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Investing strategies

The role of your settlement fund

Your settlement fund paves the way for buying and selling brokerage products.
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Settlement fund

Points to know

  • You should consider keeping some money in your settlement fund so you're ready to trade.
  • You can use your settlement fund to buy mutual funds and ETFs (exchange-traded funds) from Vanguard and other companies, as well as stocks, CDs (certificates of deposit), and bonds.

Stock

A security that represents part ownership, or equity, in a corporation. Each share of stock is a proportional stake in the corporation's assets and profits, some of which could be paid out as dividends.

Broker/broker-dealer

A licensed individual or firm that executes orders to buy or sell mutual funds or other securities for the public and usually gets a commission for doing so.

Settlement fund

This holds the money you use to buy securities, as well as the proceeds whenever you sell.

Settlement date

The date by which a broker must receive either cash or securities to satisfy the terms of a security transaction.

Dividend

The distribution of the interest or income produced by a mutual fund's holdings to the fund's shareholders, or a payment of cash or stock from a company's earnings to each stockholder. Dividends can be distributed monthly, quarterly, semiannually, or annually.

Securities

Stocks, bonds, money market instruments, and other investment vehicles.

How to use your settlement fund

When you buy or sell stocks, and other securities, your transactions go through a broker, like Vanguard Brokerage. Money to pay for your purchases is taken from your settlement fund and proceeds from your sales are received in your settlement fund.
 

When you buy

Plan ahead. While you're not required to have a balance in your settlement fund at all times, keeping some money in the settlement fund has these advantages:

  • You're more likely to have money to pay for purchases on the settlement date, when your account will be debited for the amount you owe.
  • You'll reduce the risk of your trades being rejected, because you'll have money available when you're interested in placing a trade.
  • You'll likely avoid restrictions being placed on your account as a result of committing a trading violation.

See how you can avoid trading violations & penalties
 

When you sell

Proceeds from the sale of securities transfer to your settlement fund.

Share

A single unit of ownership in a mutual fund or an exchange-traded fund (ETF) or, for stocks, a corporation.

Funds available to trade

The amount of money available to purchase securities in your brokerage account. It includes your settlement fund balance, pending credits or debits, and margin cash available (if approved for margin).

The figure is adjusted for open orders to purchase stocks or ETFs at the market or to purchase Vanguard mutual funds or mutual funds from other companies. Money recently added to your account by check or electronic bank transfer may not be available to purchase certain securities or to withdraw from the account.

Money market fund

A mutual fund that seeks income and liquidity by investing in very short-term investments. Money market funds are suitable for the cash reserves portion of a portfolio or for holding funds that are needed soon.

How your settlement fund works

Now that you understand how to use your settlement fund, let's break it down a little further:

  • When you buy securities, you're paying for them with money in your settlement fund.
  • When you sell securities, the proceeds from the sale go directly into your settlement fund on the settlement date.

But what if you recently added money to your settlement fund by bank transfer or check?

In this case, the money may not be immediately available to pay for brokerage transactions. That's because funds received by electronic bank transfer or check are subject to a 7-calendar-day hold.

So it's wise to check your funds available to trade before you transact.

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Get an FDIC insured option for your settlement fund with Vanguard Cash Deposit

Explore this option

For more information about Vanguard mutual funds and ETFs, visit Vanguard mutual fund prospectuses or Vanguard ETF prospectuses to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.

All investing is subject to risk, including the possible loss of the money you invest.

Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling. 

Vanguard's advice services are provided by Vanguard Advisers, Inc. ("VAI"), a registered investment advisor, or by Vanguard National Trust Company ("VNTC"), a federally chartered, limited-purpose trust company.

The services provided to clients will vary based upon the service selected, including management, fees, eligibility, and access to an advisor. Find VAI's Form CRS and each program's advisory brochure here for an overview.

VAI and VNTC are subsidiaries of The Vanguard Group, Inc., and affiliates of Vanguard Marketing Corporation. Neither VAI, VNTC, nor its affiliates guarantee profits or protection from losses.