguard mutual funds and ETFs.
If you buy and sell the same Vanguard ETF® in a Vanguard Brokerage Account more than 25 times in a 12-month period, you may be restricted from purchasing that Vanguard ETF through your Vanguard Brokerage Account for 60 days.

If this is not an IRA, but is a taxable account, then you will have a mess reporting this on your tax returns.

There is also something called trade settlement and something else called "free riding." Here is what the SEC says about freeriding:
https://www.sec.gov/answers/freeride.htm

And the SEC has other rules about day trading which is what you have described you are doing:
https://www.sec.gov/answers/patterndaytrader.htm

I probably trade ETFs more than most people who read this forum, but I hold most positions for years and do not buy and sell in the same account on the same day.

I'll just tell it to you like I see it: What you are doing is terrible and usually leads to a disaster.

Would you mind reading some books to learn about prudent investing? If you wouldn't mind, then I can suggest some book titles.

 

[bingybear]

From the vanguard site

If you buy and sell the same Vanguard ETF® in a Vanguard Brokerage Account more than 25 times in a 12-month period, you may be restricted from purchasing that Vanguard ETF through your Vanguard Brokerage Account for 60 days.

There are some limits. Others may start charging you commissions instead of free trades

 

[Ticker]

I went to sell a vanguard etf, but accidentally bought the etf. I immediately turned around and sold all of it (within minutes) and they placed a restriction on my ability to further trade the etf. i am on double secret probation but i have no interest in purchasing the etf again (it was the health care etf) until the administration figures out what they are going to do with aca.

 

[MRG]

If you want to do this, Vanguard isn't the best place. Too many restrictions.

Now I gotta tell you, don't do it. I did play this game, made money for a little while, remember 2008? So do I, sitting on a bunch of long positions that went down daily.

If you understand the ETF and why you are buying it, those things don't change in a day. If you don't understand why you are buying it, it's financial Russian Roulette.

Read some of the "Intelligent Investor", Graham doesn't go there. Buffett also wrote about having the house appraised daily. He doesn't go there. It's smart to listen to Graham and Buffett.

 

[hgm735]

@hgm735, yes, there are restrictions, but you won't notice them until it is too late.

Right here on the Vanguard web page
https://investor.vanguard.com/investing/trading-fees-commissions
it says:


If this is not an IRA, but is a taxable account, then you will have a mess reporting this on your tax returns.

There is also something called trade settlement and something else called "free riding." Here is what the SEC says about freeriding:
https://www.sec.gov/answers/freeride.htm

And the SEC has other rules about day trading which is what you have described you are doing:
https://www.sec.gov/answers/patterndaytrader.htm

I probably trade ETFs more than most people who read this forum, but I hold most positions for years and do not buy and sell in the same account on the same day.

I'll just tell it to you like I see it: What you are doing is terrible and usually leads to a disaster.

Would you mind reading some books to learn about prudent investing? If you wouldn't mind, then I can suggest some book titles.

Sure, that would be great! It is a taxable account, unfortunately. In what way would it create a problem on my tax returns? I do have a professional preparer. Would it just change the amount I owe on short term capital gains or is there some other tax problem I'm not aware of?

 

[hgm735]

Thanks for the feedback, everyone, it is greatly appreciated! Had a hunch day trading was a bad move, and I'm incredibly thankful for getting this feedback before it is too late.

@Sunset, that was exactly what probably would have happened. Only a few weeks into it, and it is intoxicating and I probably would have chased my losses.

With this in mind, here is what I'm thinking of doing long-term instead:

25% VWINX
25% VWELX
25% SPDR Gold Trust (ETF)
25% CDs

Or alternately, tempted to put some in sectors that seem "promising" based on the current environment with the immigration ban issue, trade wars, etc. Would this be a bad course of action, or is the above allocation better? (or is the GLD % too high perhaps? )

 

[samclem]

With this in mind, here is what I'm thinking of doing long-term instead:

25% VWINX
25% VWELX
25% SPDR Gold Trust (ETF)
25% CDs

Or alternately, tempted to put some in sectors that seem "promising" based on the current environment with the immigration ban issue, trade wars, etc. Would this be a bad course of action, or is the above allocation better? (or is the GLD % too high perhaps? )

I like your first course of action rather than the second idea. Whatever information exists about trade wars, immigration, etc is already known to everyone and already priced into stocks. Don't be a speculator, this money is important to you, it's not casino fodder.

