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Follower ○○

Warning, Vanguard Rant!

I have been a Vanguard customer for nearly 30 years, happily. Last week, when returning from an extended rv vacation, I sold a large position in TQQQ (3X leveraged QQQ fund), due to concern about the tariffs with Mexico, and my inability to respond to the market due to lack of good internet/cell phone coverage, which I thought was prudent. I tried to buy it back today right before the close, and Morningstar wouldn't allow it. I tried several times, to no avail, and called them. They said they don't allow 'leveraged' funds purchases after the first of the year. I pointed out that it is up nearly 52% ytd, but they didn't care. For the last 3 years that I have been retired, I have paid about 85% of our living expenses, using about 40% of our assets invested in leveraged funds, the balance comes from my wife's SS income. During each year of my using leveraged funds, at least at some point during the year, we have been at an all time high with our total invest-able assets.  I spend an incredible amount of time watching the stock market on line, and I love it. I'm a retired software developer, and watching the market during the day, is somewhat similar to watching large volumes of data process that I did during my working career.

I have come to the sad decision that I will have to leave Vanguard with my personal trading account. I spoke with ProShares, and they told me that Vanguard is the only company denying leveraged funds that they know of.

Vanguard Rant out!

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19 Replies
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Frequent Contributor

Re: Warning, Vanguard Rant!

If you don't like one broker's rules/constraints, find another - try Fido, Schwab, TD Ameritrade.

YBB
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Frequent Contributor

Re: Warning, Vanguard Rant!

In January, 2019, Vanguard made the following announcement:

"On January 22, 2019, Vanguard stopped accepting purchases in leveraged or inverse mutual funds, ETFs (exchange-traded funds), or ETNs (exchange-traded notes). If you already own these investments, you can continue to hold them or choose to sell them. You'll simply pay the same commission you would to trade individual stocks. You can also transfer them in kind from or to other institutions."

Bob

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Contributor ○

Re: Warning, Vanguard Rant!

Just to be clear it is Vanguard that has its' restrictions, not Morningstar  as I read.

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Frequent Contributor

Re: Warning, Vanguard Rant!


@Fishingrod wrote:

Just to be clear it is Vanguard that has its' restrictions, not Morningstar  as I read.


Yea, typo. It happens when ranting. (-:)

YBB
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Frequent Contributor

Re: Warning, Vanguard Rant!

Old news, VG is a pain if you are looking to do a bit more.  I had a VG account and closed it with 1-2 years more than 20 years ago.  The reason was simple: I enter a buy for their index fund at 9 AM and wanted to cancel at 10 AM, I couldn't.  I talked to a rep and he said it's true. The week after I transferred all my money to Fidelity and never looked back. I believe it's still the same now.  Over the years I had accounts in several other brokers and never encounter the same stupidity.

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Participant ○○○

Re: Warning, Vanguard Rant!

VG is just assuming that if they leave those options on the account, some, maybe many, of their investors will get themselves into hot water.  Paternalistic - you betcha.  

As others have pointed out, if you are a sophisticated investor, there are other brokerages that will do a better job for you.  Of course, 95% of investors do not fall into the sophisticated category, so that is Vanguard's target, and they are doing a good job serving them.  I remain a customer as I like and am invested in many of their mutual funds e.g. Tax managed cap app, HY muni, W and W, VDIGX, Primecap, Global minimum volatility.    

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Explorer ○

Re: Warning, Vanguard Rant!

I like Vanguard's restrictions.  It keeps the majority of investors, myself included, from doing something stupid.  I remember when Bitcoin was all the rage when it was going higher and higher.  Everyone was talking about it, and I wasn't sure if I should invest.  I read Vanguard's position, and they recommended against it.  I never invested, and I'm glad because it collapsed a few months later.  Now, that's not to say that Bitcoin or the concept behind it is a good or bad investment going forward, but it kept me out of trouble.  I also like Vanguard's restrictions on trading mutual funds, which is why I use their mutual funds and not their ETFs, which can be traded like a stock.  The bottom line is, Vanguard is conservative, and likes to keep trading at a minimum.  I've found that the less trading I do, the more money I make, so it fits my style.

