2 month, 2% rule

am traveling overseas so looking for a general idea

when a fund (vanguard, fidelity) has a rule to discourage short term trades in a fund, something similar to "shares held less than 2 months are charged 20 dollars per

1000 (2%)", does that mean literally to not initiate a share exchange until the 2 months is up or can one initiate the exchange the day before since no exchanges are processed same day?

literal example:

04/14/2007 (Saturday) purchase 06/14/2007 (Monday) is the 1st eligible day, but does that mean the request can be submitted online 06/12/2007 Saturday ?

You should probably check with your fund company about the specific rules.

Here's another question to ask them. Suppose you buy 1,000 shares and hold them for three months. Then you buy 100 shares, and the next day you sell

200 shares. Are you charged for short-term trading of those 100 shares you bought, or do they take the view that the shares you're selling are the ones you bought three months ago?

This happens when I rebalance Vanguard accounts inside my 401k. NO short term charges apply. 2X a month I buy VFINX, VEXPX, VEXMX, VWNFX, VTRIX (and RYTFX). On June 1 I sold 1% of each as part of a rebalance, and no short term trading fees applied.

Check with your plan, but I think the short answer is they use FIFO.

when you write "sold", do you really mean "exchanged" ?

sold for a new position in total market bond index. Exchanged/sold... what would difference be?

But are you prevented from purchasing new shares in those funds for a period of time?

Elizabeth Richardson

In general, when you sell a Vanguard fund, they prevent you from buying new shares in that fund account online or by phone for 60 days. However, you can still buy new shares via US Mail during that period.

quite a difference, not just semantics.

in vanguard parlance, sold means you are taking a cash position and with an IRA or 401k plan account type, expose yourself (and they warn you before committing the transaction) to IRS penalties & fees

exchange means that you are moving from one fund class to another, within your IRA or 401k plan account

my guess is you did not sell, you exchanged

in fact, you would have had to select the "exchange my fund" button/link as opposed to the "sell my fund" link

I purchase them every month with regular contributions and no fees have been assessed.

I did not sell whole position, maybe that makes a difference?