Executive Summary: Will you miss out on dividends if you sell a bond fund during the month? No. You can sell any time you like, and be confident you’ll get the income you earned.
In this article, I’ll show you the two ways Vanguard ensures this outcome: Daily-accrual funds pay pro-rated dividends after mid-month sales. Monthly-declaration funds reflect accumulated interest in their net asset value, so selling mid-month yields a higher price but no separate dividend.
As capital gain season approaches, it turns out I’m not the only Vanguard investor who has distributions on my mind. From the emails I’ve received, you do as well.
So, today, I will look at Vanguard’s bond mutual funds (and ETFs) and their regular monthly distributions. In particular, I’m going to try and answer what is becoming a common IVA reader question:
If I’m selling a bond fund, is it best to wait until the end of the month? I don’t want to miss the dividends.
Great question! And one that requires a somewhat complicated response.
The short answer is that it doesn't matter when you sell a bond fund during the month; you won't "miss out" on any dividends.
If you just want “the answer,” well, there you have it, and you can stop reading—no hard feelings. But if you’d like to understand the mechanics of how Vanguard’s bond funds ensure that you don’t miss out on the interest you deserve, read on.
To explain why you can sell a bond fund at any time and still earn your legitimate share of dividends, you must first understand that not all Vanguard bond funds operate the same way.