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Frequent Contributor

Re: Warning, Vanguard Rant!

"I've found that the less trading I do, the more money I make, so it fits my style."

Same here.

Bob

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Re: Warning, Vanguard Rant!


@GLI2019 wrote:

In January, 2019, Vanguard made the following announcement:

"On January 22, 2019, Vanguard stopped accepting purchases in leveraged or inverse mutual funds, ETFs (exchange-traded funds), or ETNs (exchange-traded notes). If you already own these investments, you can continue to hold them or choose to sell them. You'll simply pay the same commission you would to trade individual stocks. You can also transfer them in kind from or to other institutions."

Bob


+1. I also remember this. although I do not trade in leveraged anything. Vanguard does not even display the some of the small stock symbols.

As Yogi said, it is a good idea to move somewhere else.

I also want to add another thing related to Vanguard. Last week, I added a bank account to Venmo. Venmo checked out everything using the usual micro deposits in two days. I transferred cash using Venmo to my son on the second day.

I wanted to add the Chase account in Chicago to Vanguard. I started the process last Wednesday. Vanguard also goes through the same micro deposits using the old method. So, it would take 5 business days to complete the process. So, it is still under verification process and pending. I am still waiting for the process to complete.

Edit: I had to correct because I own an ETF which has 25 BDCs, which are leveraged. Besides, I also own two or three CEFs which may be are leveraged.

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Contributor ○○○

Re: Warning, Vanguard Rant!

 

Hi,

It is prudent for Vanguard to prohibit the purchase of leveraged funds.
Most people shouldn't be using these speculative funds.
An uninformed customer could potentially get into a lot of trouble using leveraged funds.
I believe Vanguard is doing this to protect its customers.

 

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Follower ○○

Re: Warning, Vanguard Rant!

I plead guilty as charged to typing "Morningstar" when meaning "Vanguard". I have been using Morningstar since they used to sell cd's with all the stats on company performance, and have benefited greatly from their information, forums, and articles.

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Frequent Contributor

Re: Warning, Vanguard Rant!

You didn’t ask, but if you’re using a 3x QQQ fund for 40% out of 85% of your living expenses in retirement, I’d say you are taking too much risk. Of course, we don’t know your full situation - maybe you own a few villas on the French Riviera, have a few tons of gold stored in Fort Knox or bought a couple hundred shares of BRK when it IPO’d in 1964.

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Frequent Contributor

Re: Warning, Vanguard Rant!


@rila3400 wrote:

 

Hi,

It is prudent for Vanguard to prohibit the purchase of leveraged funds.
Most people shouldn't be using these speculative funds.
An uninformed customer could potentially get into a lot of trouble using leveraged funds.
I believe Vanguard is doing this to protect its customers.

 


It isn't up to Vanguard to 'protect' its customers.  Whenever I discovered this restriction in January, I wrote emails, asking my Vanguard Flagship representative, whom I have had for 20 years, if they would consider allowing me to 'opt out' of this restriction.  75% of my portfolio is in leveraged products and I'm considering moving my individual stock holdings into a leveraged PIMCO CEF, PDI as well.  I got back a form letter, basically mimicking their press release.  I hold the 2X leveraged ETNs for the double income they each produce, and I wanted to 'reinvest' that yield back into the notes.

The day after I received that reply, I started opening up corresponding accounts with Firstrade and have never looked back.  I do one account at a time and make sure it is fully set up by the transfer of all account assets from Vanguard to Firstrade (without going through the hassle of converting to cash first.)  This way, I keep earning the monthly distributions, regardless of where the notes are held at that point in time.

For those of you familiar with Sharpe's Capital Asset Pricing Model (CAPM) the use of leverage increases the risk adjusted return of an unleveraged portfolio.  Leverage turns out to be a tangent line to the efficient frontier drawn between the two assets chosen for a portfolio (Mean Variance Optimization draws the efficient frontier.  The most efficient point on that frontier is the maximum Sharpe Ratio.)  The tangent line will always be above the frontier, meaning that the same expected return, using leverage, will come at a lower expected risk (volatility).  You can see this by examination of, say, PDI versus an unleveraged bond fund.