25% gold is more than I would want to hold. I'd rather own companies that make things, produce dividends, etc.

 

[Sunset]

.......
With this in mind, here is what I'm thinking of doing long-term instead:

25% VWINX
25% VWELX
25% SPDR Gold Trust (ETF)
25% CDs

Or alternately, tempted to put some in sectors that seem "promising" based on the current environment with the immigration ban issue, trade wars, etc. Would this be a bad course of action, or is the above allocation better? (or is the GLD % too high perhaps? )

I like your long term view, without the chasing of political policies that can change day to day.
I would have quite a bit less in gold (I don't own any unless indirectly through VTI).
My view would be:

35% VWINX
35% VWELX
10% SPDR Gold Trust (ETF)
5% CDs of 1 year duration
15% CDs of 5 year duration but make it a bunch of 5 year cds so you can cash out one if needed, leaving the rest alone, (but at a place like ALLY that imposes only 6 month penalty when cashed early)

 

[growerVon]

Hi hgm735, this is a starting page on the Bogleheads wiki that you may find useful: https://www.bogleheads.org/wiki/Bogleheads®_investment_philosophy

"Bogleheads" is a reference to fans of Vanguard founder John Bogle's perspective on index investing. A good book to check-out is "The Boglehead's Guide to Investing."

 

[FireBug]

My opinion only, but you asked...

You will be fine, until suddenly you face the reality the market dropped 5% or so , while you were in the bathroom.
Then you will sell all to lock in your losses...
You will repeat the process again and again.
Day trading is one of the fastest ways to lose your money, and you are Day Trading, make no mistake about it.
Then you will cash out the remaining few dollars left, to earn 1% at the bank and watch your purchasing power get eaten alive by inflation each year.

You are exactly the type of person that needs to buy a balanced fund, like Wellington and Wellesley and a small cd-ladder, ($50,000) and then close the books and stop looking at the market.

You will lose easily over $5,000 in purchasing power in 1 year by simply keeping the $500K and savings in the bank.

+1

 

[LOL!]

Sure, that would be great! It is a taxable account, unfortunately. In what way would it create a problem on my tax returns? I do have a professional preparer. Would it just change the amount I owe on short term capital gains or is there some other tax problem I'm not aware of?

Your tax preparer is going to love you. Why not ask them about day trading?

As for books to read:
Here is good list of books:
https://www.bogleheads.org/RecommendedReading.php

I highly recommend the books by Swedroe and Bernstein.

25% VWINX
25% VWELX
25% SPDR Gold Trust (ETF)
25% CDs

These investment choices are terribly tax inefficient and a good way to pay lots of unnecessary taxes to the IRS. I suggest you take some time (maybe 2 or 3 months) and start reading about asset allocation, asset location, investing, and taxes. I will also say that having a tax preparer can be unhelpful because you don't see how your investments are killing you on taxes. One can create outstanding portfolios that don't get their gains taken away by taxes, so that is something that you should learn about.

Here is a quiz to help set this up for you:

Which would you rather invest in?
a) investment returns 10% a year before taxes, but taxes are 40% of that return, or
b) investment returns 7.5% a year before taxes, but taxes are 0.5% of that return.

 

[meierlde]

Sure, that would be great! It is a taxable account, unfortunately. In what way would it create a problem on my tax returns? I do have a professional preparer. Would it just change the amount I owe on short term capital gains or is there some other tax problem I'm not aware of?

Unless you can download all your transactions into the tax software you would have lots and lots of transactions to enter (all be it the brokerage would tell you about gain or loss because of the IRS rules)