Author Topic: Vanguard will let you buy fractional shares of ETF when reinvesting dividends  (Read 10701 times)

a1smith

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In many discussions in the forum one of the disadvantages listed for ETF's is that you can't buy fractional shares of ETF.  This is most helpful when reinvesting dividends.

I recently bought BNDX in a Vanguard brokerage account and on 5/7 received a dividend.  The full amount was reinvested which resulted in fractional shares.

So, it looks like you don't have to worry about cash laying around anymore.

ender

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Well it make sense, 1 share of that ETF is already purchasing a bunch of fractional stocks.

a1smith

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Yes, it is just another share class of the mutual fund (at Vanguard).  BNDX, VTABX (Admiral Shares), and VTIBX (Investor Shares) are all invested in the same pool of stocks.  But since ETF's are treated like stock many places only allow purchase of full shares.  From what I had heard I thought Vanguard did as well but it turned out not to be the case.

I'm guessing that Vanguard is addressing one of the reasons people didn't like ETF's.

aspiringnomad

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Schwab allows this too.

mrpercentage

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Thats awesome. Dividend investing is otherwise hard to start small. Dividends might have to wait around a long time to buy a share.

elysianfields

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I hold my HSA with HSA Bank, which I invest in no-cost ETFs via the TD Ameritrade Investment feature.

TD Ameritrade also reinvests my dividends in fractional ETFs, because I activated Dividend Reinvestment on my entire account.

Of course, when I purchase the ETFs, I must do so in round-share numbers.

forummm

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You can only get the fractional shares with dividend repurchases. When you buy more shares you have to buy whole share units. I don't know what happens if you try to sell a fractional share that you own through a non-Vanguard brokerage.

ingrownstudentloans

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When you sell a DRIP'ed ETF in TDAmeritrade that included partial shares (you can only do this if you are closing your entire position), the whole shares are sold first at whatever price you sell for and the partial shares are held to the end of the day when TDAmeritrade settles the rest of the position at the closing price.  Not sure if/how Vanguard handles this differently.

TheLazyMan

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Dealing with all those reinvested fractional shares can be a pain at tax time after you sell them.

I prefer to get my dividends in cash and use the cash to rebalance my portfolio.  I only use ETF/Broker combinations without commissions for this.

a1smith

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Dealing with all those reinvested fractional shares can be a pain at tax time after you sell them.

I prefer to get my dividends in cash and use the cash to rebalance my portfolio.  I only use ETF/Broker combinations without commissions for this.

I agree.  For me, the ETF's are in a Roth so it doesn't matter.