Going the other way (using risk free cash in a portfolio) works the same way going down from the max Sharpe Ratio point on the frontier.  According to CAPM theory.  As Ibbotson recently said: "The CAPM says that everybody should hold the market portfolio and lever it up or down."  Putting a Price on Popularity

My point is that there was absolutely no reason NOT to allow sophisticated investors to use leveraged products in a Vanguard portfolio.  One size doesn't fit all.

ElLobo, de la casa de la toro caca grande
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Frequent Contributor

Re: Warning, Vanguard Rant!

By the way, even after this warning, I have bought and sold several CEFs that are leveraged. I added 1 k to an ETF (BIZD) of BDCs that are leveraged on May 31. I keep buying some leveraged stuff even now - almost every month. So, I am not sure what Vanguard is controlling?

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Explorer ○○

Re: Warning, Vanguard Rant!


So is Vanguard just focused on putting restrictions in the ETF space?  It sounds like CEFs using leverage appear to be ok to buy via Vanguard Brokerage?  

 

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Frequent Contributor

Re: Warning, Vanguard Rant!

I am not sure what is the complaint is about. The CEF leverage isn't anywhere close to wild 2x, 3x leveraged ETFs/ETNs.

I recall around the financial crisis when things were put quite arbitrarily by brokerages on normal/low/high/no margin lists almost instantaneously. Private brokerages do things to control their own risk or reputational exposures. So, the bottom-line remains, if you don't like VG Brokerage policies, vote with your feet, and go elsewhere. It will be an ice age in hell before VG will come around to traders' way of thinking.

YBB
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Explorer ○○

Re: Warning, Vanguard Rant!


@ElLobo wrote:

The day after I received that reply, I started opening up corresponding accounts with Firstrade and have never looked back.  I do one account at a time and make sure it is fully set up by the transfer of all account assets from Vanguard to Firstrade (without going through the hassle of converting to cash first.)  This way, I keep earning the monthly distributions, regardless of where the notes are held at that point in time.

 


Well, that's it --- Vanguard Brokerage isn't for everyone, they appeal mostly to the steady-eddie Mutual Fund investors and some ETF investors.  Vanguard also decided long ago not to serve the Financial Advisors (RIAs) --- I heard that most RIAs didn't even consider Vanguard and went to the likes of Fidelity, Schwab, etc. because VG doesn't serve their market from a customer reporting, etc. perspective that's required for RIAs to properly serve their customer base.  

I can understand why you went to Firstrade --- they've garnered some recent attention because they charge no trading/commission fees for Stocks, ETFs and Mutual Funds.  

Looks like Firstrade just recently launched their newly revamped Mobile App:
https://www.prnewswire.com/news-releases/firstrade-introduces-state-of-the-art-commission-free-tradi...

What is your thoughts so far about your Firstrade experience?  I hear the online trading web-platform is fairly basic --- but if you're not a day-trader requiring Gold-level experience then I guess it serves its purpose adequately (?)

 

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Re: Warning, Vanguard Rant!


@Kenster-man wrote:

@ElLobo wrote:

The day after I received that reply, I started opening up corresponding accounts with Firstrade and have never looked back.  I do one account at a time and make sure it is fully set up by the transfer of all account assets from Vanguard to Firstrade (without going through the hassle of converting to cash first.)  This way, I keep earning the monthly distributions, regardless of where the notes are held at that point in time.

 


Well, that's it --- Vanguard Brokerage isn't for everyone, they appeal mostly to the steady-eddie Mutual Fund investors and some ETF investors.  Vanguard also decided long ago not to serve the Financial Advisors (RIAs) --- I heard that most RIAs didn't even consider Vanguard and went to the likes of Fidelity, Schwab, etc. because VG doesn't serve their market from a customer reporting, etc. perspective that's required for RIAs to properly serve their customer base.  

I can understand why you went to Firstrade --- they've garnered some recent attention because they charge no trading/commission fees for Stocks, ETFs and Mutual Funds.  

Looks like Firstrade just recently launched their newly revamped Mobile App:
https://www.prnewswire.com/news-releases/firstrade-introduces-state-of-the-art-commission-free-tradi...

What is your thoughts so far about your Firstrade experience?  I hear the online trading web-platform is fairly basic --- but if you're not a day-trader requiring Gold-level experience then I guess it serves its purpose adequately (?)

 


I opened an account with Firstrade in Nov. 2018. I use them to buy stocks and CEFs that cost brokerage charge in Vanguard. I have not transferred my assets to Firstrade although I think about sometimes. More than 90% of my portfolio is very stagnant in VTI, VYM, and VYM. Recently, I moved about 8% to VPMCX, VCCX, and USMV. So, this part still remains in Vanguard. Besides, when I sell and buy something else, they are all free. There is no need to move these assets to Firstrade. Even many ETFs (Spider, Blackrock, and 1800 ETFs) can be bought and sold for free in Vanguard.

Having said that, I like Firstrade. However, the help is available but I get usually it through e-mail. M* research is available for free in Firstrade. I use them for screening stocks and CEFs. I have not used other online tools. Besides, I had a problem in setting up TOD document. I have not solved the problem yet. I will get to it someday. Other than that, if you use all their online tools without requiring "personal" help, you may like it. As far as "personal" help is concerned, a lot of people complain about Vanguard also.

I sent an e-mail today to Vanguard. I used to get reply the same day. Vanguard changed my rep. I have not had the reply today. I usually do not contact them. Even online help through e-mail takes time now. But, I can be patient because it is not the end of the world.

 

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Contributor ○○○

Re: Warning, Vanguard Rant!


@ElLobo wrote:

@rila3400 wrote:

 

Hi,

It is prudent for Vanguard to prohibit the purchase of leveraged funds.
Most people shouldn't be using these speculative funds.
An uninformed customer could potentially get into a lot of trouble using leveraged funds.
I believe Vanguard is doing this to protect its customers.

 


It isn't up to Vanguard to 'protect' its customers.  Whenever I discovered this restriction in January, I wrote emails, asking my Vanguard Flagship representative, whom I have had for 20 years, if they would consider allowing me to 'opt out' of this restriction.  75% of my portfolio is in leveraged products and I'm considering moving my individual stock holdings into a leveraged PIMCO CEF, PDI as well.  I got back a form letter, basically mimicking their press release.  I hold the 2X leveraged ETNs for the double income they each produce, and I wanted to 'reinvest' that yield back into the notes.

The day after I received that reply, I started opening up corresponding accounts with Firstrade and have never looked back.  I do one account at a time and make sure it is fully set up by the transfer of all account assets from Vanguard to Firstrade (without going through the hassle of converting to cash first.)  This way, I keep earning the monthly distributions, regardless of where the notes are held at that point in time.

For those of you familiar with Sharpe's Capital Asset Pricing Model (CAPM) the use of leverage increases the risk adjusted return of an unleveraged portfolio.  Leverage turns out to be a tangent line to the efficient frontier drawn between the two assets chosen for a portfolio (Mean Variance Optimization draws the efficient frontier.  The most efficient point on that frontier is the maximum Sharpe Ratio.)  The tangent line will always be above the frontier, meaning that the same expected return, using leverage, will come at a lower expected risk (volatility).  You can see this by examination of, say, PDI versus an unleveraged bond fund.

Going the other way (using risk free cash in a portfolio) works the same way going down from the max Sharpe Ratio point on the frontier.  According to CAPM theory.  As Ibbotson recently said: "The CAPM says that everybody should hold the market portfolio and lever it up or down."  Putting a Price on Popularity

My point is that there was absolutely no reason NOT to allow sophisticated investors to use leveraged products in a Vanguard portfolio.  One size doesn't fit all.


 

@ElLobo,

I can understand why you would dislike Vanguard's policy.
Reading your posts, I sense that you're a seasoned, well-informed investor.
Why should Vanguard prohibit you from purchasing leveraged funds?

Vanguard enthusiastically promotes diversification and buying/holding investments for the long-term.
The 2X/3X leveraged funds do not readily fit this model.
Vanguard also has reputational risk to consider.
I'd assume they do not want to be associated with large losses
experienced by less-skilled investors in highly-leveraged funds.

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